For the first time in 10 years, the amount of venture capital flowing into Africa saw a 23% reduction in 2023. The total investment fell to $3.6bn, with the number of transactions dropping to 603, down from 854 in the previous year, as per the African Venture Capital Association (AVCA).
The report, obtained by Daily News Egypt, highlights a global downturn in venture capital performance in 2023, attributed to the consecutive increases in interest and inflation rates. This downward trend was initiated in early 2022 and persisted thereafter.
Globally, the value of venture investments last year decreased to $285bn across approximately 28,000 transactions. This represents a 38.3% annual decline, in contrast to the $462bn invested over 40,000 transactions in 2022. The year 2021 saw $690bn in investments across 45,000 transactions.
In 2023, North Africa accounted for 19% of the total transactions, with 104 venture capital deals valued at $532m. This marked a descent to fourth place among other regions, following a top-ranking position in 2022.
The report also noted that Egypt was the fourth most active African country in terms of venture capital activity, completing 60 transactions in 2023. However, this was a drop from its second-place ranking in 2022.
Despite varying regional conditions, no area was spared from the overall decline. North America was responsible for 49% of the reduction between 2023 and 2022, amounting to $86.2bn. Meanwhile, investments in Asia fell by $47bn, accounting for 27% of the global decrease. Europe contributed to 19% of the downturn, with a $33.3bn reduction in investments.
Seed funding remained predominant in Africa last year, representing 37% of all transactions. Yet, the number itself dwindled from 355 transactions in 2022 to 199. Early-stage financing also saw a decrease, with 81 transactions in 2023 compared to 131 in the preceding year. Later-stage financing experienced a significant drop, recording only nine transactions, down from 16 in 2022.
Although there’s a burgeoning interest in large-scale deals, they still constitute a mere 1%-2% of global venture capital transactions. Africa witnessed around 10 significant deals during the year, while the Middle East closed approximately nine. The Americas led with about 270 major deals throughout the year.
Furthermore, the report revealed that the leading sectors attracting investments last year were as follows: the financial sector topped the list, securing 23% of the total investments. This was closely followed by the information technology sector, which garnered 20%. The non-essential goods and services sector claimed third place, accounting for 17%.
Investor focus in Africa is increasingly turning towards sustainable development initiatives and projects aimed at mitigating the effects of climate change. Investment in these areas rose to $258m in 2023, up from $213m the previous year. Additionally, there’s a noticeable surge in interest in artificial intelligence within the African market, although it still lags behind the attention it receives in more technologically advanced economies.
The report also highlighted a positive trend in the funding of organizations led or founded by women, noting an uptick compared to prior years. Despite this progress, a significant disparity persists: male-led organizations received 73% of the investments, while their female-led counterparts managed to secure only 7%.