African Startups Escape Global VC Funding Drought

While most startups struggled to find funding last year, African companies saw their fortunes improve.

That’s according to a report published Tuesday (Jan. 24) by venture capital (VC) firm Partech Partners, which showed that while global VC funding was down 35% last year compared to 2021, financing for startups in Africa rose 8% to $6.5 billion.

“Our report revealed the African tech ecosystem showed great resilience, as more investors have doubled their commitment to the continent,” Tidjane Deme, general partner at Partech, said in a news release.

The 8% increase came through 764 rounds, with debt funding doubling during 2022, up 102% to $1.5 billion, offsetting a small drop in equity rounds, down 6% to $4.9 billion.

“However, looking closely at the figures, this market was not left unscathed,” the report said. “We can see the slowdown began to seep into the African market in the first quarter of the year, with a 14% drop in activity compared to the last three months of 2021.”

PYMNTS noted late last year that debt financing had been growing increasingly scarce in an era of higher interest rates and cautious lenders.

It was a year in which tech startups sought new ways to secure financing as venture capital dried up, with companies resorting to tactics such as bridge loans, structured equity, convertible notes, and participating bonds.

“Everyone is taking corrective action,” one Silicon Valley investor told the Financial Times.

In an interview with PYMNTS in December, Said Murad, partner at United Arab Emirates-based venture capital firm Global Ventures, said startups in Africa and the Middle East were able to escape some of the volatility that hit their counterparts in other regions.

He attributed this to the resilience that companies in emerging markets, where funding is tougher to come by, deliberately try to cultivate when launching a business.

“From a founder perspective, the focus on building sustainable-first businesses is not something new for emerging markets,” Murad told PYMNTS. “And that sustainability-first mentality continues to play an active role in how founders [in Africa and the Middle East] build their businesses from an early stage.”

He cautioned startups to build sustainably and grow cautiously to ensure that they’re capital efficient to stay ahead of macroeconomic challenges.

“Every dollar that you’re deploying needs to have an ROI [return on investment] against it [and] make sure that you’re [growing your business] in a sustainable and tactical way that ensures that you have the right runway in place for you to continue the growth journey,” said Murad.