The slowdown in funding into the African startup space led to the layoff of over 2,500 employees in 2023, Briter Bridges has disclosed.

In the report titled ‘Africa 2023 Investment Report: Crisis or adjustment?’, the data intelligence firm argued that despite the slowdown in funding, the continent’s tech ecosystem was undergoing a reconfiguration rather than a crisis.

It said, “We may be observing a process of reconfiguration or adjustment, which comes as a consequence of the two cash-abundant years that followed Covid-19, during which valuations skyrocketed and the high liquidity emanate that investors had to compete for ever more expensive deals.

“This process arguably created a generation of overpriced businesses which struggled to find an equally bullish investor market as soon as the tide turned and capital became less available and more expensive. The result? Many stagnated or were forced to downsize or shut down.”

Last year, the number of startups that shut down or reduced their growth trajectory increased due to a contraction in investment volumes, further stated.

The startups included Twiga Foods, Copia, Cellulant, Jumia, Wave, Marketforce, and Renmoney.

Other startups that shut down in 2023 included Okadabooks, Vibra, Pivo, Lazerpay, 54gene, Hytch, among others.

Also, dozens of firms either declared bankruptcy or sought asset sale to other startups, the data intelligence firm noted. In 2023, startups on the continent raised $4bn, 23.08 per cent lower than the $5.2bn they raised in 2022, Briter Bridges revealed.

There were 1,080 plus funding deals in 2023, an 11 per cent increase from the 975 there were in 2022.

The firm stated that deal activity in 2023 remained stable and well above pre-Covid volumes, with the majority of disclosed investments happening at the pre-seed, accelerator, and early stage.

It noted, “This was influenced by the rise of several new vehicles. Both international accelerators such as Techstars and 500 Global and Africa-focused Founders Factory Africa and Flat6Labs remained active with fresh capital raised to fund large cohorts.”

Overseas funding remained crucial to startups, especially those in their late stage. Nigeria was not the major destination for startup funding in 2023. Kenya was the hotspot for funding, attracting $806m, followed by Egypt ($675m), Nigeria ($575m), and South Africa ($565m).

Nigeria continues to be the leader in terms of total funding raised since 2014 though. The firm revealed that Nigerian startups had raised over $6bn between 2014 and 2023.

Kenyan startups have raised over $5bn, Egyptian startups have done over $2bn, and Rwandan startups have raised over $800m.

“Debt financing has begun adopted by investors as one of the go-to instruments to fund companies that present proven business models and the ability to repay their debt through revenues,” Briter Bridges said.

Commenting on sectoral diversification of funding, the firm highlighted that while fintech captured about 25 per cent of deals, others such as health and biotech, climate and cleantech, and logistics are also on the ascendency.

Generally, 2023 was a relatively bad year for startups. In its funding analysis, Africa: The Big Deal, a data insight firm that tracks startup funding of 100k and above, disclosed that funding into Africa declined by 39 per cent to $2.9bn in 2023.

The post Report Indicates 2,500 Employees Laid Off in 2023 Across African Startups appeared first on Tech Digest News.

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.”

Punch

The post Startups in Nigeria, others borrowed $1bn in 2023 – Report appeared first on Tech Digest News.

African startups faced a 39% decline in funding, raising $2.9 billion in 2023 compared to $4.8 billion in 2022, as reported by ‘Africa: The Big Deal.’

Despite the decrease, the result was better than anticipated in light of the global VC slowdown. The report highlighted that 500 startups secured at least $100,000, down from 821 in 2022, with the average deal size remaining stable.

Notably, the research platform revealed a shift towards debt financing among African startups, reaching $1.1 billion, a 47% YoY increase, while equity funding fell by 57%. In 2023, startups raised 65 cents of debt for every $1 of equity, constituting 38% of all funding, compared to 16% in 2022.

Briter Bridges noted that this trend had been evolving, with African startups borrowing $2.1 billion between 2014 and 2023, driven by a decline in equity funding over the last five years.

The rise of debt financing in Africa’s startup ecosystem is evident, growing from 4% to 26% from 2019 to H1 2023, according to Briter Bridges.

The report emphasized that the significant fall in equity funding, from $2.6 billion in 2022 to $1.4 billion in 2023, played a pivotal role in this shift.

Over the past decade, more than $2 billion in disclosed debt funding has been raised by digital, technology-enabled, and green companies in Africa, involving over 140 funders and 200 deals, according to Briter Bridges.

The post Funding for African startups dropped by 39%, reaching $2.9 billion in 2023 appeared first on Tech Digest News.

Startups in Nigeria and other African countries have borrowed $2bn in the last 10 years to bridge their funding gap, according to a report by Briter Bridges.

The report, which had the theme ‘Debt financing in Africa’s innovative ecosystem’, noted that the amount accounted for about 10 percent of the total funding raised in the period and more than three-quarters of it went to the big four (Nigeria, Kenya, Egypt, and South Africa).

It added that debt financing in the African startup ecosystem had grown over the last five years due to a decline in equity funding, noting that from 2019 to H1 2023, debt as a share of the total volume of funding to ventures in Africa increased from four percent to 26 percent.

It said, “While debt is certainly playing a role in Africa’s startup ecosystem and innovations on the financing side making it more accessible, one of the biggest drivers of debt’s rise in Africa’s startup ecosystems may actually be the dramatic fall in equity funding, which fell from $2.6bn in 2022 to $1.4bn in 2023.

“Over the past ten years, more than $2bn in disclosed debt funding has been raised by digital, technology-enabled, and green companies in Africa from more than 140 funders for a total of more than 200 deals.”

The report stated that Kenya had raised over $800m in debt financing between 2014 and the first half of 2023, adding that during that period Nigeria raised $415m+, South Africa $280M+, and Egypt $190m+.

According to Briter Bridges, unlike with equity, most of the debt funding is flowing to companies with collateral with nearly 75 percent of debt funding going to asset-heavy businesses in cleantech, mobility, agriculture, and logistics.

It noted that nearly half of all disclosed debt funding went to cleantech companies and around 20 per cent went to fintechs.
It stated, “The majority of this went into digital lending products where startups can use their existing loan books as collateral.”

Nearly a quarter of all debt deals done were between $1m and $5m showing that more companies were accessing debt funding at earlier stages of their fundraising journey.

It expanded, “Innovations like convertible notes and revenue-based financing are making this possible, helping to increase the role of debt in Africa’s startup ecosystem and offer entrepreneurs a much-needed alternative to equity.”

The data insight firm stated that in 2023, debt funding’s share had rapidly grown as equity funding declined.

It added that over the last 18 months, there had been a notable decline in total equity funding volumes and deal flow to startups in Africa as between January and October 2023, investment raised hit $2.7bn across 600+ deals, about a third less funding raised at the same time in 2022.

The firm highlighted, “While debt funding maintained its growth trajectory, equity dramatically fell, resulting in debt accounting for more than a quarter of the total funding to innovative companies in Africa.

“Yet, while diversification of funding is a positive sign for the ecosystem as a whole, questions are emerging around the role of debt financing and when it should be sought.”

Punch

The post African startups borrow $2bn in 10 years – Report appeared first on Tech Digest News.