Will African Tech VC funding rebound in H2’24?

The African tech startup ecosystem has been facing a funding squeeze in the first half of 2024, with data from Disrupt Africa revealing a 56% drop in funding compared to the corresponding period in 2023. This decline has raised questions about the viability of the current venture capital funding model in Africa, prompting industry experts to reflect on the challenges and opportunities in the sector. Oswald Guobadia, Managing Partner at DigitA, and Raj Kulsaingham, Senior Counsel at Dentons, recently shared their insights on the trends and outlook for African tech VC funding. Guobadia highlighted the need to create a funding model tailored to Africa's unique market dynamics, emphasizing the importance of local funding sources and regulatory frameworks to support startups on the continent. He also noted a shift in investment trends towards sectors like logistics, health tech, and ed tech, signaling a diversification in funding focus. On the other hand, Kulsaingham underscored the impact of macroeconomic factors on VC funding, noting that despite the funding winter, companies with strong fundamentals and clear paths to profitability can still attract investment. He highlighted the emergence of local investors and realistic valuations as key drivers of funding decisions in the current market landscape. As the African tech ecosystem navigates the challenges of the funding squeeze, investors are exploring alternative funding avenues, including debt-funded deals and M&A activities. The shift towards debt funding and strategic partnerships reflects a growing pragmatism among investors seeking to hedge risks and support promising startups amid market uncertainties. Moreover, the rise of climate tech and renewable energy startups presents new opportunities for innovation and investment in Africa. Guobadia shared insights on the burgeoning climate tech sector, citing examples of local startups developing EV solutions and renewable energy technologies. He emphasized the continent's potential to lead in climate tech innovation, leveraging its abundant resources to drive sustainable development. Similarly, Kulsaingham highlighted the role of artificial intelligence (AI) in transforming key industries such as e-commerce, logistics, and healthcare. He stressed the need for AI-driven solutions that address real challenges faced by African consumers and businesses, emphasizing the practical application of AI in solving everyday problems. Looking ahead to the second half of 2024, both experts foresee continued challenges in raising capital but remain optimistic about the resilience and adaptability of the African tech ecosystem. With a renewed focus on realistic valuations, local funding sources, and innovative solutions, African tech startups are poised to weather the funding squeeze and unlock new opportunities for growth. As the industry evolves, stakeholders are urged to prioritize sustainable investments, strategic partnerships, and technology-driven solutions that drive inclusive growth and prosperity across the continent.