The State of African Early-Stage Startups: A Funding Drought
African early-stage startups have faced significant challenges over the past three years, with funding levels plummeting and later-stage deals capturing the lion’s share of investment. This trend is highlighted in the African Venture Capital Report 2024 by WeeTracker Media and Future Africa, which reveals a stark shift in the funding landscape.
The Global Downturn and Its Impact
The global investment climate has seen a downturn, often referred to as a "funding winter," and Africa has not been immune. This downturn has disproportionately affected early-stage startups, with their share of overall funding dropping dramatically from 31% in 2021 to just 9% in 2024. This decline underscores the challenges faced by new ventures in securing the capital necessary for growth.
The Shift in Funding Sources
The report indicates that commercial capital has largely exited the early-stage funding arena, leaving behind primarily accelerator and grant capital. These funding sources typically offer smaller amounts, ranging from $10,000 to $100,000, which are often insufficient for startups to scale rapidly. Founders have been observed moving from one accelerator to another in search of limited capital, highlighting the scarcity of resources available for early-stage ventures.
The Changing Landscape for Investors
Mia von Koschitzky-Kimani, Managing Partner at Future Africa, notes that many angel investors have retreated from the African market due to a lack of exits and the allure of higher returns in lower-risk securities. This shift has led early-stage funds to either raise larger amounts and focus on Seed+ stages or struggle to secure smaller funds, leaving grants and small accelerator checks as the primary options for early-stage founders.
The Pipeline Problem
Von Koschitzky-Kimani warns of a looming shortage in the pipeline for Series A+ stages in the coming years, a trend that is already beginning to manifest. The bar for attracting early-stage commercial funding has risen significantly, with funders now seeking a clear path to $1 million in revenue before considering investment. This shift places additional pressure on early-stage startups to demonstrate viability and growth potential.
Data Integrity and Reporting
It’s important to note that the report focuses solely on publicly disclosed deals, which may undervalue the size of unreported early-stage investments. However, the authors emphasize that this approach ensures the integrity and reliability of the data, allowing for a consistent comparison across years.
Growth and Late-Stage Capital
Despite the challenges faced by early-stage startups, the report reveals a positive trend in growth-stage funding. The share of capital aimed at Seed+ to Series C stages increased from 42% in 2023 to 52% in 2024. This resilience is attributed to international capital looking at African deals opportunistically, particularly in the Seed+ to Series B stages.
Late-stage investments, while volatile, have also seen significant activity. In 2024, late-stage funding accounted for 38% of overall funding, down from 49% in 2023. This funding is often concentrated in a few large deals, primarily in the climate and fintech sectors.
Unicorns and Sector Trends
The year 2024 marked the emergence of two new African unicorns: Nigeria’s Moniepoint, which raised $110 million in a Series C round, and South Africa’s Tyme Group, which secured $250 million in a Series D round. Fintech continues to dominate the investment landscape, accounting for at least half of all funding, a trend that has persisted since 2019.
Interestingly, energy and environment-focused companies have gained traction, with funding in this sector rising from just 2% in 2022 to over 27% in 2024, driven by a surge in climate-focused capital.
Global Investment Sentiments
The report highlights that Africa’s venture capital ecosystem closely mirrors global funding trends, particularly those seen in emerging markets like India. The funding patterns observed in the U.S. and India during 2019 and 2020 are reflected in Africa’s landscape, with a similar decline in 2022 and 2023, followed by a modest recovery in 2024.
A New Reality for Founders
Future Africa’s founding partner, Iyinoluwa Aboyeji, emphasizes that the days of abundant and cheap capital are unlikely to return soon. Founders must adapt to a new reality, focusing on building scalable ventures in a capital-efficient manner with a clear path to profitability.
Looking Ahead
The report suggests that Africa’s venture capital landscape is undergoing a recalibration, with players adopting a more measured approach to funding. This shift indicates a maturation of the ecosystem, where long-term value creation is prioritized over short-term gains. As the landscape evolves, the focus will likely remain on sustainable growth and resilience in the face of ongoing challenges.