Venture capital inflows into African technology and start-up firms declined 31% in 2023 to US$4.5-billion as economic headwinds including weak currencies and high inflation dissuaded investors, a survey showed.
The number of deals, which flowed in as both equity and debt, dropped to 545 from a record 781 in 2022, with number of active investors in the region down by a third, London-based African Private Capital Association said in its report.
“The withdrawal of North American investors was responsible for 50% of the overall decline in investor numbers in 2023, significantly overshadowing the retreats of European and Asia-Pacific investors, which accounted for 18% and 9% of the decrease,” the association said.
A decline in global liquidity, rising geopolitical conflicts and challenging macroeconomic conditions prompted investors to spread assets across geographies to curb risks. Foreign investors abandoned African economies struggling with high inflation and erosion in the value of local currencies.
“Those that made opportunistic rather than dedicated investments in Africa exited in favor of more familiar shores,” said the association, whose members include private equity, venture capital, institutional investors and development finance institutions. There’s a “need for indigenous capital allocators with a long-term commitment to the continent”.
The funding drought forced some tech and start-up firms to limit cross-border expansion plans, trim operations or close shop altogether. Last year, Paystack, a Nigerian start-up and unit of Stripe, cut workers in Europe and the United Arab Emirates to refocus on Africa.
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West Africa attracted the largest proportion of venture capital deal volume in Africa at 26%, driven by Nigeria, which was the most active country by volume at 19%, the survey said. The financial sector accounted for 23% of transactions, with IT taking 20% and consumer discretionary 17%, it said. — Emele Onu, (c) 2024 Bloomberg LP
