Africa's Venture Capital Declines 41% in 2023 Amid Global Funding Winter

Africa attracted $5.4 billion in venture capital and debt in 2023, a 41% decline from 2021 levels. The decline is attributed to the global funding winter and economic upheaval, with investors prioritizing safer assets over venture capital investments.

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Aqsa Younas Rana
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Africa's Venture Capital Declines 41% in 2023 Amid Global Funding Winter

Africa's Venture Capital Declines 41% in 2023 Amid Global Funding Winter

Africa attracted $5.4 billion in venture capital and debt in 2023, marking a significant 41% decline from 2021 levels. The drop in funding is attributed to the global funding winter and economic upheaval that has impacted venture capital ecosystems worldwide.

Why this matters: The decline in venture capital funding in Africa has far-reaching implications for the continent's economic growth and development, as it may hinder the ability of startups and small businesses to access the capital they need to innovate and create jobs. Moreover, this trend may exacerbate existing economic inequalities and hinder Africa's ability to compete with other regions in the global economy.

According to the African Private Capital Association (AVCA), which released its Venture Capital in Africa report, the global, private, markets, fundraising, falls, year to $285 billion in 2023, down from $690 billion in 2021. The number of venture capital deals in Africa also decreased by 31% year-on-year to 545 in 2023, from a record 787 deals in 2022.

The report highlights that 2023 was a year of significant socio-political and economic upheaval, leading to a global funding winter that saw investors prioritize safer assets over venture capital investments. Investors faced currency volatility and high inflation in Africa, prompting them to back prospects in portfolio companies with an established track record rather than new ventures.

The decline in venture funding was not unique to Africa, as global private markets fundraising dipped 22% in 2023 to $1.0 trillion, the lowest total since 2017. Asia was the region most impacted, with fundraising declining 48% to a 13-year low, while Europe showed the most resilience with a 2% decline to $243 billion.

Smaller funds, those with less than $1 billion in assets, struggled to deal with the sluggish environment, with only 1,650 funds closing during the year, the fewest since 2012. In contrast, the top 25 fund managers amassed 41% of all funds raised, the most since 2008, with the top ten managers alone capturing 26% of all fundraising activity globally.

Private equity capital raised fell 15% to $649 billion, due to a more conservative deals environment, high interest rates, and broader geopolitical uncertainty. Funds focused on venture capital and growth equity strategies led the decline, dropping to their lowest level of cumulative capital raised since 2015.

Despite the challenges, Africa's venture capital ecosystem remains resilient. The Africa CEO Forum, set to hold its 11th annual summit on May 16-17 in Kigali, Rwanda, is calling on business leaders, CEOs, investors, heads of state, and ministers to shape a new future for Africa and set in motion four key transformative agendas. Initiatives like the Global Africa Business Initiative (GABI) and the Africa Strategic Investment Alliance (ASIA) aim to position Africa as the world's premier business, trade, and investment destination and establish a platform for affordable finance to create 80-125 million jobs by 2040.

While Africa faces challenges such as infrastructure deficits, trade barriers, market access, and finance, which hinder the growth of small and medium-sized enterprises, there is an urgent need for strategic partnerships, innovative financing schemes, and digital transformation to drive growth and development on the continent. The Africa CEO Forum will feature discussions on empowering entrepreneurs, infrastructure development, digital transformation, and the rise of African champions, highlighting the opportunities that lie ahead for Africa's venture capital ecosystem.

Key Takeaways

  • Africa's venture capital funding declined 41% to $5.4 billion in 2023.
  • Global private markets fundraising fell 22% to $1.0 trillion in 2023.
  • Africa's venture capital deals decreased 31% to 545 in 2023.
  • Smaller funds struggled, while top 25 fund managers raised 41% of all funds.
  • Africa's venture capital ecosystem remains resilient, with initiatives aiming to drive growth.