African and MENA startup funding: the 2021 peak and the 2022-2023 decline
In 2021, African tech startups raised a record volume of venture capital, propelled by a global surge in risk appetite and historically low interest rates. Partech Africa’s annual reports documented this wave in detail, tracking total funding across the continent at levels that had been difficult to imagine just a few years earlier. Nigeria, Kenya, South Africa, and Egypt absorbed the bulk of those inflows, together accounting for the majority of deals by both count and capital. In MENA, platforms such as Magnitt documented a parallel boom, with the UAE and Saudi Arabia attracting significant capital into fintech, logistics, and health services.
The contraction that followed was equally pronounced. As global interest rates rose and investor risk sentiment shifted through 2022, venture funds tightened their criteria, extended due diligence timelines, and repriced valuations. Partech Africa’s 2023 report recorded a substantial year-on-year decline in total funding across the continent, a pattern replicated across MENA according to Magnitt’s regional data. Early-stage deals proved more resilient than later rounds, but even seed-level funding became more competitive. Some smaller ecosystem markets in West and East Africa that had attracted first-time investors during the boom saw deal flow dry up more quickly. Established hubs retained a base of activity, partly because they had built local angel networks and a generation of repeat founders capable of navigating tighter conditions.
Revenue-based financing, venture debt, and corporate investors reshape deal flow
The funding reset pushed founders to look beyond conventional term sheets. Revenue-based financing arrangements, under which companies repay capital as a percentage of monthly revenues rather than ceding equity, drew interest from founders in sectors with predictable cash flows: B2B software, logistics platforms, and subscription services. While this instrument is not new globally, its adoption in African and MENA markets accelerated as traditional venture rounds became harder to close on acceptable terms.
Venture debt also became more common, extended by specialist lenders as an adjunct to equity funding for companies that had cleared an initial round but needed non-dilutive capital to reach their next milestone. In markets with more mature financial infrastructure, such as the UAE or South Africa, certain commercial banks began offering tailored products to startups with demonstrable revenue, reducing reliance on offshore lenders.
Corporate investors became a more visible presence in regional deal tables. Telecom operators, financial institutions, and large retail conglomerates across Africa and the Middle East increased their strategic investment activity, targeting startups that could integrate into their own digital transformation programs. For founders, this brought capital alongside distribution reach and regulatory familiarity, though it also introduced questions about long-term alignment of incentives and exit options.
Development finance institutions shifted their programs in parallel. The International Finance Corporation, entities within the African Development Bank Group, and various bilateral funds expanded blended finance structures, combining grants with equity or quasi-equity to lower risk for private co-investors. Climate tech and financial inclusion startups were particular beneficiaries, given their alignment with institutional mandates. In a number of cases, these structures provided the first institutional ticket into a company, which then unlocked subsequent private capital.
Gulf capital, blended finance, and the limits of alternative funding instruments
The emergence of alternative financing instruments reflects a broader shift in how African and Middle Eastern ecosystems are developing. Founders who built companies during the boom on growth metrics and deferred profitability are now, in many cases, managing leaner operations with sharper attention to unit economics. This recalibration has produced a generation of operators with a clearer grasp of their financial fundamentals.
The cross-regional dimension adds a further layer. Gulf sovereign wealth funds, including Saudi Arabia’s Public Investment Fund and Abu Dhabi-based entities, have shown growing interest in African tech through direct investments and as limited partners in Africa-focused venture funds. This creates a new axis of capital for African founders who can demonstrate regional scalability, particularly in payments, logistics, and health services that operate across Arabic and Anglophone Africa. Gulf-based startups seeking to expand into Africa, meanwhile, increasingly look for local equity partners rather than wholly-owned subsidiaries, motivated partly by regulatory requirements and partly by recognition that local knowledge is a competitive advantage.
Open questions persist. Revenue-based financing and venture debt serve revenue-generating companies reasonably well, but they do not work for pre-revenue or deep-tech startups that require patient capital over long investment horizons. Development finance addresses part of that gap, though its processes are often too slow for fast-moving sectors.
The annual funding reports due from Partech Africa, Magnitt, and Briter Bridges for the 2025 cycle will offer the clearest empirical test of whether alternative financing has genuinely compensated for the decline in venture capital, or whether a structural funding gap has taken hold. Founders, local investors, and institutional actors have reorganized around available instruments and, in doing so, appear to be building a more diversified financial architecture than the one that existed at the height of the 2021 surge.
