In a recent report by BD funding tracker, Africa’s tech venture capital (VC) funding faced a significant setback in the first quarter (Q1) of 2024, with a staggering 51% year-over-year decline.
Venture capital funding in the African tech start-up ecosystem has steadily declined driven partly by rising interest rates, and global geopolitical tensions which have impacted investor confidence.
In Q1 2024, startups on the continent raised a total of $369 million across 64 publicly announced deals. Equity funding, traditionally dominant, accounted for 67% of deals, with debt funding closing up 14.90% and undisclosed mixed deals.
In an unexpected twist, the mobility sector emerged as the funding leader in Q1 2024, commanding a 31.17% share with merely six deals. Nigerian mobility startup Moove played a pivotal role in this dominance, single-handedly attracting $110 million, constituting 30% of all Q1 funding for African startups, accomplished through two deals, one equity and one debt.
Other sectors saw modest shares, with Cleantech accounting for 13% funding with just eight deals, followed by health tech (10.89%) with just seven deals and fintech clinching 7.78% with 11 deals.
Africa’s “big four”, Nigeria, South Africa, Egypt, and Kenya continued their dominance in terms of funding, capturing 91.22% of the total funding in the region for Q1 2024.
According to the report, based on the number of deals, early-stage funding dominated Q1 2024, with accelerators, pre-seed, and seed rounds accounting for 27 deals worth a combined $38.5 million.
This focus on early-stage ventures contrasts sharply with the later stages -pre-Series A, Series A, and Series B, where just sight rounds secured $144.2 million. A significant portion, $185.8 million, was raised across 36 undisclosed rounds.
Following the decline in investments in Africa, this has led to a drop in the valuation of companies, as well as startups resorting to consolidation. This was followed by at least 29 mergers and acquisitions (M&A) in Q1 2024 with approximately seven exits.
While several others tried to keep the business afloat, by downsizing the workforce and implementing other measures, some startups could not absolve the pressure of the funding crunch and were forced to close shop.
On a global scale, Global venture funding reached $66 billion in the first quarter, up 6% quarter over quarter but down 20% year over year (YoY).
AI continued to stand out as a leading sector for investment in the first quarter. Companies in the AI sector raised $11.4 billion in Q1 or around 17% of global funding.
With the VC funding decline, many startups across the globe are hoping that the gradual opening of an IPO window and the prospect of interest rate cuts later this year will finally encourage VCs to be less stingy with their capital.
