African Startup Funding Declines by 70% in June 2023.

Startups raise funding for various reasons that are essential for their growth and success. Firstly, funding provides the necessary capital to support and accelerate the growth of startups. It enables them to invest in expanding their operations, hiring talented individuals, and scaling their business. By securing funding, startups can seize opportunities, penetrate new markets, and establish a competitive edge in their industry. Additionally, funding plays a crucial role in product development, allowing startups to invest in research and development, prototype creation, testing, and launching their offerings. This financial support empowers startups to bring their innovative ideas to life and deliver market-ready products or services that meet customer demands.

Secondly, funding helps startups establish a solid foundation for sustainable growth. It provides financial stability during the early stages when revenue generation might be limited or inconsistent. With sufficient funding, startups can cover operational costs, manage cash flow, and navigate unforeseen challenges or market fluctuations. Moreover, funding helps startups attract top talent by offering competitive salaries and benefits and fostering a skilled and dedicated team that drives innovation and company success. Additionally, partnerships and alliances with other businesses or industry players become more accessible with funding, enabling startups to leverage resources, expertise, distribution channels, and customer bases that expedite their growth trajectory. Ultimately, raising funding provides startups with the means to execute their business strategies, achieve milestones, and position themselves for long-term viability and success.

Funding for African startups in 2023 has fluctuated widely as the global funding winter continues to ravage the world. In June 2023, African startup funding experienced a significant downturn with a 70% decline compared to the previous year, African startups raised a total of $126.2 million from 25 disclosed raises. This drop also represented a substantial 79% decrease from May 2023, where the total amount raised reached an impressive $621.8 million. Despite these challenges, West African tech startups emerged as frontrunners, securing a commanding share of the funding and showcasing the region’s resilience and potential. 

West Africa’s Resilience and Growth:

In a noteworthy trend, West African tech startups defied the overall decline and surpassed their counterparts by a significant margin. These startups secured a remarkable $89.9 million, accounting for a staggering 72% of the total disclosed funding in June 2023. This achievement not only solidifies West Africa’s position as a thriving hub for innovation but also highlights its ability to adapt and attract investment even during challenging times. Moreover, the 13% year-on-year increase in raises by West African startups underscores the region’s sustained growth and its potential to lead the African tech landscape. 

West Africa also extends their lead over the other regions from May 2023. In May, West African startups accounted for just 37.5% followed by North Africa with 28.1% and East Africa with 14.7%. But the 37.5% (raised by West African startups) in May amounted to $233m which is more than the entire funding African startups raised in the whole month of June. There were no notable raises by Ugandan startups in June which is in stark contrast to Zofi Cash’s $1M debt round in May 2023. 

Cleantech’s Ascendancy:

The month of June 2023 witnessed a groundbreaking development as cleantech startups claimed the top spot in African tech funding. With an impressive $52.3 million raised, cleantech secured 41% of the total funding, surpassing other sectors. This significant milestone reflects the increasing recognition of the importance of sustainable solutions and the urgency to address environmental challenges across the continent. Investors’ growing interest in cleantech is not only a testament to the sector’s potential for impact but also indicates a shift towards a more sustainable and eco-conscious future for Africa. 

Healthtech, logistics, and fintech sectors followed with $34.3 million, $11.5 million, and $10.6 million raised, respectively. In May, fintechs raised almost $200m powered by Interswitch’s $110m raise and Egyptian startup, Paymob’s $50m Series B. 

Startup funding is currently experiencing a decline due to a combination of factors. Firstly, rising interest rates have made it more costly for businesses to borrow money, making investors more cautious about taking on high-risk investments such as startups. The increased expense of borrowing has led to a decrease in investment in startups as investors seek more cost-effective opportunities. Additionally, recessionary economic conditions, including rising inflation and supply chain disruptions, have created an environment of uncertainty and caution, prompting businesses to be more conservative with their investments. This has further impacted the availability of funding for startups.

Another contributing factor to the low startup funding is concerns about excessive valuations. In recent years (especially 2021), there was a trend of startups being valued at inflated levels, causing some investors to question the sustainability of these valuations. The potential for overvaluation has made investors more hesitant to invest in startups, as they fear a potential market correction (which has happened) that could adversely affect their investments. Furthermore, the increased competition for funding has put pressure on the amount of funding available per startup, particularly for early-stage ventures that are in greater need of financial support.

Given these circumstances, startup funding is expected to remain low in the near future, posing challenges for entrepreneurs seeking capital. However, there are still opportunities for startups to secure funding by demonstrating a clear path to profitability, assembling a strong and capable team, and targeting investors who align with their business goals. Exploring alternative funding sources such as crowdfunding and venture debt can also help bridge the gap left by traditional venture capital investors. Despite the current difficulties, with strategic planning and perseverance, startups can navigate these funding challenges and position themselves for growth and success.