Kenya is Africa’s Start-up Funding Top Destination

SUNDAY MARCH 24 2024

Joseph Mutie, craftsman from Kenya’s largest informal settlement- Kibera, changing Ankara fabric to outstanding footwear. PHOTO | POOL

By VINCENT OWINO

Kenya has defied a global funding drought for budding companies to post a 17 percent increase in new start-up investments, toppling Nigeria and Egypt as the continent’s largest destination for start-up financing.

In 2023, 62 Kenyan start-ups raised an estimated $673.78 million from local and international investors, a rise from the $574.8 million raised in 2022, even as the rest of the continent saw a drop in funding, data by start-up research organisation, Disrupt Africa shows.

Nigeria and Egypt, which dominated the start-up funding space in Africa over the past decade, 2023 recorded a drop, which resulted from a global slowdown in investments due to a cocktail of macroeconomic challenges across the world.

“Unlike elsewhere on the continent, Kenya’s total funding is up,” said the report published this week. “Kenya had an overall positive year in 2023, with its total amount of funding actually rising on 2022 levels, although the number of start-ups to secure funding was down like most other destinations.”

In Kenya, most of the funding raised last year went to energy start-ups, with off-grid solar pay-as-you-go firms M-Kopa and Sun King raising $465 million, or 69 percent of the start-up funding received.

Sixteen of the companies were fintechs, nine were e-commerce businesses, seven agri-tech, and five were in health-tech and logistics technology.

“Though the number of start-ups to raise funding in 2023 was down, Kenya nonetheless bucked pan-African trends with the total amount of funding growing, as well as the level of employment created by the start-up ecosystem.”

Twenty-five, or 36 percent, of the 69 start-ups raised at least $1 million last year, a drop from 49 in 2022, but still a higher proportion than in other countries on the continent.

In Africa, the number of funded start-ups dropped from 633 in 2022 to 406 last year, with the total amount raised dropping 28 percent to $2.4 billion, from $3.3 billion the previous year.

Of the four African countries that have traditionally dominated start-up funding on the continent, two saw a drop.

Nigeria’s total investments shrank almost three times from $976 million in 2022 to $399.9 million last year.

Egypt’s start-up investments also dropped from $811 million to $590 million in that period, while South Africa’s rose to $512 million, from $329 million in 2022.

The tracked funding for Africa came from different sources, with venture capital, development financial institutions and angel investors, injecting mostly equity investments (89 percent), and a few debt investments (11 percent).

“The perceived risk of African tech start-up investments means companies remain much more likely to raise equity capital, but later-stage start-ups, especially those in the energy sector, are increasingly able to take on debt funding, and this year in particular some earlier-stage ventures have taken on debt as bridging capital as VC funding declines,” says the report.

Disrupt Africa tracks funding for African start-ups, and where funding amounts are not publicly disclosed, it uses estimates based on funding institution’s standards or history of funding, or hints given by the recipient, meaning the estimated values could be slightly lower or higher than the actual.

The African Venture Capital Association (AVCA), which publishes an annual report of venture capital activity on the continent, is yet to publish the 2023 results, but all indications are that even VC funding generally saw a drop last year.

In Africa, the number of funded start-ups dropped from 633 in 2022 to 406 last year, with the total amount raised dropping 28 percent to $2.4 billion, from $3.3 billion the previous year.