Africa’s blockchain industry raised $135.4 million from 17 deals in 2023, with a median deal size of $2 million, a report by Swiss venture capital firm Crypto Valley VC (CV VC) reveals. While this was a massive drop from the year prior, Centbee co-founder Lorien Gamaroff believes that there’s still a vast addressable market for blockchain in Africa.
The CV VC African Blockchain Report 2023 revealed that in 2023, African startups accounted for 1.3% of global sector deals, which rose to an all-time high of 1.8% in the first half of the year. However, venture funding share dropped from 1.6% to 1.3% last year and dipped even further in H1 this year to 0.6%.
The $135.4 million raised last year was 72% lower than in 2022, when the region had attracted $474 million. Blockchain’s prominence in the tech sector also dipped last year, from accounting for 15.1% of all funding in African startups to 6.1%.
The sector has yet to recover, the report shows. In the first half of the year, it only attracted $34.7 million, a 70% dip year-over-year.
According to Gamaroff, whose startup has pioneered blockchain payments across the region, some macro factors at play extend beyond the region.
“The 70% drop in VC funding for blockchain startups in Africa in the first half of 2024 reflects broader global economic trends. Globally, blockchain funding declined by 64%, indicating a cautious investment climate,” he tells CoinGeek.
Indeed, venture funding has slowed down in recent years despite the rise of artificial intelligence (AI) and the billions of dollars that have gone into the shiny new technology. In 2023, startups attracted $285 billion globally, the lowest figure since 2018.
Africa has been particularly affected; according to a report by industry body AVCA, VC funding to the continent decreased 38% year-over-year in 2023.
However, there are also some micro factors that have contributed to the downturn, says Gamaroff.
“…the situation in Africa also involves region-specific challenges, such as regulatory uncertainty, infrastructure limitations, and the need for enhanced cybersecurity measures.”
It’s not all gloom, however. The CV VC report revealed that the number of deals in the region’s blockchain sector increased by 9% in the first half of the year, which indicates “continued interest and activity in the sector” and shows that “there is still robust engagement in blockchain innovations across the continent,” Gamaroff believes.
Africa’s blockchain opportunity
The CV VC report revealed that investors have mainly targeted African blockchain startups in the seed or early-stage rounds. The region is now home to three blockchain unicorns, the latest being Scroll, an Ethereum scaling solution based in Seychelles that raised $50 million last year at a $1.8 billion valuation. It joined KuCoin and BitGet, two exchanges also based in the tiny island nation.
Seychelles and South Africa dominated blockchain fundraising, accounting for an overwhelming 95% of all VC investment in the continent. Egypt and Kenya accounted for 2% each.
While African startups have failed to keep up with global peers on total funds raised, they have ranked highly on the median deal size. In the first half of the year, this figure rose 10% to hit $2.2 million, which was 8% higher than the global median.
Gamaroff believes that African blockchain startups have unique attractions for global investors.
“Africa’s vast remittance market, agricultural sector, and need for transparent identity governance present significant opportunities for blockchain adoption. The continent’s leapfrogging of traditional infrastructure allows for innovative solutions that can have profound impacts on financial inclusion and other critical areas,” he told CoinGeek.
On the other hand, the region faces some unique challenges, such as a lack of infrastructure that limits blockchain adoption. Regulations have also posed a significant risk for investors. According to CV VC, of the 54 African nations, only six have a clear legal framework for digital assets. The majority retain an uncertain hands-off stance, while eight have implicit bans, and four North African states have outright bans.
Source: Crypto Valley VC African Blockchain Report 2023
Payments remain the most popular blockchain application on the continent. According to the World Bank, two-thirds of African adults are unbanked; blockchain and digital assets offer a bridge over the inaccessible and costly legacy banking system for this marginalized majority. Centbee, for instance, allows its users to pay for groceries and utilities and send money across the region and beyond instantly and for a hundredth of a penny in charges.
Gamaroff says that the technology is gradually expanding beyond payments.
“There is notable interest in digital identity solutions, SocialFi (social finance), tokenization and other areas where blockchain can provide transparency, security, and efficiency.”
More African startups are also increasingly exploring the technology in “infrastructure, personal identification, record-keeping, and access to financial independence.”
“These diverse applications of blockchain technology demonstrate its potential to address various socio-economic challenges and drive innovation across multiple industries, making African startups appealing to investors seeking impactful and sustainable solutions,” he added.
Watch: Emerging Technology In Africa with Becky Liggero
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