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Nigeria, Other African Startups Debt Financing Rises by 106% in 2022

Nigeria, Other African Startups Debt Financing Rises by 106% in 2022

More startups in Nigeria and other African countries turned to debt financing, borrowing $1.55bn in 2022, a 106 per cent year-on-year increase, Partech Africa’s latest funding report has revealed.

The report attributed the rise in start-up debt to the current economic downturn that has made equity capital more expensive and unsustainable.

According to it, a challenging funding environment ensured that debt became a vital alternative source of capital for African tech start-ups in 2022.

Total funds raised by startups in 2022 amounted to $6.5bn.

The report titled ‘2022 Africa Tech Venture Capital’ said, “In 2022, the environment for equity funding was challenging, and the current economic downturn makes the equity capital route to be even more expensive and unsustainable over the long term.

“Last year we saw an increased appetite for debt financing from start-ups that needed to fuel their growth and development. Market segments such as Cleantech and Fintech have built deep and advanced operations, attracting a new generation of debt capital providers with creative structures.”

It noted that debt had become a solid alternative source of capital for African tech start-ups in 2022, representing 24 per cent of the total $6.5bn.

“As a result, despite macroeconomic challenges and currency instability, the volume of debt raised doubled last year (+106 per cent YoY), with a total of $1.5bn debt raised in 71 separate deals (+65 per cent YoY).

“The number of active debt investors on the continent is growing 2.5x YoY, with a good mix of local debt institutions, international lenders with emerging market vehicles and development finance institutions.”

Nigerian start-ups raised $252m in debt financing, behind Kenya’s $608m, and Egypt’s $350m. According to the firm, the African tech sector was one of the few, if not the only, VC markets that had net growth funding in 2022 as VC funding fell by 35 per cent globally.

The General Partner at Partech, Tidjane Deme, said, “2022 was a particularly challenging year for the venture ecosystem worldwide, as venture and growth investors scaled back their investment by a third.

“However, by comparison, our report revealed that the African tech ecosystem showed great resilience, as more investors have doubled their commitment to the continent by investing in local teams and funds dedicated to the market, proving to be the best way forward.”

It added that Nigeria with $1.2bn retained its number one spot as the investment destination spot in Africa, with South Africa’s $830m coming second, Egypt at third with $787m, and Kenya’s $758m at fourth.

The firm said, “Despite seeing a -36 per cent YoY decline in the total invested amount, Nigeria retained the number one spot with $1.2bn. South Africa, Egypt, and Kenya each attracted over US$0.7bn in funding while Ghana completes the top 5 with just over $0.2bn.”

It said that Nigeria remained the number one VC investment destination in Africa, leading in both funding and equity rounds.

“However, Nigeria saw a -36 per cent YoY decline with $1.2bn invested in 189 equity deals, representing just 23 per cent of all equity funding and 27 per cent of all rounds. Nigeria, South Africa, Egypt, and Kenya are still the hotspots for African VC investment.

“In 2022, their contribution to the total volume was relatively flat at 72 per cent. South Africa’s funding remained flat while Egypt and Kenya saw their total funding rise by +21 per cent and +33 per cent YoY, respectively, despite the market downturn.

It also stated that outside of the top four countries, Ghana ($202m), Algeria ($150m), Tunisia ($117m), and Senegal ($105m) were the only other countries that broke the $100m funding mark. “Outside of the top 4 countries, in the rest of Africa, Francophone countries took 49 per cent of ROA deals and 38 per cent of ROA funding (vs. 59 per cent and 37 per cent in 2021),” it further stated.

About Bukola Olanrewaju

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