(Ecofin Agency) - African venture capital took a serious hit in the first half of 2024, marking a significant downturn after being relatively shielded in the past two years. With the rising cost of money, investors have become more cautious.

Venture capital investments in Africa reached $700 million in the first six months of 2024, dropping over 65% compared to the same period in 2023. The figures were reported in a report by the African Private Equity and Venture Capital Association (AVCA) titled "Venture Capital Activity in Africa Q2 2024”.

The report, released on August 20, highlights that this decline contrasts sharply with signs of recovery in the global venture capital market. Globally, after a double-digit drop in 2023, the value of funds invested in startups decreased by only 3% in the first half of 2024. Europe and Latin America even saw increases in investment value, with rises of 6% and 7%, respectively, while North America and Asia experienced moderate declines of 3% and 16%.

Last year, Africa fared better than any other region in the world during the global venture capital slump, which was driven by economic uncertainties and geopolitical tensions. In contrast, Latin America saw a 64% decline, Europe 39%, Asia 38%, and North America 37%.

The contraction of investments in Africa during the first half of this year is part of a broader global trend in a high-interest-rate environment that is making investors more selective. This market cooling happened later in Africa than in more developed regions of the world.

Venture Debt Gains Popularity

The report also notes that the venture capital investments on the continent were spread across 205 deals, a 25% decrease from the same period the previous year.

Looking at the breakdown by sub-region, West African startups captured 30% of the total investments made in Africa between January 1 and June 30, 2024. East Africa came in second with 22% of the total, followed by North Africa and Southern Africa with 19% each. Central Africa saw just 1%, while startups operating in multiple African sub-regions (multi-regional) attracted 9% of the funds.

By sectors, financial services drew 35% of the investments, followed by consumer goods at 16%, industry at 15%, and information technology at 12%.

In addition, AVCA revealed that African startups raised $428 million in venture debt in the first half of 2024. This form of financing nearly matched equity funding (selling shares to venture capitalists) during the second quarter of the year. Between April 1 and June 30, approximately $295 million was raised through venture debt, which allows tech startups to secure funding without diluting founders' and shareholders' equity.

Over the first six months of this year, 30 venture debt transactions were recorded, with the average deal size reaching $8.8 million, up from $5.4 million in the first half of 2023.