The African Private Capital Association (AVCA) yesterday released its 2023 Venture Capital in Africa Report, an industry-based annual report on venture capital performance in Africa.

In the report, Africa attracted a combined $4.5 billion in venture capital and venture debt investment in 2023, across 603 deals. While West Africa maintained the top spot for the third consecutive year, Nigeria was the most active country both in the region and on the continent by deal volume.

The report maintained that the financial sector maintained its position as the best-funded vertical with 23 per cent of deal volume and 48 per cent of deal value, while the information technology sector was the second-most active sector in terms of volume with 107 deals concluded in 2023.

It stated that climate-related investments gained momentum in 2023, rising to close to $790 million, while African startups employing AI-related technologies raised $641 million across 103 deals between 2022 and 2023.

The report noted that 10 super-sized deals took place in 2023 accounting for almost half of the total deal value at $1.9 billion, while Southern Africa was the only region to register positive year-on-year growth in 2023 at 20 per cent.

The report is a comprehensive overview of Africa’s innovative ecosystem, providing critical insights into the sub-regions, countries, and sectors that have cemented Africa’s rising position as a region for venture capital (VC) activity. It provides an analysis of the latest trends and developments in Africa’s start-up investment landscape and the profile of the investors who are active on the continent.

Last year was a year of significant socio-political and economic upheaval, which led to a global funding winter that saw investors prioritise safer assets rather than VC investments.

The global VC ecosystem has seen a steady global decline since 2022, falling to $285 billion in deal value last year, compared to $690 billion in 2021. The cumulative effect is a market size that represents 41 per cent of capital invested in 2021, signifying a contraction of venture funding around the globe in 2023.

In response to the market headwinds, some trends in Africa’s VC ecosystem – which have remained relatively consistent year-on-year (YoY) – have been disrupted while other trends remained the same. For the first time in almost a decade of consistently strong growth, the number of venture capital deals in Africa decreased by 31 per cent YoY to 545 last year from the record-setting 787 deals struck in 2022.

Added to the global downward trend of venture capital, investors faced currency volatility and continued high inflation in Africa, prompting investors to back prospects in portfolio companies with an established track record rather than new ventures.

Chief Executive Officer, AVCA, Abi Mustapha-Maduakor, said: “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.”