Nairobi, Kiambu County, Kenya – 18 June 2021: Staff from Wash Me Please Mobile Carwash … [+]
The sharp cuts are coming in Africa as the unprecedented wave of venture capital funding that flooded into markets during the pandemic slows: Funding raised by venture-backed startups in the region fell in the first half of the year, leaving them with less cash to spend on business ideas.
African tech and startups secured a total of $780 million in funding in the first six months of 2024, down 57% year-on-year and the lowest level since late 2020, said a report by Africa: The Big Deal, a platform that provides insights into startup deals across the region.
The deal included both equity and debt capital and grants, but did not include the amount received from investors exiting the startup. In total, $513 million was raised in equity investments and $254 million in debt.
“Two-thirds of this funding was equity and one-third was debt,” said Max Cuvellier Giacomelli, co-founder of Africa: The Big Deal, which tracks startup deals over $100,000 in the region. “For 2023, this is a much higher debt share than we’ve seen historically (17% average since 2019).”
The rise in the debt portion of fundraising comes as interest rates around the world rise, making borrowing more expensive but also more attractive to investors. Last year, interest rates in the United States, one of the world’s biggest sources of venture capital funding, hit their highest levels in more than two decades.
The pandemic flooded the global venture capital market with money, but the investment flow was short-lived: Global venture funding grew from $66.9 billion in the first quarter of 2020 to nearly $200 billion in the fourth quarter of 2021, but then fell to $70.5 billion in the fourth quarter, according to Dealroom.
The transport and logistics sector received the largest share of investments at 28% driven by large funding rounds for Nigerian auto finance startup Moove and Nairobi-based electric vehicle startup Spiro. Fintech received 24% and energy and water received 17% of funding.
Move secured the most funding with a total of $110 million, closing at a valuation of $750 million. The investment consisted of $10 million in debt from India-based venture firm Stride Ventures and $100 million in a Series B funding round led by ride-hailing company Uber and backed by Abu Dhabi sovereign wealth fund Mubadala. Move began operations in Africa to provide vehicle financing to drivers, charging interest on the loans based on their earnings. The startup has since expanded to other markets, including Asia.
Kenyan energy fintech platform M-Kopa came in second with $51 million in funding in the half year. M-Kopa secured a loan from the U.S. International Development Finance Corporation to fund a $210 million project that aims to deepen financial inclusion and improve access to renewable energy sources in the East African country. Electric vehicle startup Spiro came in third with a $50 million loan from the African Export-Import Bank (Afreximbank).
According to the report, Africa’s top emerging markets – often considered the Big Four – Kenya, Nigeria, Egypt and South Africa accounted for 79% of the capital invested in startups across the region.
Kenya maintained its position as the most attractive destination for startup funding. Ventures in the East African country raised $244 million in the first half of the year, accounting for one-third of Africa’s total startup investment. Nigerian-based startups secured $172 million in funding, helping Africa’s most populous country move up two notches to become the second most attractive market for startup funding. North Africa’s largest economy, Egypt, raised $101 million, while South Africa followed closely behind with $100 million in startup funding.
“Only a small percentage of funding continues to go to startups with female founders or leaders, with 85% of funding going to ventures with no female founders and 92% going to companies with male CEOs,” the report said.
