Navigating the African Startup Funding Landscape in 2024: Learning from the Challenges of 2024
May 16, 2024
Adam Wakefield


As the curtains draw on the tumultuous year that was 2023, the African tech startup landscape stands as a testament to resilience amid adversity. The funding downturn gripped both the global and local tech ecosystems. It also sent shockwaves through the entrepreneurial corridors, forcing founders to reevaluate their strategies and revisit the core principles that underpin successful ventures.

Headlined by the pressing question, "Is 2023 the winnowing moving African founders back to the fundamentals?" a discussion at the 10th African Fintech Summit unfolded against the backdrop of a 53% decline in fintech businesses. This stark reality forced introspection within the entrepreneurial community.

In this article, we seek to answer the pivotal question: Did past year's trials propel African founders back to the fundamentals, or will they seek alternative ways? 

Let’s dive in.

Recapping 2023 and its challenges:

The funding downturn that has gripped the global and African tech ecosystems since the latter quarter of 2022 has, in 2023, led more African founders to return to the fundamentals while challenging their view on valuations.

This viewpoint emerged during a panel discussion hosted at the aforementioned African Fintech Summit outside Lusaka on 2 November. The group consisted of Hangwi Muambadzi (Head of Africa at CommerzVentures), Vuyo Mzini (Head of Portfolio, Launch Africa Ventures), Dolapo Agbaje (Director, Apis Partners), and Philani Mzila (Investment Manager, Founders Factory Africa). The panel was hosted by Mwelwa Kenneth Chibesakunda, founder of Financial Insight Zambia.

Key takeaways from the African startup funding landscape in 2023:

Chibesakunda kicked the panel off by asking its participants what they had seen in the ecosystem since the beginning of the current downturn. Agbaje noted that what many in the ecosystem had referred to as an “investment winter” had led to a 53% decline in the number of fintech businesses operating in the vertical.

“This can be attributed to a few things. We all know geopolitics, rising global interest rates and associated inflation in many of our markets. If you overlay that in an African macro and its ethics issues, it paints quite a bleak picture,” Agbaje said.

However, while the current status quo was challenging, Agbaje said that strong “structural and early tailwinds” existed in specific industries, ticking off cash-to-digital and in-store-to-online as examples. Furthermore, some fintechs’ business models allowed them to mitigate some of the market’s broader issues, pointing at asset lending prices and the increasing size of loans. Mzila said the current funding slowdown represented a significant opportunity for discerning investors and founders willing to grind out the current raising cycle. The result will be market consolidation.

“If you take the portfolio view, there are a lot of business models that are similar across geographies. It’s a good time for well-positioned companies and strong management teams to acquire geographic reach and a strong team. We see strong opportunities,” Mzila suggested.

When Chibesakunda moved the topic to valuations, Muambadzi felt many founders were still catching up with how the changing macro had depressed valuations.

“I don’t think that same sentiment has reached everyone, especially from a founder’s perspective. I find a lot of people are still catching up to where we are now as an ecosystem. One of the dangers of chasing higher valuations is that, at some point, you have to grow into them and exit,” Muambadzi said.

“As an ecosystem, Africa does not have a strong [exts] record. Where are we going to IPO? Who is going to buy this company? Where is the anecdotal evidence of companies who have walked that journey? But a lot of startups that we come across… they seem to be pushing the ‘How do I get the highest valuation and bragging right?’ without thinking about the sustainability of the business they are creating.”

Mzila said that while the current downturn is causing short-term pain within the ecosystem, it would lead to amortisation of the valuation curve and more accurate pricing. For founders on the thick wedge of that change, as highlighted by Agbaje, it’s a bitter pill to swallow since their businesses may have lost between 50% and 80% of their value. The emotional cost complicates it, with many founders deeply attached to their ventures.

Startup success hinges on achieving Product-Market Fit and delivering customer value focus. It’s one of, if not the most, critical soft skills an early-stage startup founder needs to master.

Addressing the Headline Question:

“What did the African Startup Funding Landscape Learn in 2023?”

In answering the question, Mzini said from his position at Future Africa Ventures, he looked at the current downturn in two ways. The first was the macro environment, with currency devaluation, political instability prevalent, and factors that founders could only do a little about. The second was amid these challenges, there are opportunities for discerning investors. Highlighting recent research, Mzini said millions and billions in raised capital need to be deployed somewhere. The current market provides opportunities for fund managers willing to talk to founders who know how to identify value.

Muambadzi echoed Mzini, stating that while the investment slowdown had affected startups ranging from pre-seed to Series B, some sifting will unearth high-quality businesses ready for investment.

