Despite the overall funding decline, a significant portion of investments was directed towards climate tech, which accounted for 45% of all startup funding in Africa this year. Experts offer more insights.



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Fintech, while second in total amount raised, had the most startups securing $1 million or more during the period. However, female-founded and female-led startups continued to receive minimal funding, with 85% going to ventures without a female founder and 92% to companies led by male CEOs.
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Venture capital (VC) investments in Africa have hit a four-year low, with startups raising only $780 million in the first half of the year, according to research firm Africa: The Big Deal.



This figure represents a -31% drop compared to the second half of 2023 and a -57% decline from the first half of 2023, taking seasonality into account.



Dotun Olowoporoku, Managing Partner of pan-African seed stage fund Ventures Platform, tells FORBES AFRICA: &#8220;The recent drop is not entirely out of sync with the global trend in the VC &#8216;funding winter&#8217;. However, there’s hope for improvement as several VC funds have recently been closed, providing significant capital reserves, or &#8216;dry powder&#8217;, specifically for early and growth-stage startups in Africa.&#8221;



Two-thirds of the total funding was equity, and one-third was debt — a notable increase from the 17% average debt share since 2019. The bulk of investments, four out of every five dollars, flowed to startups in Africa&#8217;s ‘Big Four’ — Nigeria, South Africa, Kenya, and Egypt — with Kenya alone accounting for one-third of the total funding.



To enhance tech funding in other African countries, Olowoporoku identifies &#8220;seven main factors needed to work in sync to enable growth in the tech ecosystem and, by extension, tech funding”.



“These factors include the availability of seed risk capital, outsized entrepreneurial ambition, high-capacity technical talent pool, a large and expanding market, a sizeable number of curious early adopters, an enabling and responsive regulatory environment, and long-term stable political conditions.



&#8220;While the &#8216;Big Four&#8217; have benefited from some of these factors naturally, but deliberate efforts by ecosystem builders have been essential in integrating these elements to create structural advantages. Other African nations need to enable their ecosystem builders to synchronize these factors and overcome obstacles to bolster their tech funding lands,&#8221; he says.



The transport and logistics sector led the way, securing 28% of the funding, influenced by major deals involving companies like Moove and Spiro. Fintech, while second in total amount raised, had the most startups securing $1 million or more during the period.



However, female-founded and female-led startups continued to receive minimal funding, with 85% going to ventures without a female founder and 92% to companies led by male CEOs.



Kristin Wilson, Managing Partner of venture capital firm Innovate Africa Fund, observes a noticeable shift in investment strategies. &#8220;In theory, it does mean that investors are becoming more selective, focusing on startups with robust business models and clear paths to profitability. In practice, we’ve seen a lot of



regional diversification being explored to uncover untapped opportunities beyond traditional tech hubs like Nigeria, Kenya, and South Africa,&#8221; she tells FORBES AFRICA.



Wilson highlights an intensified emphasis on due diligence, which she hopes indicates a move towards sustainable, scalable solutions, particularly in sectors like fintech and climate tech.



However, she also expects a wave of consolidation within the tech ecosystem. &#8220;The funding crunch forces weaker startups to concede to acquisition offers from stronger startups. Investors should expect slower growth as startups navigate limited funding options, take more cautious approaches to scaling, and focus on core operations to conserve cash.&#8221;



For entrepreneurs seeking funding in this tight market, Wilson advises focusing on business fundamentals and building internal alignment. &#8220;Entrepreneurs should strengthen their revenue models and ensure clarity for boards, investors, and teams. Building internal stakeholder alignment increases the likelihood of maintaining sustainable operations that prioritize efficiency,&#8221; she explains.



Wilson encourages founders to build strong networks and leverage mentorship opportunities. &#8220;Leveraging the time away from chasing unproductive investment conversations allows them to gain valuable insights and quickly identify opportunities that they can capitalize on when capital becomes more available.&#8221;

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African Tech Funding Hits Four-Year Low Amid Global VC Downturn. The Way Forward

According to the report by research firm Africa: The Big Deal, a total of $466 million was raised through $100,000+ deals by 121 startups, representing only half of the amount raised in Q1 2023.



The report found that equity remained the primary source of funding, comprising 71% of disclosed funding, while debt deals saw a significant decrease, constituting 28%.



One standout from the quarter was Nigerian mobility startup Moove, which secured $110 million, influencing funding trends across the continent. However, the majority of funding continued to flow to startups headquartered in the Big Four countries, with Nigeria and Kenya leading the pack.



In reaction to the report, stakeholders offer insights and recommendations for navigating the current funding landscape.



Oyin Solebo, Managing Director at ARM Labs Lagos Techstars Accelerator, tells FORBES AFRICA: &#8220;It appears as if we are experiencing not just an African, but a global reset in VC funding levels.&#8221;



Solebo continues: &#8220;For the coming quarters, with global inflation and interest rates still at record highs, we should expect similar declines in African startup funding versus the previous year&#8217;s equivalent quarter, as other asset classes will remain more attractive to more risk-averse investors. But there is light at the end of the tunnel. In the last few quarters, a number of notable VCs have announced new funds, meaning that there is more institutional money ready to be deployed in strong African deals.&#8221;



Solebo highlights the need for startups to focus on generating revenue and strengthening financial management amidst the decline in VC funding.



&#8220;We need more local capital to be deployed into our ecosystem. The continent remains heavily reliant on international investment – with around 70% of our funding coming from overseas,&#8221; says Solebo.



Maurizio Caio, Managing Partner at Africa-focused tech VC firm, TLcom, emphasizes the importance of evidence of traction for startups to secure funding.



&#8220;In the upcoming quarters, the funding landscape will heavily depend on the state of global macroeconomic conditions, deal flow quality on the continent, and possible evidence of successful exits of African VC-backed companies, which we project will improve during the rest of the year,&#8221; Caio shares with FORBES AFRICA.



Emmanuel Adegboye, head of Africa-focused pre-seed investment program, Madica, says: “The good news is that there are indications that there’s still a lot of early-stage investing activity on the continent with investors like Madica continuing to actively invest, just not a lot of large later-stage deals.



&#8220;I don’t expect a lot of drastic improvements over the next few quarters and it’s especially important for startup founders to continue to be prudent with managing cash flow and their expectations to close later fundraising rounds quickly. It might be important to add that while the pace in investments has been slower, this shift can ultimately lead to more informed, sustainable investments that would benefit both startups and investors in the upcoming quarters/long run,&#8221; says Adegboye to FORBES AFRICA.



Ifelade Ayodele, CEO and founder of fintech firm, Blaaiz, explains the multi-faceted implications of the report for emerging startups, stressing the need for flexibility, customer-centricity, and strategic thinking regarding exit options for investors.



&#8220;Specific industries may have begun to be less attractive for investors due to a combination of factors such as spending power of end users (heightened by inflation), alternatives, among others,&#8221; Ayodele notes to FORBES AFRICA.



Ayodele suggests that &#8220;emerging and potential startups may need to begin to rethink the purchasing power of end users and make necessary pivots&#8221;.



Ayodele urges startups to focus on solving actual problems &#8220;as opposed to perceived problems”, and think globally while acting locally.



&#8220;Startups may consider products that may thrive in at least two or more African markets duly backed by technology for scale and adoption,&#8221; Ayodele says to FORBES AFRICA.

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