The amount of venture capital funding in the African IT sector keeps falling. In H1 2024, founders raised $779.7 million, the lowest since 2020, according to TechCabal Insights’ most recent State of Tech in Africa (SOTIA) report. With grants, debt agreements, and non-equity increases accounting for more than 25% of total capital, entrepreneurs are nonetheless holding onto a larger share of their businesses.
Even if entrepreneurs are focussing on turning a profit and using cost-cutting measures like layoffs, the number of equity sales remains low. “There’s no glossing over some of the difficulties the African tech ecosystem has seen in the period under review as layoffs continued and mega deals were nowhere to be found,” the report stated.
According to SOTIA, the number of equity deals fell by half and the value of the investments decreased by 24% annually. Approximately $254 million in capital was obtained by founders through loan arrangements.
Nonetheless, venture capital continues to be the most popular source of finance, with the majority going to early-stage companies. Pre-seed companies raised around $12.9 million in 16 rounds. In 20 rounds, seed-stage firms raised $66.2 million. However, just four series-B rounds contributed the majority of venture deal funding—$155 million.
$12.7 million of the total money comes from grants.
The destination of the monies has mostly not changed during this ongoing reduction. The Big Four continue to be trusted by investors. Funding came from Egypt, South Africa, Nigeria, and Kenya, accounting for 65% of total.
That might soon change, though, since in Q2 2024, Benin and Ghana raised $50 million and $18.6 million, respectively, more than South Africa and Nigeria.
Investors’ preferred sector has more new advancements in H1 2024. With nearly $218 million raised in the first half of 2023, the logistics and transportation sector overtook fintech, which had raised $863 million. The energy and water sector received approximately $132 million, closely trailed by the fintech sector, which received $185 million.
According to the study, the telecom, media, and entertainment sector was most negatively affected by the funding shortage, raising just 3.5 million, the least amount since 2021.
