(Agence Ecofin) – The report highlights that debt financing now represents a good alternative for young startups on the continent, while players in the venture capital industry act with circumspection in a context marked by numerous economic uncertainties and geopolitics.
African start-ups operating in the areas of financial technology (fintech), artificial intelligence (AI) and climate technology (climate Tech) captured 58% of venture capital transactions recorded on the continent during the first nine month of 2024, according to a report published on October 31 by the African Private Equity and Venture Capital Association (AVCA).
Titled « Venture Capital Activity in Africa Q3 2024 »the report specifies that 32% of all start-ups having raised funds from venture capital firms between 1is January and October 31 of the current year are active in the fintech field. These tech gems, which operate in segments ranging from cryptocurrencies, electronic payments, mobile wallets and digital banking services, collectively captured $564 million during the period under review.
Artificial intelligence and climate tech start-ups accounted for 26% of the total number of transactions recorded during the first nine months of 2024 (13% for each of the two categories), which highlights the marked preference of investors for sectors that combine sustainability, scalability and technological sophistication.
The report also indicates that venture capital firms have, in total, injected 1.2 billion dollars into African start-ups during the first nine months of 2024. Spread over 313 transactions, these investments represent the most poor performance of the venture capital industry on the continent since 2020.
During the first nine months of 2023, players in this industry had invested $3 billion spread across 405 deals in Africa.
The decline in venture capital flows recorded this year is largely due to the withdrawal of international investors, particularly those from North America, from the continent, in a context marked by strong economic uncertainties, geopolitical tensions, persistent inflation and high interest rates.
North Africa dethrones West Africa
The distribution of investments by sub-region shows that North Africa has surpassed all other sub-regions on the continent in terms of volume and value. After a mixed performance in the first half of 2024, North Africa recorded several high-value funding rounds in the third quarter, boosting funds raised by start-ups in the sub-region during the first nine month of the current year to $368 million spread over 78 transactions.
With $196 million and 75 transactions, East Africa comes second. West Africa, which usually held the first step of the podium, was thus relegated to third place, with fundraising of 185 million dollars and 73 transactions. This is followed by Southern Africa ($152 million spread over 51 transactions) and Central Africa ($6 million spread over 7 transactions).
Start-ups active in several African sub-regions (multi-regions) have, for their part, captured $326 million spread over 29 transactions during the first nine months of 2024.
The African Private Equity and Venture Capital Association also reveals that African start-ups raised $755 million in debt between 1is January and October 31 of the current year compared to 633 million during the same period of the past year.
The median value of venture debt transactions stood at $9.5 million this year, compared to $5 million in 2023 and $5.8 million in 2022. This upward trend reflects both the growing demand for larger debt operations and the growing maturity of start-ups seeking this non-dilutive method of financing, which is increasingly asserting itself as an alternative to equity financing in a context marked by a persistent cooling of the venture capital market.
