Future of African startups at a crossroads

The future of startups on the continent is in limbo. [Courtesy]

Kenyan startups topped the continent in funding volume in the first half of this year even as questions emerge on the future of startups in Africa.

A report by Briter Bridges, a think tank with interest in the private sector, technology and innovation, details the wave of startup shutdowns and a slowdown in investment as some of the reasons the future of startups on the continent is in limbo.

A look at the report shows solar energy was a favourite investment product for funders betting on startups in Africa during the review period.  

The report lists solar energy among the top products funded both in terms of volume and number of deals.

This is possibly due to the increasing awareness of climate change, which points to the sustained adoption of renewable energy. 

The H1 Africa Investment Report covers the first half of 2023 and was published in August.

Solar energy is second in both lists of funding volumes and deals. More than 10 deals in solar energy were struck in the review period, attracting  $345 million  (Sh51.8 billion) in funding. 

While super apps (web or mobile applications with multiple services) led in funding with $400 million (Sh60 billion), credit and lending attracted more deals. 

The list of top products also includes solar home kits, which attracted funding amounting to  $155 million (Sh23.2 billion). 

The report shows Kenya attracted the most funding with $520 million (Sh78 billion) on the continent followed by Egypt’s $510 million (Sh76.5 billion), South Africa’s $400 million (Sh60 billion), Rwanda’s $280 million (Sh42 billion) and Nigeria’s $280 million (Sh42 billion). 

Nigeria, however, had the highest number of deals standing at over 100, followed by Kenya with more than 80, South Africa with 60+, Ghana with 35+, and Egypt with 15+.

The top 10 funded products by funding volume were super apps $400 million (Sh60 billion), solar energy  $345 million (Sh51.8 billion); medical delivery $330 million (Sh49.5 billion), payments $165 million (Sh24.8 billion); solar home kits $155 million (Sh23.2 billion) and asset finance $110 million (Sh16.5 billion).

Others were banking $75 million (Sh11.2 billion); Buy Now Pay Later, otherwise known as BNPL, $55 million (Sh8.3 billion); business-to-business (B2B) commerce $50 million (Sh7.2 billion) and credit and lending $45 million (Sh6.8 billion). 

The top 10 products by number of deals were credit and lending, solar energy, e-learning, professional skills development, payments, telemedicine, online marketplace, insuretech, supply chain management and B2B commerce. 

The report noted that the markets that experienced the biggest drop-off in funding in the first half of 2023 were also those that saw the fastest increase in funding in 2021 and 2022. 

For example, Egypt experienced the sharpest decline in deal activity in the first half of 2023 following its rapid ascent into the top three in 2022. 

“Similarly, Nigeria, which saw the minting of the most unicorns in Africa, saw the biggest drop off in funding volumes,” the report says.

Further, South Africa, which saw the lowest share of funding amongst the big four last year, has captured the largest share of funding so far this year.

“Unlike the rest of the big four, this has largely been driven by a clustering of deals at the mid-stage where the rest of the continent is feeling the squeeze,” notes the report.

“Similarly, Kenya has remained resilient in terms of number of deals.”

The report indicates that while the continent’s innovation industry is now worth more than $21 billion (Sh3.15 trillion), the current macroeconomics pokes holes into the viability of investors pumping their money into startups in Africa. 

“This milestone has come at a time where the change in the global macro environment is raising questions about the viability of investing in startups, let alone in Africa,” says the report in part. 

It adds that the first six months of 2023 have been particularly challenging for startups and investors alike looking to raise funding.

“The volume of funding dropped by 26 per cent from the second half of 2022 to the first half of 2023 and has largely been on a downward trend in 2023 even when factoring in substantial mega deals (those exceeding USD100 million) such as MTN Halan and Planet42,” says the report. 

The slowdown is also witnessed in deal activity, with the majority of deals happening at the incubator or accelerator stages. 

“Deal activity slowed in the first six months of 2023 with the exception of June where six accelerator and entrepreneurship support organisations (ESO) programmes announced new cohorts,” adds the report. 

It points back to 2022, defining it as a pivotal juncture when the downturn can be traced. This is particularly in the initial half, characterised by a steeper decline than its latter counterpart.

“While signs of recovery became discernible, the subsequent trajectory indicated that a full recuperation was elusive,” the report states. 

It explains that the stark contrast between the two halves of the year underscores the complexities at play. It adds that the rebound experienced later in 2022 was insufficient to fully counteract the initial downturn, thus marking the start of a challenging phase for the funding landscape, the ramifications of which reverberated through subsequent periods.

“The initial half of the current year has unfolded as a continuation of the declining trend in deal volumes, mirroring the trajectory that has been persistently observed over preceding periods,” says the report. 

And despite any anticipations for a potential reversal or stabilisation, Briter Bridges says the ongoing months have demonstrated a sustained adherence to the downward trend, contributing to a sense of consistency in the overall funding landscape.

The report indicates that at the conclusion of the first half, African startups surpassed the $20 billion (Sh2.9 trillion) mark for the first time in 15 years.

“This indeed is a landmark, but it comes at a time when many in the investment and innovation ecosystem are asking what the future of investing in Africa looks like,” says the report.

The 27-page report documents several challenges founders of startups in the region are going through, informing several difficult business decisions like closing shop. “Many startups have needed to shut down, while many funds have struggled to meet their target closes,” says the report.

“Others have been forced to take write-downs on their valuations and make deep cuts to their teams,” says the Briter Bridges report. It details that startup funding in Africa experienced a decline to $1 billion (Sh145 billion) during the first half of this year, which is a contrast to $1.5 billion (Sh225 billion) in the second half of 2022 and $1.8 billion (Sh270 billion) in the first half of last year.


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