For the first time in almost a decade of consistently strong growth, the number of venture capital deals in Africa decreased by 31% YoY, according to the African Private Capital Association 2023 Venture Capital in Africa Report.

The number of deals was only 545 last year from the record-setting 787 deals struck in 2022. Added to the global downward trend of venture capital, investors faced currency volatility and continued high inflation in Africa, prompting investors to back prospects in portfolio companies with an established track record rather than new ventures. 

According to AVCA, 2023 was a year of significant socio-political and economic upheaval, which led to a global funding winter that saw investors prioritise safer assets rather than VC investments,

The global VC ecosystem has seen a steady global decline since 2022, falling to $285bn in deal value last year, compared to $690bn in 2021. 

The cumulative effect is a market size that represents 41% of capital invested in 2021, signifying a contraction of venture funding around the globe in 2023.

However, while the value of the capital that was channelled into the ecosystem changed amidst the uncertainty, the distribution of this capital remained largely consistent with historical findings. Investors may be writing smaller cheques, but they’re doing so along the same lines as previous years. 

Paradigm Shifts and Evolving Trends

• Both deal volume and value decreased by close to a third – for deal volume, this was the first recorded decrease in a decade.
• The capital free-for-all of 2021 dried up – investors were more cautious about capital allocation decisions. Equity was harder to come by, leading to a US$2 billion deficit between 2022 and 2023.
• Investors shied away from capital intensive deals, which led to the fall of late-stage deals from 16 to 9 deals between 2022 to 2023 and 15 to 10 for super-sized deals within that same time period. 
• Southern Africa was the only region to register positive (20%) YoY growth in 2023, signalling a return to the forefront of venture capital on the continent after several years of modest deal activity.
• In contrast, North Africa - the darling of Africa’s venture capital ecosystem in 2022 - saw a 42% YoY decrease by volume and 52% decrease in value.  
• The rise in climate action amongst VC investors - 87 deals (equal to 16% of the year's aggregate deal count) were directed towards climate-related initiatives in 2023, up from 80 in 2022.
• The number of unique investors participating in both venture capital and debt deals in Africa fell from 1,148 in 2022 to 781.

Trends that Held Firm

• West Africa maintained the top spot for the third consecutive year, with Nigeria as the most active country both in the region and on the continent by deal volume.
• Financials (23%), Information Technology (20%) and Consumer Discretionary (17%) were once again the three most active sectors for venture capital investment.
• FinTech held its position as the leading vertical in the African tech ecosystem, and investors continued to coalesce around Clean and ClimateTech (second most active vertical).
• Gender diverse and female funded startups still lag behind their male counterparts – they accrued 27% of deal volume but just 13% of deal value for the year.
• Despite the reduced presence of (particularly global) investors, Fund Managers, Investment Firms and Corporate Venture Capital remained the three most prominent investor types.

Abi Mustapha-Maduakor, Chief Executive Officer, AVCA, said: “Despite a challenging macroeconomic environment, Africa remains an important region for venture capital investors, reflected by strong participation in deals across various sectors and geographies. As digital transformation decentralises systems, boosts efficiency, and helps provide new talent, Africa's Fintech and IT sectors have attracted the most investment. While climate action evolves as a critical focus driving capital towards the energy transition, food systems and beyond - investors crowd around opportunities in Clean and ClimateTech. As these trends persist, Africa's investment community maintains a profound commitment to the region's growth despite the uncertainty in the global economy."