Africa’s startup space has been as humble as the global startup space. With the region getting its share of the ripple effect of the global inflation and financial crisis, funding has not been what it used to be since after H1 2022, writes JOEL NWANKWO:
The complaint about Africa’s 2022 funding rate does not stem from a bad performance but from a desire from Africans to always exceed expectations when it comes to funding.
However, the period did not go without some positives. In fact, the run saw the region surpass its 2021 figures in terms of total funding while also coming out strong in other variables. Despite a more conservative investor environment, VC investment in Africa increased to account for 44% of the value of all private capital deals in 2022.
This development was seen across numerous technology verticals. Investors invested historic amounts of money in African healthtech, according to a report from the Global Private Capital Association (GPCA).
Furthermore, the research claims that investment activity grew outside of the main 4 tech centers (Egypt, Kenya, Nigeria, and South Africa), with cash invested increasing in 16 different African nations year over year. Startups from the Francophone world made significant progress, with notable rounds going to Senegalese fintech Wave and the DRC’s Web3 firm Jambo. Benin, Madagascar, and Sudan all received their first venture capital investments.
Perhaps more notable in the GPCA report was the extent of increased participation of local VCs.
This statistic reflects growth in Africanness of the region’s tech ecosystem, giving local VCs and founders a better capture of the market.
Inward Growth
In 2022, African-led businesses will receive a record $2.2 billion, according to the GPCA analysis, which shows that indigenous founders are a key factor in ecosystem growth. African founders currently receive the majority of investment monies due to the expansion of the VC industry across the continent.
A record $2.2 billion was invested in businesses with at least one African founder in 2022, indicating an increase in investor demand for business people with in-depth understanding of African markets.
As local entrepreneurs grow more aware of the complex VC market and forge ties to capital sources, African-led firms with founders who received their only education on the continent raised $586 million in 2022, setting a new record. Paymob, an Egyptian fintech company co-founded by AUC alums, raised $50 million in a Series B round headed by Paypal Ventures and Clay Point.
The growth of local startup talent is being accompanied by an increase in VC companies launched in Africa. Among Africa’s most active VC investors in 2022 were rising VCs Janade du Plessis of Launch Africa Ventures, Idris Bello of LoftyInc Capital Management, and Kola Aina of Ventures Platform.
What’s the Big Fuss?
A region that continually suffers from dependence on foreign capital controls is surely in need of a local resurgence. No doubt foreign VCs will remain attracted to the region’s burgeoning tech ecosystem. However, this should in no way handicap the activities of local VCs in the continent as has been the case in previous reports.
To really understand why Africa needs to look inwardly for startup growth and financing, it is crucial to consider recent events like the Russo-Ukrainian war and the increased inflation rate in the West. While they had been particular to the West and Europe, they had significantly affected startup funding and flow in Africa.
Foreign investors and venture capitalists have been drawn to the continent’s young, vibrant population and underdeveloped markets, which has spurred the rapid growth of the African digital startup ecosystem in recent years.
The spread of the ecosystem is hampered, however, by the recurring economic and social crises in these countries that have made foreign investors and venture capitalists leery of backing African entrepreneurs.
According to a survey by the Tony Blair Institute for Global Change, between 2014 and 2020, 57% of investments came from venture capital and private equity investors, while only 1% and 10%, respectively, came from institutional investors and enterprises. Local funding for businesses is limited because just 22% of investors participated in African venture capital agreements, compared to around 40% from North America.
Africa’s startup ecosystem looks promising at the moment. An increasing number of local investors and venture capitalists are keen to promote promising startups in their own communities.
Startups can strengthen their bonds with their backers and gain access to their local contacts and knowledge by looking for local investors.
What Next?
By evaluating local financing possibilities, African startups can also minimize their dependency on foreign banks. Local banks and fintech businesses are mushrooming in many African nations, providing a range of financial services, from straightforward savings accounts to digital payment systems.
African governments and local investors must continue to step in to provide the assistance the developing business needs as startup ecosystems throughout the world struggle with a funding shortage.
The Nigerian government launched a $618 million investment project for tech and creative entrepreneurs in March 2023 in collaboration with the African Development Bank, the French government, and the Islamic Development Bank. The government has committed to giving this project $45 million.
It also launched the Nigeria Startup Act‘s implementation committee earlier in the same month. The Act would offer a reliable financing stream for the local startup ecosystem with an annual disbursement of 10 billion naira ($21.7 million) from the statutory fund.
As they strive to become more independent, Africa’s tech sector may grow less vulnerable to foreign shocks.
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