While the saying goes that “cash is king,” a report by Briter Bridges has brought to light that for African startups, debt also holds a royal status. Faced with the challenge of dwindling funding in 2023, some African startups are turning to debt financing as a strategic means to navigate the challenging landscape and endure the complexities of the past year, 2023.
A report from Briter Bridges, a research and market intelligence firm specializing in emerging economies, unveils that African tech startups have secured over $2.1 billion in debt over the past decade.
The report, titled “Debt Financing in Africa’s Innovative Ecosystem,” reveals that African startups collectively borrowed a total of $2.1 billion between 2014 and 2023. Leading the pack, startups from Kenya secured the largest portion of this debt, obtaining over $800 million through 60 deals. Nigerian startups followed closely as the second-highest on the continent during this period, securing $415 million through more than 40 deals, according to the report.
The prominent startup hubs in Africa, namely Nigeria, Kenya, Egypt, and South Africa, collectively contributed to more than 75% of the total debt funding acquired by African startups, according to the report.
Equity decline in Africa
The report highlighted that debt financing in the African startup ecosystem has surged over the past five years, attributed to a decline in equity funding. According to the findings, from 2019 to H1 2023, debt’s share of the total funding to ventures in Africa has risen significantly, climbing from 4% to 26%.
The report states, “While debt is undeniably playing a pivotal role in Africa’s startup ecosystem, with innovations on the financing side making it more accessible, a major catalyst for the increased prevalence of debt is the substantial decrease in equity funding. Equity funding dropped from $2.6 billion in 2022 to $1.4 billion in 2023.
Over the past decade, digital, technology-enabled, and green companies in Africa have secured over $2 billion in disclosed debt funding from more than 140 funders through a total of more than 200 deals,
Briter Bridges report
“Over the past decade, digital, technology-enabled, and green companies in Africa have secured over $2 billion in disclosed debt funding from more than 140 funders through a total of more than 200 deals,” as outlined in the report by Briter Bridges.
The sectors securing the debt
According to Briter Bridges, in contrast to equity, the majority of debt funding is directed towards companies with collateral, with almost 75% of debt funding allocated to asset-heavy businesses in cleantech, mobility, agriculture, and logistics.
The report notes that while debt funding for startups in Africa has seen an uptick, it has not been evenly distributed across sectors.
“Debt has predominantly been directed to sectors where funding can serve as collateral against assets or other forms of collateral, such as loan books. Notably, the sectors receiving the most funding include cleantech and fintech, driven by specific products within them.
Nearly 50% of disclosed debt funding from 2014 to H1 2023 was channeled into cleantech, primarily focusing on solar home kits and pay-as-you-go products. In fintech, approximately a quarter of debt funding supported asset financing and buy-now-pay-later products. Mobility witnessed debt funding for electric vehicles, while Agrictech utilized it to finance agriculture equipment,” the report elaborates.
The report highlights notable debt deals during the period, including the $200 million secured by Kenyan startup Mkopa, $130 million raised by another Kenyan startup, Sunking, and $50 million obtained by Nigerian startup Lumos.
