The African venture-capital market witnessed a $1.4 billion drop in funding in the first half of 2023, which sparked concerns for startups’ future. Indeed, the decline in VC funding reflects cautious investor sentiment, with only 263 VC deals amounting to $2.1 billion, a 40% decrease from the previous year, according to Business Insider Africa.
The abrupt drop in VC funding, highlighted in a report released by the African Private Capital Association (APCA), underscores a challenging period for African startups. Undeniably, between January and June, a mere 263 VC deals were executed, collectively accounting for $2.1 billion, which represents a 40% decline in deal volume and total funding compared to the previous year’s figures, which amounted to $3.5 billion during the same period, according to Business Insider Africa.
Fintech startups retained their dominance, with notable investments such as the $35 million Series B round for South African digital lender Lulalend and the $30 million pre-Series B funding for Nigerian payment service provider Nomba.
There are number of factors that led to this decline in venture capital investment in Africa. Lack funding; lack of infrastructure, and regulatory hurdles.
African startups often struggle to raise money. This is due to a number of factors, including the lack of a deep pool of venture capital investors in Africa, the high risk associated with investing in African startups, and the lack of clear exit opportunities for investors.
Moreover, many African countries lack the basic infrastructure that startups need to succeed, such as reliable electricity, high-speed internet, and a skilled workforce. This can make it difficult for startups to operate and scale their businesses.
Lastly, the regulatory environment in many African countries can be complex and burdensome for startups. This can make it difficult for startups to comply with the law and to raise money.
The decline in venture capital investment is a challenge for African startups, but it is not insurmountable. There are still a number of investors who are interested in investing in African startups, and there are a number of government initiatives that are aimed at supporting the growth of the venture-capital market in Africa.
The continent has a young and growing population, which is a major source of potential customers for startups. Africa is also home to a number of fast-growing industries, such as technology, agriculture, and healthcare. These industries are creating new opportunities for startups to innovate and grow.
The decline in venture capital investment is a temporary setback, and the long-term prospects for Africa's venture-capital market are still very positive. With the right support, African startups have the potential to change the world.