“The other slightly divergent view, though we are fintech specialists [within the context of the ecosystem], I come to experience most opportunities that I come across to be more generalist because fintech is such a core component of every sector that you come across,” Muambadzi said.

“There are a lot of investments coming across Series B and C that aren’t pure fintech but fintech-adjacent. It’s not as dire as experienced by others.”

Looking forward to the African startup funding ecosystem in 2024

Wrapping up the panel, Chibesakunda asked his guests for their opinions on what 2024 may hold. Mzini felt that a ‘bolstering’ was underway. Founders that survived the current funding downturn were likely to emerge with a focus on the fundamentals, a ‘reversion’ where more and more founders are speaking about platform-orientated and value chain plays.

Mzila, as the last person to speak, felt that investors may increasingly spread their wings in search of value across the venture maturity curve.

“I’m expecting a lot more allocations among VCs. We have investors investing across different stages across different verticals, and as their startups reach the end-point of their journey, a lot more deal sharing and supporting the winners that come out of this tough funding cycle.”

Fundraising statistics from 2023*: 

  1. 2023 was challenging for startups. The volume of funding dropped by 26% from H2 2022 to H1 2023 and has largely been on a downward trend in 2023.
  2. In 2023 though, Africa, alongside LATAM, suffered the biggest contraction regarding equity funding.
  3. While fintech deal activity remained resilient from H1 2022 to H1 2023, funding volumes dropped significantly. This is largely due to the drop in later-stage funding, which drove fintech volumes over the previous periods. 
  4. Egypt experienced the sharpest decline in deal activity in H1 2023, following its rapid ascent into the top 3 in 2022. Similarly, Nigeria, which saw the minting of the most unicorns in Africa, witnessed the biggest drop off in funding volumes. Further, South Africa, which experienced the lowest share of funding amongst the Big 4 in 2022, has captured this year's largest share of funding.
  5. In 2023, venture capital funding fell considerably all over the world, and while there was a ton of optimism that the African tech economy would avoid too much harm, according to sources like Disrupt Africa, African Tech Startups had raised US $649,303,000 by Q1 2023, a total of US $1.19 billion by H1 2023, and further raised US $492,418,000 in Q3 2023, taking the total for the first nine months of the year to US $1.4 billion, down 48% on the corresponding period in 2022. 

Explore emerging technologies and industries:

  • Within the African early-stage startup ecosystem, transformative technologies – like blockchain, transcending cryptocurrency, addresses finance and supply chain challenges – are reshaping industries.
  • Artificial Intelligence (AI) propels innovations in healthcare and education, reshaping industries. For instance:
  • Blockchain: Addresses finance and supply chain challenges.
  • AI: Transforms healthcare diagnostics and education.
  • Sustainability: Tech-driven innovative solutions for renewable energy and eco-friendly practices.
  • AI's synergy with data analytics empowers businesses with insights for informed decision-making.
  • Sustainability is a cornerstone, with startups leveraging tech for eco-friendly solutions. From renewable energy to sustainable agriculture, technology aligns with societal and environmental needs.

Notable regulatory changes and ethical considerations:

  • Staying attuned to regulatory shifts is crucial, especially in sectors like fintech. Ethical considerations, such as data privacy and responsible AI usage, are gaining prominence.
  • With the prediction of increased VC deal-sharing, startups must thrive through collaborative platforms, events, and incubators.
  • The interconnected nature of the ecosystem enhances the need for collaborative efforts, offering access to diverse talents, shared insights, and collective problem-solving.

Wrapping up: The African startup funding lens

Amidst the adversities in 2023 that the leaders spoke about, a silver lining emerged – the challenges persist, but so does the indomitable spirit of innovation. 

The path forward demands a commitment to adaptability, collaboration, and a steadfast adherence to the right core values. The stories of those who weathered the storm and emerged stronger serve as beacons of inspiration for the entrepreneurial community. There are a lot of emerging sectors in the African early-stage startup funding ecosystem that offer not just profitability but also solutions to critical issues.

Join the conversation! Whether you're a founder navigating the startup landscape or an investor seeking opportunities, we’d love to hear your thoughts on the lessons from 2023.

Let's foster a culture of collaboration and knowledge-sharing as we navigate the dynamic terrain of African tech entrepreneurship. The journey is ongoing, and your perspectives are integral to shaping the narratives of success in 2024 and beyond. 

Together, let's propel the African startup ecosystem to new heights. Connect with us to continue the dialogue.