Digitalization in Africa is awe-inspiring, looking at the impactful effects it has on the people and the rescue it’s given unemployed youths to become economically buoyant.
The digital sphere has witnessed unparalleled growth fueled by the increase in mobile penetration and the passion of youths to save themselves from poverty.
Because technology has so many rooms to excel, this is the reason investors engage in Venture Capital for startups whose potential for growth seems visible.
This capital is responsible for the penetration of tech gurus, contributing their quota in the technology terrain. This trend has grown into a pattern of numerous successful recurring startups across the continent, thus setting higher grounds for venture capital.
This article, therefore, aims to analyse the impact of venture capital and its contribution to increase innovation and economic development in Africa.
Digital Growth (Statistics and Evidences)
The recent outcomes of digitization in Africa have proven to expand the economies of African countries, thanks to the rapid increase of internet and mobile connectivity from users.
The International Telecommunication Union (ITU), asserts that internet penetration in Africa has grown from 2.1% in 2005 to 28.2% in 2020. This statistics has impressively grossed further and awaits a projection for 2024/2025.
Similarly, GSMA concretizes that mobile connectivity is massively gaining stance with over 456 million unique mobile subscribers in Sub-Saharan Africa by the end of 2020, with strong anticipation that the figure is expected to reach 615 million by 2025, according to BCG Global.
Africa as a continent is the second most populated continent in the world. Its demographic structure is a crucial factor responsible for the growth of the digital economy.
In a continent where over 60% of her population falls under age 25, digital explosion is a must. These youths are pumped with passion to work and attain financial freedom for themselves.
They are tech-savvy and adept at creating digital solutions, hence the boom in the continent’s digital economy- BCG Global.
Venture Capital x Tech Startup
Venture capital investments peddle the funding of tech startups with high growth potentials. This funding is expected to swing these businesses into real-time development, so intense that it dominates the market. In Africa, investments as this has witnessed exponential growth over the past decade.
Partech Africa further attests that VC funding in African startups reaches a record of $2.02 billion in 2019, all the way down from $1.16 billion in 2018.
This pattern amazed investors as it trickled down to 2020 and 2021, regardless of the global economic downtime caused by the COVID-19 pandemic (Ventures Africa).
In 2020, records reveal that fintech startups rake in $300 million in venture capital because of its urgency in demand among its users. As a sector, the potential therein, drives the investment consideration from investors.
This adds to the fact that venture capital investments are often dabbled in fintech, e-commerce, and healthtech sectors, due to limitless demand in those sectors ((Business Insider Africa).
The impact of Venture Capital is always evident as it has given rise to major brands we know today but are unaware of their startup history. Below are some popular tech startups who are products of venture capital:
Paystack
In 2020, paystack was acquired by Stripe for a whooping sum of $200 million. Ever since then, it has floated in flourishing digital solutions, providing avenues for businesses to utilize online payments seamlessly.
This Nigerian based platform is a perfect example of how VC through its investment, brings dreams to reality and fosters innovation to beneficial ends.
The company’s success highlights the need for African startups to upscale until they attain significance and attract global interest – BCG Global.
Andela
Andela, also based in Nigeria, was a startup that focused on the training of software developers and liaising them with tech companies on a global front to improve their economic conditions and enable them maximize their skills to unflinching heights. R
enowned entrepreneur, Chan Zuckerberg, pooled over $180 million for funding and failed not to prove the funding otherwise as Andela grew strong in promoting tech skills across the continent on till this day and time – Business Insider Africa.
Some of the impact of the growth of Venture Capital cascades on to the creation of employment opportunities and the benevolence of financial inclusion all narrowing to the impact of the economy.
When venture capital takes place, startups gain ground and seek for more hands to form a team driven by competence, so set goals can be achieved.
The formation of a team automatically leads to the employment of many.
This direct form of employment isn’t just the case here, complementary disciplines are resuscitated in this process. An example is e-commerce leading to the to the rise of logistics, customer service, etc. – Ventures Africa.
Through Venture Capital, financial stables are set right. People who never engage with traditional banks are offered opportunities to do so with mobile banking which of course grants them financial incentives after a recorded active banking pattern. Fintech startups play a pivotal role in enhancing financial inclusion and making payment transactions quick and easy. Typical examples of this are M-Pesa in Kenya, Paga and Moniepoint in Nigeria, notable to drive financial inclusion and proffer solutions to emerging challenges – Business Insider Africa.
Challenges and Opportunities
Data Availability and Infrastructure
The unavailability of data and infrastructure is a common denomination when it comes to challenges that affronts the digital sphere.
This challenge has eaten deep in Africa as there’s little infrastructure to power the internet as much as it should, more worse in remote areas where there’s none at all.
The cost of data and absence of digital infrastructure impedes the progression of startups in the tech industry. This should be provided as it aids the growth of digital economies in Africa – Ventures Africa.
Regulatory Frameworks
The regulatory frameworks guiding the operations of digital players are not vehement enough to ensure its implementation.
Laws and disciplinary boards should be set to monitor and protect the safety of users on the digital space.
This is a challenge as the digital space gets easily exploited through the penetration of unlawful and harmful activities; cyber bullying and stalking, fraud, etc.
A note to Investors: Keep at being relentless with VC as the return on investment would surely pay off and may triple in the nearest future. With the current rapid growth in Africa’s digital landscape, the future is secured and promising.
Be also informed that technology is on a rapid evolution, birthing sectors like edtech, healthtech and agritech, garnering interests like a blazing wildfire in the digital market.
These and more should be incorporated and acted upon not forgetting that these innovative tech solutions should be centred on effectively addressing the needs of Africans amidst trying to preserve culture.
Conclusion
Venture Capital is a leading cause for digital expansion in Africa. Its contribution is weighty to the growth of tech startups and the economy in general.
Despite the challenges surrounding the practice, its potential to the benefit of both the investors and the startup owners shines robustly.
It’s therefore wise for investors to intelligently navigate the populated tech market and seek to empower more tech startups to glorious heights.
The Writer:
Hilary Utuke is the CEO of Korlod Works, a top Digital Marketing firm in Lagos. He’s authored four books including “Digital Strategies for Online Brand Visibility” and created Digital Luminary Pro (TM), a model helping Nigerian Thought Leaders connect with Millenials and GenZ audiences.
