African startups more than doubled the amount of debt they raised last year, an increase that may continue as the economic slowdown makes equity financing more expensive and unsustainable in the long term.
The continent’s companies raised $1.55 billion in 71 debt deals in 2022, suggesting it has become a strong alternative source of capital for African tech startups, venture capital firm Partech Partners said in a report. .
The increase helped the African tech sector become “one of the few, if not the only, venture capital markets to see net growth financing in 2022,” the Paris-based company said.
Venture capital funding grew 8% to $6.5bn in Africa, while globally it fell 35% last year, according to the company’s annual survey of startups that have the majority of their operations or they derive most of their income from the mainland. Data from market intelligence firm Briter Bridges showed that African startups raised a record $5.3 billion last year.
Fears of a global recession and slowing sales have led to a sell-off at the world’s biggest tech companies, prompting some like Alphabet Inc.’s Google and Amazon.com Inc. to cut jobs at worked. The drop has made private equity and venture capital firms reluctant to invest, raising the cost of capital and forcing startups to seek alternative financing.
The number of active debt investors on the continent is growing 2.5 times year-on-year, with a good mix of local debt institutions, international lenders and development finance institutions, according to the report.
Most of last year’s debt financing went to fintech and cleantech startups such as Moove.Africa and D.Light, the study found.
Kenya attracted more debt than any other African country, with nearly 40% of the total amount raised through 15 deals, while Nigeria received the most equity funding, raising $1.2bn, a 36% decrease compared to the previous year, in a financing of 189 rounds, according to the report.
© 2023 Bloomberg
