Despite the overall funding decline, a significant portion of investments was directed towards climate tech, which accounted for 45% of all startup funding in Africa this year. Experts offer more insights.

Fintech, while second in total amount raised, had the most startups securing $1 million or more during the period. However, female-founded and female-led startups continued to receive minimal funding, with 85% going to ventures without a female founder and 92% to companies led by male CEOs.

Venture capital (VC) investments in Africa have hit a four-year low, with startups raising only $780 million in the first half of the year, according to research firm Africa: The Big Deal.

This figure represents a -31% drop compared to the second half of 2023 and a -57% decline from the first half of 2023, taking seasonality into account.

Dotun Olowoporoku, Managing Partner of pan-African seed stage fund Ventures Platform, tells FORBES AFRICA: “The recent drop is not entirely out of sync with the global trend in the VC ‘funding winter’. However, there’s hope for improvement as several VC funds have recently been closed, providing significant capital reserves, or ‘dry powder’, specifically for early and growth-stage startups in Africa.”

Two-thirds of the total funding was equity, and one-third was debt — a notable increase from the 17% average debt share since 2019. The bulk of investments, four out of every five dollars, flowed to startups in Africa’s ‘Big Four’ — Nigeria, South Africa, Kenya, and Egypt — with Kenya alone accounting for one-third of the total funding.

To enhance tech funding in other African countries, Olowoporoku identifies “seven main factors needed to work in sync to enable growth in the tech ecosystem and, by extension, tech funding”.

“These factors include the availability of seed risk capital, outsized entrepreneurial ambition, high-capacity technical talent pool, a large and expanding market, a sizeable number of curious early adopters, an enabling and responsive regulatory environment, and long-term stable political conditions.

“While the ‘Big Four’ have benefited from some of these factors naturally, but deliberate efforts by ecosystem builders have been essential in integrating these elements to create structural advantages. Other African nations need to enable their ecosystem builders to synchronize these factors and overcome obstacles to bolster their tech funding lands,” he says.

The transport and logistics sector led the way, securing 28% of the funding, influenced by major deals involving companies like Moove and Spiro. Fintech, while second in total amount raised, had the most startups securing $1 million or more during the period.

However, female-founded and female-led startups continued to receive minimal funding, with 85% going to ventures without a female founder and 92% to companies led by male CEOs.

Kristin Wilson, Managing Partner of venture capital firm Innovate Africa Fund, observes a noticeable shift in investment strategies. “In theory, it does mean that investors are becoming more selective, focusing on startups with robust business models and clear paths to profitability. In practice, we’ve seen a lot of regional diversification being explored to uncover untapped opportunities beyond traditional tech hubs like Nigeria, Kenya, and South Africa,” she tells FORBES AFRICA.

Wilson highlights an intensified emphasis on due diligence, which she hopes indicates a move towards sustainable, scalable solutions, particularly in sectors like fintech and climate tech.

However, she also expects a wave of consolidation within the tech ecosystem. “The funding crunch forces weaker startups to concede to acquisition offers from stronger startups. Investors should expect slower growth as startups navigate limited funding options, take more cautious approaches to scaling, and focus on core operations to conserve cash.”

For entrepreneurs seeking funding in this tight market, Wilson advises focusing on business fundamentals and building internal alignment. “Entrepreneurs should strengthen their revenue models and ensure clarity for boards, investors, and teams. Building internal stakeholder alignment increases the likelihood of maintaining sustainable operations that prioritize efficiency,” she explains.

Wilson encourages founders to build strong networks and leverage mentorship opportunities. “Leveraging the time away from chasing unproductive investment conversations allows them to gain valuable insights and quickly identify opportunities that they can capitalize on when capital becomes more available.”

 

Forbes Africa

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