Startups funding may drop to $3bn – Report

Funding into Nigerian and other African countries’ startups is expected to fall to $3bn by the end of 2023, sealing what has been a bad year for startups.

This will be a $1.5bn shortfall from what they raised from investors in 2022. What is particularly worrying is the fact that debt financing will dominate funding in 2023 as equity funding continues to decline. Data from Africa: The Big Deal reveals that total funding into the African startup ecosystem as of the end of the third quarter of 2023 was $2.3bn.

The data firm which tracks deals of $100,000 and above disclosed that no startup on the continent recorded a mega deal in Q3, 2023.

It said, “Start-ups in Africa raised half a billion dollars in Q3 2023: $324m equity + $176m debt. $2.3bn ($1.4bn equity + $0.9bn debt) have been raised since the beginning of the year, less than half of the total amount raised in 2022.”

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Quarterly funding raised (equity and equity+debt) in Q3 is at the lowest level since Q4 2020. It continued, “Total 2023 funding might reach $3bn (equity + debt), $1.5bn short of 2022 and 2021 levels. 2023 equity funding might not reach half of its 2022 and 2021 levels.”

Nigeria continues to lead the continent in terms of equity funding, with the country recording 36 per cent of total equity funding. Egypt has underperformed this year, but since the beginning of 2023, there has been a relative balance in terms of equity funding raised amongst the Big Four (Nigeria, Egypt, Kenya, and South Africa).

Fintech continues to dominate in terms of equity funding raised, energy and logistics and transport complete the top three. While female founders are still largely underfunded on the continent, they raised 19 per cent of the total equity funding, their highest share since Q1 2021, the data firm highlighted.

It noted, “This percentage has been growing steadily for the past four quarters. 73 per cent of the equity funding went to start-ups with no female (co-) founder(s) while on the contrary less than 2 per cent was raised by start-ups with no male (co-) founder(s).”

2023 has been a tough year for startups with funding falling to record lows and borrowing increasing. In Nigeria for instance, startup funding fell to $470m in the last year (July 2022 to June 2023), a 77 per cent dip from the $2bn that they raised between July 2021 and June 2022.

This rapid decline has caught the eye of the Nigerian government with the Federal Government recently announcing a plan to boost startups yearly funding rounds to $5bn by 2027.

The Minister of Communications, Innovation and Digital Economy, Dr. Bosun Tijani, said, “Recognising the critical role of patient capital in the growth of startups, we are committed to increasing the local availability of patient capital. We intend to create an environment for startups to raise the funding they require to thrive locally and promote the domiciliation of startups within our nation.”