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Africa|Aggregate|Financial|Technology
Africa|Aggregate|Financial|Technology
africa|aggregate|financial|technology

Venture capital investments decline amid sociopolitical, economic uncertainties

25th March 2024

By: Sabrina Jardim

Creamer Media Online Writer

     

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Pan-African industry association the African Private Capital Association (Avca) has reported, amid the release of its latest 'Venture Capital in Africa Report', that 2023 was a year of significant sociopolitical and economic upheaval, which led to a “global funding winter” that saw investors prioritise safer assets rather than venture capital investments.

Avca notes that the global venture capital ecosystem has been in a steady global decline since 2022, falling to $285-billion in deal value last year, compared with $690-billion in 2021. The cumulative effect is a market size that represents 41% of capital invested in 2021, signifying a contraction of venture funding around the globe in 2023.

In response to these market headwinds, some trends in Africa’s venture capital ecosystem, which have remained relatively consistent year-on-year, have been disrupted while other trends remained the same.

For the first time in almost a decade of consistently strong growth, Avca points out that the number of venture capital deals in Africa decreased by 31% year-on-year to 545 last year from the record-setting 787 deals struck in 2022.

Added to the global downward trend of venture capital, it says that investors faced currency volatility and continued high inflation in Africa, prompting investors to back prospects in portfolio companies with an established track record rather than new ventures. 

“However, while the value of the capital that was channelled into the ecosystem changed amidst the uncertainty, the distribution of this capital remained largely consistent with historical findings. Investors may be writing smaller cheques, but they’re doing so along the same lines as previous years.”

The report highlights that Africa attracted a combined $4.5-billion in venture capital and venture debt investment in 2023, across 603 deals.

PARADIGM SHIFTS AND EVOLVING TRENDS
Avca notes that the deal volume and value decreased by close to a third – for deal volume, this was the first recorded decrease in a decade.

“The capital free-for-all of 2021 dried up – investors were more cautious about capital allocation decisions. Equity was harder to come by, leading to a $2-billion deficit between 2022 and 2023.

“Investors shied away from capital-intensive deals, which led to the fall of late-stage deals from 16 to nine deals between 2022 to 2023 and 15 to 10 for super-sized deals within that same time period.”

The report notes that 10 “super-sized” deals took place in 2023, accounting for almost half of the total deal value at $1.9-billion.

Moreover, Avca adds that Southern Africa was the only region to register positive 20% year-on-year growth in 2023, signalling a return to the forefront of venture capital on the continent after several years of modest deal activity.

“In contrast, North Africa - the darling of Africa’s venture capital ecosystem in 2022 - saw a 42% year-on-year decrease by volume and 52% decrease in value.”

The rise in climate action amongst venture capital investors –  87 deals – equal to 16% of the year's aggregate deal count – were directed towards climate-related initiatives in 2023, up from 80 in 2022.

Avca also notes that climate-related investments gained momentum in 2023, rising to close to $790-million. African startups employing artificial intelligence-related technologies raised $641-million across 103 deals between 2022 and 2023.

Meanwhile, the number of unique investors participating in both venture capital and debt deals in Africa fell from 1 148 in 2022 to 781.

TRENDS THAT HELD FIRM
Avca explains that West Africa maintained the top spot for the third consecutive year, with Nigeria as the most active country both in the region and on the continent by deal volume.

The financial sector maintained its position as the best-funded vertical with 23% of deal volume and 48% of deal value, while the information technology sector was the second-most active sector in terms of volume with 107 deals concluded in 2023. 

The financial, information technology and consumer discretionary – 17% – were once again the three most active sectors for venture capital investment,” the association points out.

Financial technology held its position as the leading vertical in the African tech ecosystem, and investors continued to coalesce around clean and climate technology – second most active vertical.

However, Avca notes that gender diverse and female funded startups still lag behind their male counterparts – they accrued 27% of deal volume but just 13% of deal value for the year.

“Despite the reduced presence of particularly global investors, fund managers, investment firms and corporate venture capital remained the three most prominent investor types,” it says.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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