A report by the African Private Capital Association (AVCA) has revealed that the number of venture capital deals in Africa shrank by 36% in Q3 2023 compared to the same period in 2022.
This came as fund managers scaled back their participation in seed and early-stage investments during the period.
In terms of the value of investments, the report showed that African-focused fund managers generated US$1.2 billion in deal value during the third quarter of 2023, which was a 16% drop from the same period last year.
Contrary to the first two quarters of the year where venture capital drove down the value of investments, AVCA observed that the third quarter was mainly impacted by the absence of large private debt deals (deals sized above US$100mn).
This type of deal dominated private debt investments in Q3 2022 totaling US$425 million, and accounting for 73% of private debt deal values and 30% of private capital deal values.
Tough environment
While noting that the environment has not been favourable to investors, hence, the decline in investments, AVCA said:
Fund managers take caution
The report further stated fund managers have remained cautious since the beginning of the year, evidenced by the decline in the total deal value across all ticket sizes. It added that both deals sized below US$100 million and above recorded a significant drop in the total deal value in the first nine months of 2023, compared to the year 2022.
“Both deals below $100 million and above $100 million respectively collapsed by 49% and 63%. This occurs for different reasons. Venture capital has influenced activity levels of deals below US$100 million due to the retreat in seed and early-stage investments, in particular on deals below US$10 million and those comprised between US$50 million and US$99 million.
“On the other side of the spectrum, the sharp decline in deals above US$100 million was mainly the result of the absence of large private debt deals, which were concentrated on smaller deals below US$50 million. It is also worth noting that the absence of upper-middle market private equity deals (US$250mn+) and the decrease in private equity deals sized between US$100 million and US$250 million, contributed to the decline of deals above US$100 million to a lesser extent.”
Significant decline in West Africa
According to the report, deal activity in West Africa experienced the greatest decline as it recorded a 59% drop YoY in Q3 2023, and a 59% drop in 2023 YTD compared to the same period in 2022.
This weighed on the balance of activity observed on a continental scale.
AVCA added that the slowdown in West Africa is a direct consequence of the decline in venture capital investments, which has historically driven deal activity in the region.
The decrease in funding towards venture capital in the region, during the first nine months of 2023 led to a 50% and 59% decrease in the total deal volume and total deal value respectively over the same period in 2022.
