Over the last decade, venture capital funding has played a significant role in developing Africa’s digital ecosystem and resolving limited financing availability.
However, this was not the case last year, as African tech startups faced a myriad of challenges. As predicted, raising venture capital turned out to be a daunting endeavor, characterized by startup closures and employee layoffs, with bridge and down rounds becoming more frequent.
Notably, it is not all gloom for the ecosystem, as the funding downtime acted as a litmus test for what works or doesn’t work in Africa. If anything, the tough times have revealed that B2B e-commerce companies have mostly had unfavorable unit economics and high burn rates.
Emphatically, founders and experts are now calling for African companies to prioritize customer value, revenue generation, and sustainable business models. This in turn highlights the importance of fixing unit economics and overcoming these challenges to build lasting competitive advantages.
But what does the future of Venture Capital in Africa look like in 2024? This is probably the most prevalent question in Africa’s startup scene in recent times.
Investors are expected to be cautious as the global economy slows amid inflationary pressures and tighter monetary policies. African entrepreneurs may find it difficult to raise capital due to investors’ cautious approach and their careful evaluation of risks and returns.
Traditionally, a lot of African startups have looked outside of the continent for funding. According to recent data, foreign venture capitalists account for approximately 77% of venture funding in Africa. This highlights how important it is to make domestic investments in the tech sector of Africa. In this regard, there is a need for African startups to showcase strong capital efficiency and attractive value propositions to get past funding barriers.
Going into the new year, there’s cautious optimism about a potential funding resurgence on the back of raises closed by several Africa-focused funds last year, although uncertainty prevails.
