Kenya trails Nigeria, South Africa in venture capital deals

Accounts for 14% of the Sh598 billion total deals in the continent in 2023.

In Summary

•With the inclusion of venture debt, venture inflows to Africa last year clocked in at $4.5 billion (Sh598.5 billion) across 603 deals.

•This was $2 billion (Sh266 billion) less than 2022, the first decline the industry has seen in a decade.

Some of the African tech startups that qualified for the Africa Startup Initiative Program (ASIP) 2023 Cohort 3 powered by Startupbootcamp (SBC) AfriTech
Some of the African tech startups that qualified for the Africa Startup Initiative Program (ASIP) 2023 Cohort 3 powered by Startupbootcamp (SBC) AfriTech

Kenya trailed Nigeria and South Africa in the number of venture capital deals last year, an industry report indicates, amid a turbulent time characterised by a high capital flight.

The Venture Capital in Africa Report by, the African Private Equity and Venture Capital Association(AVCA), indicates Kenya accounted for 14 per cent of the total deals in 2023, as the continent recorded a decline in funding for startups.

With the inclusion of venture debt, venture inflows to Africa last year clocked in at $4.5 billion (Sh598.5 billion) across 603 deals.

This means Kenya recorded deals worth Sh83.8 billion during the year, where financials Information Technology and Consumer Discretionary (non-essential goods and services such as cars, household appliances and luxury goods) were once again the three most active sectors for venture capital investment.

Nigeria retained its position at the forefront for the third consecutive year, accounting for 19 per cent of venture capital deal volume.

Venture capital (VC) is a form of private equity and a type of financing for startup companies and small businesses with long-term growth potential.

Venture capital generally comes from investors, investment banks, and financial institutions and can also be provided as technical or managerial expertise.

This enduring prominence underscores Nigeria’s vital role in Africa’s silicon savannah, alongside South Africa (18%), Kenya’s 14 per cent and Egypt (11%) - Africa’s “Big 4” - which once again emerged as the primary destinations for venture capital.

The interplay between and shuffle for supremacy among the Big 4 was once again visible in 2023 with South Africa and Kenya making notable ascensions by deal volume in 2023, to land second and third place, respectively.

The margins delineating their standings were notably narrow, reflecting the competitive and dynamic nature of venture capital allocations within these four leading economies.

Coming in fifth place, Morocco has gradually emerged as a significant player in the venture capital ecosystem with 24 deals with a collective value of $17 million (Sh2.3 billion) taking place in the country during the year.

This constituted four per cent of the annual deal volume for 2023. 

A funding drought however forced several early-stage companies to either significantly downscale operations or shut completely.

Some of the notable startups that shut during the include year includes Kenyan logistics platform– Sendy, South African transit data provider WhereIsMyTransport and Nigerian genomics startup–54gene.

In total, just shy of 20 African tech startups formally announced their closure in 2023 - erasing a combined $200 million (26.6 billion) of operational investments.

Major issues that led to the closures included lack of working capital after failing to raise follow-on funding rounds, difficulties establishing sufficient and sustainable market penetration, and allegations of corporate governance misconduct against founders. 

 “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,” AVCA chief executive officer, Abi Mustapha-Maduakor, said. 

As digital transformation decentralises systems, boosts efficiency, and helps provide new talent, Africa's Fintech and IT sectors have attracted the most investment, Maduakor added.

“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," she added.

Some startups managed to avoid the fall, though they were forced to scale down operations to survive in the increasingly tough environment.

Examples include Kenyan e-commerce platform Copia Global, which suspended operations in Uganda in April 2023.

Similarly, Nigerian payments processor Paystack announced plans to reduce their operations outside of Africa, cutting its workforce in Europe and Dubai.

These strategic retreats and hard pivots for growth-focused ventures triggered a series of mass job cuts which resulted in over 1,000 layoffs across the continent in 2023 .

Should the lack of liquidity and present market challenges persist, founders may be forced to make more tough, strategic decisions in order to remain afloat and prioritise profit, AVCA noted.

WATCH: The latest videos from the Star