Venture Capital Deal In West Africa Plunges By 59% In Q3

The number of venture capital deals in West Africa declined by 59 per cent Year-on-Year in Q3 compared to the same period in 2022, a new report has disclosed.

The report by the African Private Capital Association (AVCA), revealed that the decrease in funding towards venture capital in the region, during the first nine months of 2023 led to a 50 per cent and 59 per cent decrease in the total deal volume and total deal value respectively over the same period in 2022.

The report 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.

In the African region, the report revealed that, the number of venture capital deals in the continent also shrank by 36 per cent in Q3 2023 compared to the same period in 2022.

In terms of the value of investments, the report showed that African-focused fund managers generated $1.2 billion in deal value during the third quarter of 2023, which was a 16 per cent drop from the same period last year.

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Contrary to the first two quarters of the year where venture capital drove down the value of investments, the report observed that the third quarter was mainly impacted by the absence of large private debt deals (deals sized above $100m).

This type of deal dominated private debt investments in Q3 2022 totaling $425 million, accounting for 73 per cent of private debt deal values and 30 per cent of private capital deal values.

AVCA, in a statement, explained that the environment of high-interest rates and deteriorating growth continues to swirl through African markets, and it is weighing on companies’ free cash flows which is of concern to all equity and debt investors.

For instance, the company explained that Africa’s private debt deal value has decreased substantially, going from $580 million in Q3 2022 to $38 million in Q3 2023, further exhibiting the challenges faced by the asset class.

“However, it should be noted that although the number of private debt deals dipped in Q3 2023 to its lowest quarterly rate since Q1 2022, the demand for private debt since the beginning of the year stayed relatively stable (25 deals in 2023 YTD compared to 27 deals in the same period last year),” it added.

The report further stated that fund managers have remained cautious since the beginning of the year, evidenced by the decline in the total deal value across all ticket sizes, adding that both deals sized below $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 per cent and 63 per cent. This occurs for different reasons. Venture capital has influenced activity levels of deals below $100 million due to the retreat in seed and early-stage investments, in particular on deals below $10 million and those between $50 million and $99 million.

“On the other side of the spectrum, the sharp decline in deals above $100 million was mainly the result of the absence of large private debt deals, which were concentrated on smaller deals below $50 million. It is also worth noting that the absence of upper-middle market private equity deals ($250mn+) and the decrease in private equity deals sized between $100 million and $250 million, contributed to the decline of deals above $100 million to a lesser extent,” it further explained.