Grace Ashiru
In the first half of 2024, Africa’s venture capital (VC) ecosystem experienced a significant downturn, mirroring global economic uncertainties and shifts in investor sentiment. Total funding in Africa reached just $393 million, a steep 57% decline compared to the same period in 2023, and the lowest level recorded since 2019. This sharp contraction was even more pronounced than the declines observed in other Emerging Venture Markets (EVMs) such as the Middle East and North Africa (MENA) and Southeast Asia (SEA)
Factors Contributing to the Downturn. Several factors have contributed to the marked reduction in venture capital activity across the African continent. A significant shift in global and regional investor focus toward safer, more stable assets has reduced the risk appetite for investing in emerging markets like Africa. The heightened economic instability, characterized by fluctuating exchange rates, high inflation, and interest rate hikes, has made investments in VC sectors less attractive compared to safer options like government bonds
The funding decline is particularly noticeable in the reduction of larger deals beyond Series “A.” Pre-Series “B” and Series “B” deals dropped drastically from 14 deals totaling $324 million in the first half of 2023 to just two deals worth $48 million in the same period of 2024. The number of accelerated deals also saw a significant drop from 82 in H1 2023 to only 10 in H1 2024.
Comparative Performance and Regional Trends
Africa’s funding landscape displayed more vulnerability compared to other regions. For instance, while Africa experienced a 55% drop in non-MEGA funding, MENA only saw a slight 3% increase in the same category during H1 2024. The disparity underscores Africa’s heightened sensitivity to global economic shifts, making it more susceptible to downturnsl
The contraction in deal numbers and values has led to a retraction of investor interest, with the total number of deals plummeting by 52% year-on-year. The African VC market’s reliance on a few large deals further exacerbates this issue. The significant reduction in MEGA deals (transactions worth over $100 million) underscores the challenges faced by the ecosystem.
Sectoral Impact and Future Projections
Despite the general downturn, certain sectors have shown relative resilience. FinTech continued to dominate as the most funded industry, accounting for 48% of total funding, although this represents a decrease from previous years. Agriculture saw a notable climb, surpassing E-commerce/Retail and Healthcare, largely driven by substantial deals such as SunCulture’s $28 million funding.
Looking ahead, projections based on the first half of 2024 suggest that Africa could end the year with approximately $786 million in total funding across 238 deals, marking a 57% annual decline in funding and a 48% drop in deal numbers compared to 2023. This outlook highlights the continued challenges for the African venture capital landscape, particularly in attracting and retaining investment interest amidst broader economic headwinds
Conclusion
The first half of 2024 has underscored the inherent volatility in Africa’s venture capital ecosystem, driven by a combination of global economic factors and region-specific challenges. As investors become more cautious and selective, the continent’s VC landscape may continue to face significant hurdles in securing the necessary funding to drive innovation and growth. However, with targeted strategies and supportive policy measures, there may be opportunities to stabilize and revitalize investment flows into the region
Source( MAGNiTT)
