Can Nigeria and Kenya Sustain Their Dominance in African Startup Funding?

As 2024 winds down, the African startup ecosystem finds itself at a crossroads. November’s $180 million venture funding performance, a 29.1% decline from October’s $254 million, paints a sobering picture of a continent navigating a challenging funding landscape. While the year has seen African startups collectively raise $1.86 billion, it remains uncertain if the total will even hit the modest $2 billion mark—a far cry from 2023’s $2.9 billion.

This decline in funding raises questions about the resilience of Africa’s innovation-driven economy. Traditionally led by stalwarts like Nigeria and Kenya, which together accounted for 76% of November’s funding, the region is witnessing a significant reliance on debt financing. November alone saw $122 million of the $180 million raised come from debt, with Nigerian solar company Sun King contributing a staggering $80 million to this figure. Debt financing, while crucial, raises concerns about the long-term sustainability of startups already grappling with high operational costs and limited access to affordable capital.

Equity funding, which has historically been the backbone of startup growth, has taken a back seat. Only $55.5 million of November’s total funding came from equity, while grants remained a negligible 1% at $2.5 million. This shift could signal a conservative approach from investors, who may be more risk-averse amid global economic uncertainties.

The situation is not without its bright spots. Startups like Kenya’s Mawingu, which secured $15 million in a mix of debt and equity, and Ivory Coast’s fintech star Djamo, which raised $13 million in a Series B round, exemplify the pockets of growth and ambition still thriving within the ecosystem. However, Djamo’s Series B raise is just the seventh of its kind in 2024, underscoring the slowing pace of late-stage investments.

The challenges are multifaceted. A decline in the number of startups securing funding—32 in November versus 42 in October—points to a tightening of the purse strings by investors. This trend coincides with mergers and acquisitions, like the Elmawkaa-Ayen acquisition and the SteamaCo-Shyft Power Solutions merger, which reflect an industry consolidating to weather the storm.

With only a month left in 2024, the African startup ecosystem must confront a stark reality: the unprecedented growth of recent years is no longer guaranteed. Policymakers, investors, and industry leaders must now shift their focus toward creating sustainable pathways for startups. This includes diversifying funding sources, reducing reliance on debt, and fostering an environment where equity investment can thrive.

As African startups continue to defy odds and innovate, their success will hinge on a collective effort to address these structural challenges. The question is no longer whether Africa has the talent and ideas to compete on the global stage—it does. The question is whether its ecosystem can adapt swiftly enough to secure a sustainable and prosprous future.