African startups’ fundraising trends have reverted to what we might call pre-COVID norms. In a nutshell: Startups on the continent raised less money in the third quarter of 2023 than they have since the end of 2020, according to The Big Deal.
The continent’s startups are not alone in their fundraising struggles. Canadian startups have been fighting to raise money, as have companies in India and the rest of the world.
But there’s an interesting trend here: While it’s true that venture capitalists are holding on to their checkbooks around the world, it appears not every region is fighting equally hard. Mature venture markets like the United States and Europe are seeing less total venture investment, yes, but they are still far from reaching the kind of decline in funding that would make us worry if there’s enough capital in the market to fund a material sector.
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This morning, we’re exploring Q3 2023 venture capital data from Africa, considering both investments and exits, and we’ll close with a look at the bright spots in the collected figures. The resulting picture is far from encouraging, but there are always green shoots to highlight.
Funding dries up in the heat
African startups raised $590 million across 175 deals in the third quarter, per Briter Bridges. According to The Big Deal, that figure was lower, around $500 million, but the firm noted that this number also includes debt and grants in addition to equity fundraising.
According to calculations by The Big Deal, African startups raised about $300 in equity in the third quarter, which makes it the slowest quarter for venture investment since late 2020.
But even though equity funding in the third quarter was only about half of what startups in Africa raised in Q1, equity deals worth $1 million or more ticked up to 42 from 40 in the second quarter. In a barrage of negative datapoints, glimmers of light stand out.
Turning to acquisitions, Briter counted nine deals in the third quarter, bringing the year’s total to 25, which makes it the second-best quarter of the year thus far. Still, The Big Deal said that there “weren’t any notable exits announced on the continent” in the third quarter, which indicates that while deal volume ticked up, the overall exit climate may not have improved a lot.
No matter which data source you prefer, African venture capital totals are in decline and exit volume is not impressive enough to augur a return to prior fundraising form in the near future.
There’s less money, but more startups got it
A key trend that drove Q3 2023 venture numbers down in Africa was the lack of mega-deals (transactions worth $100 million or more), per The Big Deal. Briter reported similar data, noting that early-stage rounds with check sizes of less than $250,000 accounted for the majority of deals, while there were 29% fewer deals that involved checks between $10 million and $99 million compared to the same period in the previous year.
The five startups that received the most funding last quarter were Spiro, Wetility, Moove, Nuru and LemFi. There’s a bit of confusion about how much Spiro raised: Some media outlets reported a “$63 million financing,” but Briter told us that some sources peg the deal at worth more than $120 million. That would make Spiro, which calls itself “the #1 electric motorcycle, bikes & scooter manufacturer in Benin, Togo & Rwanda,” the company to raise the most amount of money in the quarter in Africa.
Regardless of the amount, it is interesting to see that the company leading the ranks is not a fintech startup. Fintech startups usually attract the lion’s share of Africa’s VC funding, and foreign VC interest for African startups was heavily focused on fintech during the boom.
As in other emerging markets, fintech’s predominance is only indicative of the fact that Africa has more financial problems that need addressing, and consequently, startups to address them. So it makes sense that fintech startups raised the most funding in the third quarter, closely followed by those in the logistics and energy sectors.
The Big Deal also pointed out that funding was spread across more geographies than usual: Both of our data sources concur that the “big four” countries (Nigeria, South Africa, Kenya and Egypt) had a lower share of funding than average in Q3.
However, it doesn’t seem like Egypt will be on the list for very long if the next few quarters look anything like Q3 2023. “Other than saying that Egypt is not having the best time from a macroeconomic perspective, which may affect investor’s willingness to deploy capital, I don’t feel strongly about the country’s decline,” Briter Bridges’ founder, Dario Giuliani, told TechCrunch+. We will probably have to wait for full-year numbers to know where things are heading — the country had a stellar Q1 after all, per The Big Deal, but the Israel-Hamas war is likely to make things worse.
Nigeria, in contrast, had better funding tallies in the second and third quarters of this year than in Q4 2022 and Q1 2023. Finally, an encouraging data point, but luckily it’s not the only one.
Not all is as it seems
Giuliani helped us by shedding light on some of the nuance involved with angel-sized deals on the continent: “The accelerator/venture builder/early fund generation that mushroomed in the past few years tends to invest and announce in bulk.” Analyzing smaller deals on a quarterly basis, then, might not be that relevant.
Giuliani also cited anecdotal evidence that there is still interest in seed-stage startups. “I have met lots of investors who are bullish at [the] early stage given the slowdown of growth capital, so I would like to see the trend in the longer run.”
Recent TechCrunch coverage also confirms that early-stage startups have been almost regularly announcing fresh rounds this quarter — South Africa’s Stitch, for example. Even more importantly, there’s some new funding available, and not just for fintech: Japan’s Sony, for instance, recently earmarked $10 million for a new program that will invest in African early-stage startups in gaming, music, film and content distribution.
Sure $10 million is not much compared to how much gets invested in other regions or yesteryear’s mega-rounds. There’s still a very small amount of venture capital directed to the continent’s startups compared to how many people live there, but it is good to know that the pot is getting bigger.