START-UPS in Africa are increasingly hauling in US$1 million or more in funding, even as the investment climate on the continent cools off.
Data from Africa: The Big Deal, shows ventures raising over US$1 million thrive due to their bankability, suggesting a selective but keen interest from investors amidst a cautious investment backdrop.
“While the amount raised quarterly is still at its lowest since Q4 2020, we can see that the number of ventures raising at least $1m during a quarter has started to bounce back in Q3 2023 and continued to do so consistently since,” The Deal says.
Investors appear to be placing targeted bets on start-ups with clear scalability and impactful solutions, indicating a move towards more strategic, long-term investments rather than widespread, speculative funding.
Investment patterns also reveal a notable shift towards equity financing, despite a slight 9% decrease from the previous quarter.
Conversely, debt financing has taken a substantial hit, decreasing by 44%. This indicates a growing preference among investors for equity stakes in promising start-ups, in a show of confidence in their growth trajectories and the potential for long-term returns.
Broadly, the total funding secured by African start-ups from April 2023 to March 2024 amounted to US$2.4 billion — a 14% decrease from the preceding 12 months but still a substantial portion of the peak funding era between July 2021 and June 2022, according to The Deal.
Data from Africa: The Big Deal further underscores a strategic recalibration by investors in response to the evolving global economic landscape and the unique challenges and opportunities presented by the African market.
African start-ups, with their deep understanding of local markets and innovative approaches to solving complex problems, are increasingly becoming the season’s must-have for both local and international investors.
Tellingly, a separate report from Africa: The Big Deal in March showed that more African investors are funnelling substantial investments into homegrown enterprises.
It highlighted a departure from the previous years, when North American investors, particularly from the U.S., led the charge in startup funding across the continent.
Africa: The Big Deal identified at least 619 unique investors who participated in deals of US$100k or more within the continent, with 35% of these being headquartered in Africa, making it the region with the most investors in African startups.
This shift came after a dramatic 47% year-on-year drop in the number of North American-based investors involved in the continent, according to the report.
“The fact that Africa was the continent where most investors in Africa were headquartered contrasts with the previous two years when the number one spot was held by North America (the U.S., really),” the analysis observed.
European investors remained significant, with a stable 25% representation, closely following African investors and indicating a potential rise in interest from this region as well.
When considering individual countries from around the world, however, the United States maintained its position as the single largest external investor in Africa.
South Africa stands out as the primary African country with active investors, highlighting its role as a significant hub for investment on the continent.
The top five countries hosting active investors have remained reasonably stable, with the United States, South Africa, Nigeria, the United Kingdom, and France (replacing Egypt) making the list.
Notably, France is the only country among the top 10 to see an increase in the number of investors involved in African deals from 2022 to 2023.
