The year 2024 has been a challenging one for startups and budding companies in East Africa, with investor funding dropping significantly in the first three quarters. Data from the African Venture Capital Association (AVCA) shows that the value of venture capital funding for startups in the region more than halved to $196 million, down from $480 million in the same period last year.
Private capital, which is primarily injected into slightly older companies, also saw a decline of 50.9 percent to $339 million from $690 million in the previous year. Despite an increase in the number of deals from 66 to 67, the overall funding has decreased, indicating a tough financing environment for scaling and growth.
The decline in investor activity is not unique to East Africa but is particularly pronounced in the region. Global investors, especially those from North America, have pulled back from African investments, leading to a reduction in venture capital flows. Venture capitalists are now showing a preference for established companies with notable founders, rather than early-stage startups, further limiting funds available for innovation.
AVCA noted that this shift towards focusing on existing investments has resulted in fewer deals and a significant decrease in funding, exacerbating the challenges faced by the region in attracting capital. As a result, startups across Africa have had to scale down operations and streamline processes to survive the funding drought.
Globally, funding for startups has decreased by 15 percent in the third quarter of the year. Africa has experienced a sharper decline in venture capital funding compared to other regions, with Southern Africa, Central Africa, West Africa, and North Africa all seeing significant drops in funding for startups.
The healthcare, utilities, real estate, and industrials sectors have been hit the hardest by the funding drought, with a decline in both investor funding and the share of startup funding directed towards them. On the other hand, financial technology (Fintech) and artificial intelligence (AI) startups have been the main recipients of venture capital funding this year, collectively receiving 45 percent of the total funding.
The challenging financing environment in East Africa and across the continent underscores the need for startups to adapt and innovate to survive in these lean times. Despite the funding constraints, the resilience and creativity of African entrepreneurs will continue to drive growth and innovation in the startup ecosystem.
