By Milcah Tanimu
Funding for Nigerian and other African startups is projected to decline to $3 billion by the end of 2023, marking a challenging year for startups in the region. This represents a $1.5 billion shortfall from the amount raised from investors in 2022. What’s particularly concerning is that debt financing is expected to dominate funding in 2023, while equity funding continues to decrease. Data from Africa: The Big Deal reveals that total funding for the African startup ecosystem at the end of the third quarter of 2023 was $2.3 billion.
The data firm, which tracks deals of $100,000 and above, reported that no startup on the continent recorded a mega deal in Q3, 2023. The breakdown for Q3 was $324 million in equity funding and $176 million in debt funding.
The report states, “Start-ups in Africa raised half a billion dollars in Q3 2023: $324m equity + $176m debt. $2.3 billion ($1.4 billion equity + $0.9 billion debt) has been raised since the beginning of the year, less than half of the total amount raised in 2022.”
Quarterly funding raised in Q3 is at the lowest level since Q4 2020. The report also predicts that total funding for 2023 might reach $3 billion (equity + debt), which is $1.5 billion short of the levels seen in 2022 and 2021. Equity funding in 2023 may not even reach half of its 2022 and 2021 levels.
Nigeria continues to lead the continent in terms of equity funding, with the country accounting for 36 percent of total equity funding. Egypt’s performance has been below expectations this year, but there has been a relative balance in terms of equity funding raised among the Big Four countries in Africa (Nigeria, Egypt, Kenya, and South Africa).
The report highlights a gender disparity, noting, “73 percent of the equity funding went to start-ups with no female (co-) founder(s), while less than 2 percent was raised by start-ups with no male (co-) founder(s).”
In 2023, startups have faced a challenging year with funding dropping to record lows and an increase in borrowing. In Nigeria, startup funding fell to $470 million in the last year (July 2022 to June 2023), representing a 77 percent decrease from the $2 billion raised between July 2021 and June 2022.
This significant decline has garnered the attention of the Nigerian government, which has announced plans to boost startups’ annual funding rounds to $5 billion by 2027. The Minister of Communications, Innovation, and Digital Economy, Dr. Bosun Tijani, emphasized the importance of patient capital in the growth of startups and the commitment to creating an environment for startups to raise the funding they need to thrive locally.
