In first-half 2023, the domestic start-up funding landscape witnessed a significant decline with only US$25million raised in equity and debt deals – marking an 86 percent decrease compared to the same period of the previous year, according to the Ghana Innovation Ecosystem half-year (H) 2023 Report.
This stark drop, the lowest since 2019, has raised concerns among the entrepreneurial community and investors alike… indicating a potential shift in the country’s start-up ecosystem.
The decline in funding comes after a robust 2022, which saw several substantial deals at beginning of the financial year, resulting in a total of US$187million raised. However, the trend seems to have taken a different turn this year.
“2022 saw an exhilarating investment boom; cheap money and outlandish valuations drove investments in Ghana start-ups to a new high. With the increase in the US Fed’s interest rate and inflation, there has been a decline in cheap money globally. Ghana’s startup funding is already feeling the impact. 2023 funding is likely to hit its lowest since 2019,” said Isaac Newton Acquah, Co-Founder of The Innovation Spark, which published the report.
The situation is not unique to Ghana. A global trend known as a ‘funding winter’ – wherein start-up companies receive less funding – started in 2022 and continued for Africa during 2023.
Before that, during the opposite trend – called a ‘funding heatwave’ – the African Big Four countries (Nigeria, South Africa, Kenya and Egypt) collectively raised US$4.6billion between July 2021 and June 2022, according to the aggregator Big Deal Africa. Nigeria led with over US$2billion, followed by Kenya, South Africa and Egypt with just under US$1billion. Four other countries (Senegal, Ghana, Tunisia and Tanzania) crossed the US$100million mark, and seven more claimed over US$10million.
Now, a year later, the situation has changed significantly. Most countries, including the Big Four, experienced a substantial drop in funding. Nigeria saw the most significant decrease, with funding contracting by 77 percent year-on-year. As a result, Egypt took top-spot with the most moderate decline among the Big Four by going down only 25 percent YoY. Egypt remains the only ecosystem with over half a billion dollars in funding. South Africa’s funding was cut in half – down 53 percent, and Kenya’s funding decreased by 69 percent.
In addition to the Big Four, in the four markets where over US$100million had been raised during the funding heatwave, funding decreased dramatically during the funding winter. Tanzania saw a 68 percent YoY decrease, Ghana experienced an 86 percent YoY decrease, while funding in Tunisia and Senegal dropped significantly (from US$222million to US$6million). Four out of seven markets where US$10million to US $100million was raised during the heatwave also suffered significant losses (DRC, Namibia, Zambia and Uganda). Morocco’s funding remained relatively stable year-on-year.
Commenting on the development, Richard Nunekpeku – Vice President, Legal and Strategy at the Ghana Fintech and Payments Association, stated that innovations in the financial technology (fintech) space, particularly, had accounted for new investments prior to 2023.
However, due to the slow pace of new innovations within that sector – coupled with emerging corporate governance issues with some fintech companies that had previously raised a lot of money, investors are beginning to be critical and slow in putting up additional funds.
“Nonetheless, we cannot discount effects of the global economic challenges resulting in many re-alignments on investment needs and industries,” he stated.
He believes the trend of low investor capital/funding is going to continue into the near-future. This, he noted, means that local startups must be innovative with their product or service offerings to capture the eye of investors.
BFTonline