Startups in Nigeria and other African countries borrowed $1.1bn in 2023 as equity funding from investors continued to fall.
Total funding declined by 39 per cent to $2.9bn in 2023, according to data from Africa: The Big Deal, a data insight firm that tracks startup deals above $100k+ on the continent.
It said, “Startups in Africa raised at least $2.9bn through deals $100k and above. That’s if we count all types of deals (equity, debt, grants, etc.), but exclude exits.
“For reference, we tracked 19 exits in 2023 worth over half a billion dollars, almost entirely thanks to two Tunisian success stories: InstaDeep’s acquisition by BioNTech and Expensya’s acquisition by Medius.”
The firm noted that while funding may have fallen by 39 per cent on the continent, it was still a good performance when compared with the context of a global slowdown in venture capital funding.
In 2023, 500 startups raised at least $100k and above on the continent when compared to 821 in 2022, it explained.
Debt is becoming a significant component of funding on the continent, with many startups turning to borrowing to help finance their growth.
The firm highlighted, “Beyond the total number, what is very interesting to note is that many startups in Africa have turned to debt to finance their growth.
“Indeed, the amount of debt raised reached $1.1bn, a +47 per cent growth YoY; in comparison, equity funding fell by 57 per cent during the same period. In 2022, start-ups in Africa had raised 19 cents of debt for every $1 of equity they’d secured.
“In 2023, this number went up to 65 per cent, and debt made up 38 per cent of all funding raised (vs. 16 per cent in 2022).”
Startups raised a total of $4.85bn in funding in 2022.
West African startups didn’t fare well in 2023 as total funding into the region was reduced by 2.6 times when compared to 2022.
Africa: The Big Deal, declared, “The proportion was even lower in Western Africa (23 per cent), which, however, claimed the largest number of ventures raising $100k+ (191, 39 per cent of the continent’s total).
“With only just over $600m in funding raised – 2.6x times less than in 2022, the region dropped from #1 to #4, by far its worth performance since we started tracking deals (it held the title in 2019, 2021, and 2022, barely missing it in 2020).”
The top two regions in 2023 were the East African region, which raised a total of $880m (with 56 per cent as debt) 31 per cent of all the startup investment on the continent, and Northern African startups raised $670m.
In its analysis, Briter Bridges, a market insight firm, noted that globally, funding had fallen significantly from its peak in 2021.
It said, “The number of deals fell for four consecutive quarters to its lowest count since 2016. Africa showed slightly more resilience in deal flow, but the total volume of funding has also fallen from its peaks.
“In 2023, African startups raised $3.3bn across 800+ deals, which is 27 per cent lower than the total for 2022. The final quarter of 2023 saw the lowest total volume of funding for Q4 since 2020.”
It highlighted that debt funding on the continent accounted for nearly a quarter of the total volume of disclosed funding, which was a 10 per cent increase from what it was in 2022.
It added, “This reflects a broader trend amongst startups that are looking beyond equity in different ways that they can sustainably finance the growth of their businesses.”
In the decade before 2023, startups on the continent borrowed a total of $2bn. This cycle seems to be changing based on new data.
In its 2024 outlook, Stears noted that debt is viable, although expensive, and provided an alternative for founders seeking to retain ownership of their startups.
It predicted that more startups would turn to debt in 2024.
It said, “Meanwhile, debt financing is on the rise. Debt is a viable, though expensive, alternative for founders seeking to retain ownership and access urgent cash during a VC funding slump.
“Debt financing will continue to grow. As monetary tightening in the West cools, currency volatility in markets like Nigeria will remain a concern for investors. Equity flows may not make a swift recovery so debt will plug the funding gaps. To a lesser degree, other funding options like crowdfunding and diaspora funding will also pick up.”
