American investors no longer interested in funding African startups
Mirroring the global market, venture funding for African startups in 2023 dropped 31% — from the previous year, according to a new report.
The report published by London-based African Private Capital Association revealed that the number of deals, which flowed in as both equity and debt, dropped to 545 from a record 781 in 2022.
According to the report, the decline was attributed to the reduction in the number of active investors in the region compared to the previous year. The withdrawal of North American investors was responsible for 50% of the overall decline in investor numbers in 2023, significantly overshadowing European and Asia-Pacific investors, which accounted for 18% and 9% of the decrease, respectively.
The report added that foreign investors abandoned African economies struggling with high inflation and erosion in the value of local currencies. As a result, African startups have either laid off staff, changed business models or shut down due to economic realities and internal factors they couldn’t easily navigate.
“Those who made opportunistic rather than dedicated investments in Africa exited in favour of more familiar shores,” said the association, whose members include private equity, venture capital, institutional investors, and development finance institutions. There’s a “need for indigenous capital allocators with a long-term commitment to the continent.”
According to the report, West Africa emerged as the leading region in Africa for venture capital activity, securing 26% of the continent’s total deal volume. Nigeria stood out as the most vibrant market, contributing 19% to the volume. The report also revealed that the financial sector was the most prominent, representing 23% of the deals, followed by information technology with 20%, and consumer discretionary sectors at 17%.
