Why venture capital investments in Africa have increased

by MMC
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Startups are still popular in Africa. At least that’s what the venture capital figures show investments on the continent show. They reached 3.5 billion dollars during the first six months of the year, an increase of 133% compared to the same period a year earlier, according to a report published on September 29 by the African Association of private equity and venture capital (AVCA). In total, 445 investments were made in 300 companies and notably 27% of them are managed by women or have a woman occupying a management position. “The African venture capital ecosystem has shown upward trends despite rampant inflation and an unfavorable macroeconomic climate. While the global venture capital market experienced significant contractions to varying degrees across regions, the African ecosystem achieved its best performance ever,” the experts said.

In any case, this performance “demonstrates the scale of the opportunities as well as the potential that the continent has to offer”, they underlined. “It is also the result of a concerted effort by African governments in recent years to nurture dynamic and supportive ecosystems, allowing entrepreneurship and investment to flourish,” the authors of the report also underlined, citing the he example of Tanzania and its Silicon Zanzibar platform, which offers work visas and tax incentives to technology companies that set up there.

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An African venture capital ecosystem

Importantly, the increase in investment is largely due to startups raising larger sums to expand on the African continent organically or through acquisitions. Two concrete examples are Kenya-based e-commerce company Wasoko, which raised $125 million to enter Ivory Coast and Senegal, and Kenyan solar fintech M-Kopa, which raised $75 million to expand its activities in Ghana and Nigeria.

A total of $4.7 billion in seed deals were completed on the continent during the period, driven by a significant amount of new capital raised by fund managers in 2021, growing interest in African venture capital ecosystem and overall greater inflows.

In terms of volume, West Africa concentrates the largest share of transactions, led by the Nigerian giant which totals nearly 100 transactions. This is followed by East Africa, which recorded the highest growth in transaction volume compared to the previous year. North Africa (20%), Southern Africa (14%) and Central Africa (1%) close the ranking.

Beyond fintechs, edtechs and cleantechs

Among the sectors that attract investors, finance occupies first place. Fintech startups continued to attract the majority of investment flows, accounting for 89% of transactions in the financial sector. But other sectors, such as health and education, are emerging, particularly in response to the Covid-19 pandemic. “The number of healthcare transactions in the first half showed a gradual evolution compared to last year, representing in total 7% of the cumulative volume of transactions recorded at the start of 2022. It nevertheless remains a growing sector to watch. » By way of context, two startups have achieved real feats: the Ghanaian cancer research and diagnostics startup, Yemaachi Biotech, received $3 million in funding; American company BluePeak Private Capital has invested $15 million in Africure, a pan-African generic drug manufacturer.

Yet it is cleantech that is on the rise, having moved up five places to become the second most active vertical among startups successfully raising funds in the first half of 2022. Cleantech refers to companies that leverage or develop technologies to improve environmental sustainability or reduce the environmental impact caused by human activities. “African entrepreneurs are increasingly motivated to offer innovative, efficient and sustainable solutions or to address pressing socio-environmental challenges. » These include notable deals such as the $19 million Series C round in Kenya-based sanitation and waste startup Sanergy.

Venture capital still has a long way to go

If current trends continue, fundraising in the region will reach $7 billion this year, 35% more than the $5.2 billion raised in 2021, AVCA said. “In addition to Africa’s immunity so far from the global decline in financing, economic growth forecasts for sub-Saharan Africa also suggest a relatively positive outlook for the second half of the year,” AVCA said.

However, there are several indications that transactions on the continent will slow down next year. In particular, private equity fundraising fell 20% in the first half of 2022, to $700 million, according to the report. The decline reflects “a tougher and more competitive fundraising environment for fund managers around the world and fears of a global economic slowdown,” AVCA said. Note that Africa only represents 1% of global venture capital financing in the first half of 2022.

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(Image submitted by Markus Winkler via Unsplash)

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First published in Africa Point, a third-party contributor translated and adapted the article from the original. In the event of any discrepancy, the original will prevail.

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