2024: A Year of Challenges

Venture capital funding in Africa experienced a significant downturn in 2024, reflecting broader global economic challenges. Here are the key insights regarding the state of VC funding in Africa for 2024:

Overall Funding Trends

• Total VC Funding: In 2024, venture capital funding in Africa dropped to $2.2 billion, marking a 25% decrease from 2023 and a staggering 53% decline from 2022. This decline is attributed to various factors, including rising interest rates and a tightening global economic environment.

• Regional Distribution: The “Big Four” countries—Kenya, Nigeria, Egypt, and South Africa—accounted for 84% of total funding. East Africa emerged as the leading region.

Revisit our trends outlook for 2024 if you missed it HERE. 

Regional Breakdown of Funding

Sector Focus

• The primary sectors attracting investment included:

  • Fintech: 35% of total investments.

  • Consumer Goods: 16%.

  • Industry: 15%.

• Notably, there was a shift towards emerging sectors such as AI, climate tech, and renewable energy, which collectively accounted for a significant portion of the investments.

Investment Strategies

• Venture Debt Growth: Startups increasingly turned to venture debt as an alternative financing method, raising approximately $755 million by October 2024, up from $633 million in 2023. The median deal value for venture debt rose to $9.5 million, indicating a growing preference for non-dilutive capital.

• Despite the overall downturn, some startups managed to secure substantial investments, with notable rounds including Tyme Group’s $250 million, MNT-Halan’s $157.5 million, and Moniepoint’s $110 million.

Challenges Facing VC Funding

The decline in funding can be attributed to several challenges:

• A decrease in international investor interest.

• Regulatory hurdles across various regions.

• A high-interest-rate environment that has made traditional equity funding less accessible.

In summary, while venture capital funding in Africa faced significant challenges in 2024, there are signs of resilience as startups adapt through alternative funding strategies and sector diversification. The focus on fintech and emerging technologies suggests potential growth areas for future investment despite the current downturn.

2025: A Year of Recovery and Growth

The outlook for venture capital (VC) investment in Africa for 2025 appears cautiously optimistic, despite the challenges faced in 2024. Here are the key insights regarding the anticipated VC landscape:

Economic Growth Projections

• The African Development Bank projects that Africa’s real GDP growth will average between 3.8% and 4.2% in 2024 and 2025, respectively, which is favorable compared to global averages of 2.9% and 3.2% during the same period. This economic growth may enhance investor confidence and stimulate VC activity.

Recovery from Declines

• After a significant decline in 2024, where Africa saw a 44% drop in VC funding, totaling around $1.1 billion across 294 deals, there is optimism for recovery in 2025. The expectation is that international investors will return to the market, driven by improved geopolitical stability and macroeconomic conditions.

Sector Focus

• Key sectors likely to attract investment include:

  • Renewable Energy

  • Technology

  • Financial Services These sectors are expected to draw healthy investor interest as companies scale up projects and establish stronger market presences.

Increased Local Engagement

• There is a growing trend for local investors to engage more actively in VC funding, recognizing the potential for high returns. This shift is crucial as local participation can help build a robust startup ecosystem. Corporations are also encouraged to allocate capital towards startups, similar to models seen in other regions like Singapore.

Challenges Ahead

• Despite the positive outlook, several structural challenges remain:

  • Fragmented regulatory frameworks.

  • An underdeveloped financial sector.

  • Inadequate infrastructure.

  • High levels of unsustainable debt. Addressing these issues will be vital for creating a conducive environment for investment and growth.

Conclusion

Overall, while the VC landscape in Africa faces hurdles, the combination of projected economic growth, increased local investor engagement, and a focus on promising sectors suggests a potential rebound in VC investment activity in 2025. The success of this recovery will depend on navigating existing challenges and fostering a supportive ecosystem for startups.

Citations

[1] https://knowledge.insead.edu/entrepreneurship/how-africa-can-embrace-venture-capital [2] https://dabafinance.com/en/insights/african-startups-raised-2b-in-2024-here-are-the-15-largest-rounds [3] https://magnitt.com/news/Africa’s-Venture-Capital-Landscape-Key-Insights-from-the-First-9-Months-of-2024-53969 [4] https://www.launchafrica.vc/news/leading-the-charge-with-12-investments-in-h1-2024 [5] https://www.avca.africa/media/kajfuscs/avca_q2_2024_quarterly_report_venture_capital.pdf [6] https://magnitt.com/research/h1-2024-africa-venture-investment-premium-report-50949 [7] https://www.cnbcafrica.com/media/6366961240112/venture-capital-shrinks-by-41-to-hit-91bn-in-2024/ [8] https://www.omfif.org/2025/01/outlook-2025-crucial-bridge-year-for-africa-to-lead-on-the-global-stage/ [9] https://www.statista.com/outlook/fmo/capital-raising/traditional-capital-raising/venture-capital/south-africa [10] https://www.linkedin.com/pulse/afts-rolls-out-africas-fintech-investment-outlook-yprrf [11] https://www.investonline.co.za/investonline-2025-market-outlook/ [12] https://ninetyone.com/en/south-africa/newsroom/macroscope-2025-macro-outlook-foundations-of-a-global-recovery [13] https://ihub.co.ke/around-investment-2024-in-review-outlook-on-2025-and-beyond/