Total investment into the African technology startup ecosystem fell by 27.8%, to $2.4-billion, in 2023, down from a record $3-billion in 2022, as the impacts of the global capital shortage began to make themselves felt on the continent, technology news and research company Disrupt Africa's 'African Tech Startups Funding Report 2023' shows.

This is the first time the sector, which has expanded exponentially in the past few years, has declined since 2016, though a fall in funding of less than one-third is an improvement on projections from earlier in 2023, when a decline of 50% was deemed likely, the report notes.

Africa, like the rest of the world, has been affected by the global “funding winter”, with venture capital drying up and several leading startups forced to cease operations or significantly restructure their operations.

While the African technology space had an impressive 2022, bucking global trends, 2023 signified a reset of sorts. A total of 406 startups raised the $2.4-billion over the course of 2023.

The number of funded ventures was down 35.9% on the 633 that raised funding in 2022. The number of active investors also fell by almost 50%, and mergers and acquisitions activity also witnessed a significant decline, the report notes.

Further, although 2023 was still the third-best year on record in terms of funded ventures, and the second-best year for total capital secured, the total investments represented a significant decline on 2022.

Egypt, Kenya, Nigeria and South Africa remain Africa’s big four from a funding perspective and secured a larger share of total funding between them than in 2022. However, Nigeria saw funding decline tremendously by 59% to under $400-million. That pushed it into fourth position overall, behind Egypt, Kenya and South Africa, though it still had more funded startups than any other market.

Startups also secured capital in 22 other countries, the 'African Tech Startups Funding Report 2023' showed.

The financial technology sector was the most attractive to investors in 2022, with more startups securing funding than any other sector and a combined total that dwarfed all others. However, as with most other sectors, it saw a steep decline in investment, down 33.4% to $964-million in 2023.

“On the face of it, 2023 was a very bad year for African tech from a funding perspective, with the difficulties in obtaining funding as quantified by this report borne out by events on the ground, with companies of all stages battling to stay afloat, and some failing, in this funding winter,” comments Disrupt Africa co-founder Gabriella Mulligan.

“This is not a phenomenon unique to Africa, but rather the result of global headwinds, and the numbers are certainly not as bad as it was looking like they would be back at the end of first or second quarter,” she says.

However, the funding winter would soon turn to spring, with investment inevitably rising again in the coming 12 to 18 months, though perhaps not immediately to the levels of 2022, Disrupt Africa co-founder Tom Jackson adds.

“African tech is still at an early stage of its journey with plenty of room to grow and one relatively bad year from a funding perspective does not change that. The key thing for now is for startups to adjust to this new normal, by plotting a path to more sustainable growth while also ensuring good governance is enshrined within their organisational structures.

“Funds are being raised, and capital is being disbursed, and for the best ventures, and the ecosystem as a whole, 2023 should prove to be little more than a blip on the growth curve,” he says.

Meanwhile, Disrupt Africa has released the current publication for free to make it accessible to those for whom the information is most valuable, namely African entrepreneurs.

It has done so with the help of partners, in investment management companies Flourish Ventures, AAIC Investment and Atlantica Ventures. With their support, Disrupt Africa will be distributing the 'African Tech Startups Funding Report 2023' to as many ecosystem stakeholders as possible.

“As long-term backers of African founders, we are optimistic about the future of the tech ecosystem on the continent and are particularly encouraged by its performance in a globally difficult year,” says Flourish Ventures venture partner Ameya Upadhyay.

“For the sustained growth of the African startup ecosystem, continuous dissemination of information is indispensable. We are pleased to contribute to the efforts of Disrupt Africa, aiming to foster long-term development,” says AAIC Investment Africa principal Hiroki Ishida.

“The African Tech Startups Funding Report 2023 is an essential source of industry insights and funding trends for both emerging technology startups and investors in the region,” comments Atlantica Ventures founding partner Aniko Szigetvari.