With fintech predicted to lose its popularity, where is Africa’s venture funding headed in 2023?

Ganiu Oloruntade
“While fintech retained its lead as the most popular space, the growth is smaller than in other verticals; and the narrowing of margins shows other sectors are starting to attract larger amounts of funding”
Africa's venture funding
Image Source: Technext.

It’s no longer news that the African tech ecosystem recorded unprecedented growth in 2022, despite the global economic meltdown.

Depending on who you ask, African startups ended last year well in terms of venture capital funding, both in dollars and deal volume, defying the venture funding decline that hit nearly every region.

However, despite the impressive fundraising haul, the continent failed to hit a record $7 billion, as predicted in a report by the African Private Equity and Venture Capital Association (AVCA), an industry group.

However, this doesn’t deny that African startups raised more funding in 2022 than in 2021, per data from different funding trackers, albeit with a slight difference in numbers.

Numbers don’t lie

Per The Big Deal, which tracks deals above $100K, African startups raised $4.8 billion across 1,000 deals last year. In comparison, London-based market intelligence firm Briter Bridges recorded $5.4 billion in total estimated funding — including undisclosed rounds — across more than 975 deals.

According to the latest funding report by Partech, a Paris-based startup investor, venture funding in Africa hit $6.5 billion across 764 deals — a combination of both equity and debt deals. For context, Partech only reports on venture capital equity and debt deals above $200K.

The recently released annual African Tech Startups Funding Report by Disrupt Africa, a startup news and research portal, found that 633 African startups raised a combined $3.3 billion in 2022. Per the report, the number of funded startups increased by 12.2% compared to 564 in 2021, while the total secured funding jumped 55.1% from $2.15 billion in 2021.

Similarly, total annual funding for African tech startups has increased by over 1,000% since
2015 when Disrupt Africa began publishing its annual funding report. The number of African startups securing investment each year has increased by 406%.

Africa's venture funding
Image Source: Technext.

The Big Four nations — Nigeria, Egypt, Kenya, and South Africa — remain the hotspots of VC funding on the continent, accounting for 75% of the investment attracted by African startups last year, according to Briter Bridges.

According to The Big Deal, Nigeria led the pack in terms of VC funding with $1.2 billion, followed closely by Kenya with $1.1 billion, while Egypt and South Africa hold the third and fourth spots with $820 million and $555 million, respectively.

However, there are feelers that funding is starting to become slightly more evenly distributed, thanks to the growth of other African ecosystems. The case in point is, Instadeep, the Tunisian London-headquartered artificial intelligence (AI) startup acquired by BioNTech, a German biotech company and vaccine manufacturer, in a deal worth $620 million.

Read also: Despite impressive run, Africa’s venture funding failed to hit ‘magic figure’ in 2022.

Fintechs should watch their backs

The powerhouse of the African tech ecosystem is the fintech sector, snagging the most funding on the continent. Thanks to the rise in digital technology and payment solutions, fintechs have remained the lifeblood of Africa’s venture funding haul in recent years, and 2022 wasn’t an exception, despite the sector taking a major hit by the global VC downturn.

For context, with a $250 million raise in February 2022, Nigerian fintech Flutterwave surpassed the record for the largest round ever raised by an African tech startup.

However, the fintech sector’s dominance is gradually declining, as other sectors are on the rise to have bigger pieces of the funding pie.

According to The Big Deal, the share of fintechs in the total funding raised in African tech fell to 37% in 2022 from 53% recorded in 2021. In an interesting turn of events, other sectors like energy, logistics & transport, and retail experienced significant growth in funding.

Per Partech, though fintech remained the most-funded sector in Africa last year, it recorded a 41% year-on-year decline. In its report, Disrupt Africa said 205 fintech startups attracted $1,4 billion, representing 43.4% of Africa’s total. Though the figure for last year was $1,038,456,500, it represented 48.3% of the 2021 total funding.

“While fintech easily retains its lead as the most popular space, the growth is smaller than in other verticals; and the narrowing of margins shows other sectors are starting to attract larger amounts of funding, and contribute more to the overall pot, as well,” the report said.

Related article: Why African startups raised more funding in 2022 than last year.

Experts predict a slowdown in 2023

As the global VC space grapples with funding freezes, layoffs, valuation plummeting, and business shutdowns, among other issues, 2023 is poised to be a rocky year for African startups as more investors will tighten their purse strings, dealing a huge blow to the African tech ecosystem which depends on foreign capital.

Briter Bridges noted in its report that the over-reliance on overseas funders could hurt the continent badly as any pause in investment activity on the global scene — due to unforeseen circumstances — automatically translates to hard times for African startups.

“With the global economic slowdown trickling into 2023 due to inflationary pressures and tightening monetary policy, investors on the continent will maintain a judicious approach to investment and African startups will continue to find fundraising challenging,” Bruce Nsereko-Lule, a general partner at Seedstars Africa Ventures, an early-stage VC fund, told TechCrunch.

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