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Africa recorded a US$1,4 billion decline in venture capital deals in the first six months of this year as global investors pulled out of big-ticket funding rounds.
The latest report by the African Private Capital Association (AVCA) shows that every investment stage suffered severe contractions by both volume and value, with only 263 VC deals completed in the continent’s venture ecosystem, allocating a total of US$2,1 billion worth of capital to 258 unique companies.
This translates to a 40 percent drop by both volume and value, compared with the US$3,5 billion raised in the same period last year.
The report titled “Africa in the Global Context: Another Lean Year for Venture Capital”, shows investors are now applying a more judicious approach to investment in Africa, although they are still actively allocating capital to start-ups with strong fundamentals.
Venture capital (VC) is a form of private equity that funds start-ups and early-stage, emerging companies with significant potential for growth.
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According to the report, VC investors shied away from big-ticket funding rounds between January and June, with only five super-sized deals raising just over US$1 billion.
This compares unfavourably with last year when nine such deals were completed, raising US$1,3 billion.
The report, however, notes that although the number of start-ups concluding deals with a value of US$100 million or more fell, the proportion of overall funding assumed by these high-profile funding rounds in each quarter remained largely consistent with the historical average.
The “funding winter,” started in the third quarter (July-September) of 2022, mainly as result of the global macroeconomic downturn.
“The funding dips of Q1 2023 and Q2 2023 are better described as a funding plateau. When evaluated against the historical average for the period (2017-2022), industry activity in Africa’s venture capital ecosystem in 2023 compares favourably,” says the report.
Dominating sectors
West Africa attracted the highest overall volume of VC deals in Africa in the first half of 2023, taking up 31 percent of the deals, followed by East Africa (22 percent), North Africa (20 percent) and Southern Africa (20 percent).
On the other hand, the financial sector dominated the venture capital activities during the period, taking up 26 percent of the deals, followed by IT (20 percent), consumer discretionary (15 percent), industrials (nine percent), healthcare (nine percent) and communication services (six percent).
Others were consumer staples (four percent), real estate (four percent) and materials (three percent). – Bloomberg
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