The African startup ecosystem, once synonymous with the “Big Four”—Egypt, Kenya, Nigeria, and South Africa—is experiencing a tectonic shift. While these nations remain significant hubs for investment, a new wave of funding is emerging, particularly in Francophone Africa, driven by a confluence of factors that are reshaping the investment landscape.
The past year witnessed a considerable decline in funding for African startups. While this mirrored the global trend, it was especially pronounced in the traditional powerhouse nations.
Investors, facing a cautious market and a dry spell for exits, are diversifying their portfolios, exploring new frontiers beyond the established hubs. This shift has seen investors focusing their attention on regions with untapped potential and a burgeoning startup ecosystem, particularly in Francophone Africa.
Francophone Africa Emerges as a New Hotspot
Francophone Africa is witnessing a surge in funding, driven by a combination of factors:
- Local investors are increasingly driving the ecosystem. They see the untapped opportunity in Francophone countries and are willing to invest in “riskier” regions where global investors might be hesitant. This local investor confidence is crucial for supporting the early-stage growth of startups.
- Sectoral diversification is also playing a key role. While fintech remains the most funded sector, investors are showing increased interest in diverse sectors like climate tech, commerce, health, and biotech. This signifies a maturing ecosystem where innovation is valued across multiple industries.
This trend is evident in the recent emergence of new funds like Saviu and Seedstars Africa Ventures, specifically focused on startups in Francophone Africa.
These trends signify a shift toward a more balanced approach to funding and a growing acceptance of debt financing as a viable alternative for startups struggling to secure equity in a challenging market.
Market Representation: The Big Four Still Dominant
While Francophone Africa is gaining traction, the “Big Four”—Egypt, Kenya, Nigeria, and South Africa—remain the key hubs for investment.
They collectively secured a significant portion of the funding in 2023, accounting for a major share of the deal count, demonstrating their continued dominance in the region.
- Partech: The Big Four secured 79% of the total equity funding volume (compared to 72% in 2022) despite a slight decline in deal count, accounting for 68% of all deals (down from 77% in 2022).
- Briter Bridges: Kenya, Egypt, Nigeria, and South Africa collectively secured substantial investments of $806 million, $675 million, $575 million, and $565 million, respectively.
- The Big Deal: Kenya emerged as the leading African VC investment destination, securing $800 million. Egypt follows closely in second place with $640 million, South Africa claims the third spot with $600 million, and Nigeria takes fourth place with $400 million.
Emerging Hotspots: Francophone Africas Rise
While the “Big Four” maintain their dominance, several Francophone countries are emerging as prominent hubs for investment, rapidly approaching the funding levels of the leading nations:
- Partech: Morocco ($93 million), Democratic Republic of Congo ($42 million), Rwanda ($38 million), Tunisia ($33 million), and Senegal ($27 million) alongside Ghana ($75 million).
- Briter Bridges: Tunisia ($460 million+) and Rwanda (350 million+) alongside the Benin Republic ($125 million+) and Ghana ($70 million).
- The Big Deal: Benin Republic ($71 million), the Democratic Republic of Congo ($62 million), Ghana ($57 million), Senegal, and Rwanda at $44 million each, and Tanzania ($25 million).
This surge in funding is fueled by a combination of factors, including substantial investment and acquisition deals in companies like Zipline and InstaDeep.
Investor Involvement: A Shift in Focus
A significant drop in the number of investors participating in funding rounds in Africa was observed in 2023, with a 50% decrease compared to the previous year. This decline was particularly notable among major institutional funds that typically led larger funding rounds.
- Partech: Only one equity and three debt megadeals (i.e., above $100 million) in 2023, contrasting with seven equity and four debt megadeals in 2022.
- The Big Deal: A year-over-year drop of -38% in the number of unique investors, totaling 619+. This decline is consistent with the overall decrease in funding and the number of ventures raising $100,000 or more, both experiencing a -39% year-over-year reduction.
This decline in investor participation is attributed to the overall decrease in funding and the number of ventures raising significant amounts, reflecting the cautious market conditions and the shift in investor focus towards emerging markets with untapped potential.
Sector Breakdown: Fintech and Clean Tech Lead the Way
Fintech continues to be the best-funded sector on the continent, driven by the ongoing journey toward financial inclusion.
- Partech: Fintech startups secured $852 million, 37% of the total equity investment.
- Briter Bridges: Fintech funding is estimated at $1 billion+.
- The Big Deal: Fintech accounts for 41% of the total equity funding raised.
Unsurprisingly, clean tech comes up second in the data trackers’ lists, reflecting the growing focus on sustainable solutions in Africa:
- Briter Bridges: Cleantech startups raised over $800 million.
- The Big Deal: Clean tech accounts for 28% of the funding raised.
- Partech: Clean tech ties e-commerce for the second spot, claiming 13% each of the total funding African startups raised, with health tech and enterprise rounding up the top five.
Other sectors that are attracting significant funding include logistics and transport, health, and agriculture.
Gender Representation: A Slow but Steady Progress
While substantial investment in female-led startups is still a significant challenge, there are signs of progress:
- Briter Bridges: “Despite marginal gains, funding into all female-founded companies remains a meager fraction of that going to male-founded companies. While deals into all female-founded companies are on the rise, the total dollar value raised by these companies is not showing radical increases.”
- The Big Deal: Startups with a solo female founder or an all-female founding team raised 2.3% of the total funding last year; meanwhile, 15% of the funding went to a founding team with at least one woman.
- Partech: Female-founded startups raised $25% of the equity category in 2023 (22% in 2022). These startups secured $392 million, accounting for 17% of the total equity funding raised (13% in 2022) and 2% of debt funding.
While there has been some progress, the funding gap between male-founded and female-founded companies remains significant, highlighting the need for continued efforts to promote gender diversity and inclusion in the African startup ecosystem.
Key Takeaways
The African startup ecosystem is evolving rapidly, driven by a confluence of factors:
- The rise of Francophone Africa: Investors are increasingly diversifying their portfolios, exploring new frontiers beyond the traditional “Big Four” markets.
- The increasing influence of local investors: Local investors are playing a crucial role in driving the ecosystem, supporting early-stage startups, and bridging the funding gap in underserved regions.
- Sectoral diversification: While fintech remains dominant, investors are showing increased interest in other sectors like climate tech, commerce, health, and biotech.
- Growth of debt funding: Debt financing is becoming a more viable option for startups, particularly in a challenging market where equity is scarce.
- A slow but steady progress on gender diversity: While the funding gap between male-founded and female-founded companies remains a significant challenge, there are signs of progress as more investors are focusing on gender diversity and inclusion.
This shifting landscape presents both challenges and opportunities for African startups. While navigating a challenging funding environment, startups need to adapt their strategies, explore alternative sources of capital, and focus on innovation that addresses real problems.
The emergence of Francophone Africa as a new hub for investment is a positive sign, signaling a maturing ecosystem with a diverse range of opportunities for startups across the continent.
The future of African tech remains bright, driven by the entrepreneurial spirit, the growing support from local investors, and the increasing focus on innovation and sustainability.
