(Ecofin Agency) - The report highlights that debt financing has become a strong alternative for startups across the continent, as venture capital players proceed cautiously amid a landscape filled with economic and geopolitical uncertainties.

African startups in fintech, artificial intelligence (AI), and climate technology have attracted the lion’s share of venture capital on the continent. According to a recent report by the African Private Equity and Venture Capital Association (AVCA), these sectors captured 58% of all venture capital deals in the first nine months of 2024.

The report, titled Venture Capital Activity in Africa Q3 2024, highlights fintech as the top performer, with startups in this space raising 32% of all funds between January 1 and October 31. Together, these fintech companies pulled in $564 million, focusing on areas such as cryptocurrencies, mobile wallets, digital banking, and electronic payments.

Artificial intelligence and climate tech startups also grabbed attention, each representing 13% of the total number of deals. The growing interest in these sectors signals a shift toward investing in scalable and sustainable technologies that address both global challenges and the future of tech innovation.

Despite these strong performances in key sectors, overall venture capital investments in Africa have decreased this year. A total of $1.2 billion was invested across 313 deals by the end of September 2024. This marks a steep drop from $3 billion invested in the same period last year, across 405 deals.

The decrease in venture capital is largely due to a pullback by international investors, particularly from North America, amid global economic uncertainty, high inflation, geopolitical tensions, and rising interest rates.

North Africa Surpasses West Africa in Venture Funding

For the first time, North Africa has outpaced other regions in both the volume and value of venture deals. After a slow start earlier in the year, North Africa saw a surge in funding during the third quarter, leading to a total of $368 million raised over 78 deals by the end of September.

East Africa came in second with $196 million raised through 75 deals, while West Africa, traditionally the top performer, dropped to third with $185 million raised in 73 deals. Southern Africa raised $152 million from 51 deals, while Central Africa lagged with only $6 million from 7 deals.

In a growing trend, startups operating in multiple regions raised $326 million through 29 deals. This reflects the increasing cross-regional investment and collaboration across the continent.

In addition to traditional venture capital, African startups are also turning to debt financing. By the end of October 2024, African startups secured $755 million in venture debt, up from $633 million during the same period in 2023.

The median value of venture debt deals rose to $9.5 million in 2024, compared to $5 million in 2023 and $5.8 million in 2022. This increase reflects the growing demand for larger debt transactions, as more mature startups seek non-dilutive financing alternatives in the face of a cooling equity market.