Startups

Reasons why Africa’s startup growth in 2021 is remarkable globally

Africa's startup growth is phenomenal across many sectors - Startup Lagos

As reports on Africa’s phenomenal growth last year continue to emerge, it is important to review how this growth brightens in comparison with the global arena. While CBS Insights is surprisingly silent on Africa, Partech Africa’s report details that the African startup ecosystem grew faster than any other region globally, with over 2x of the activity of the previous year, and more than 3x of the total amount in investment. They outline total funds across Africa last year at $5.2 billion, across 681 rounds, while Maxime Bayen and Max Cuvellier place this amount at $4.33 billion, utilizing a different methodology.

Without a doubt, this achievement is not only remarkable but timely. At a time when Africa’s economies are feeling the aftershocks of the COVID-19 pandemic and the crippling effects of economic shutdowns through the year before, this growth is coming at a time when African economies need stimulus. Presently the continent touts over six unicorns, with even more soonicorns in the offing.

At the forefront of this growth charge is Nigeria, recording a massive growth from the previous year, especially in fintech. Statistics show that fintech attracted a bulk of investments last year, with fintech drawing in over 50% of the entire sum. There was also increased VC activity across many countries in Africa, with the interest around investing in African startups peaking significantly, for both local and international investors. There is also a renewed energy among communities and founders to establish funds for startups, to enable their faster development across various sectors.

CBS Insight’s report captures over $92.8 billion as money drawn into the US over 3,187 deals last year, with about $52.6 billion from Asia, over 3,297 deals, $22.1 billion from Europe across 1,841 deals, and Latin America and Canada recording $4.08 billion and $2.4 billion respectively. However, the report groups Africa with other regions at $2.5 billion over 317 deals. While many pundits share that the report may be wrong to bundle Africa within a broad spectrum, it is important to outline the many ways through which the growth that Africa’s startup ecosystem is recording is crucial for not just her different economies but for the global scene as well.

Africa’s startup growth: A Cambrian moment

Firstly, Africa’s growth in startup funding signals a significant coming-of-age of the tech ecosystem on the continent. Between 2015 and 2020, investment in Africa has been close to six times faster than what the global average represents. While this is remarkable, many startups are still grappling with challenges in scaling and growth consolidation, on the continent. There is also the paucity of funds and interest being paid to startups at the early stages of growth.

As yet, many startups still struggle considerably with scaling beyond Series B stages of funding, as they sometimes close shop under the harsh economic realities that they face in their countries. A report by BCG shows that since 2014, few startups have been able to move well beyond the Series B stage of funding, but even fewer have been able to mature into full-fledged companies. Significant challenges in harsh government policies and highly fragmented economic environments, lack of access to funding, and poor traction have contributed to making this growth difficult. Due to these, a good number of African startups find that they have to move their headquarters outside the African continent to retain their attractiveness and solidify their growth.

Proof of Africa’s youthful energy and vigor

The spike in investments and interests around Africa’s nascent startup ecosystem is proof of the reservoir of youthful talent that the continent possesses. As the continent with the youngest population, Africa holds the future for talent, especially as internet penetration is growing on the continent, and more and more young people are finding leverage with technology to drive innovation.

The richness of Africa’s youthful talent is recognizable in the ease with which tech talent on the continent is being sourced and poached by foreign companies. Skill and knowledgeability are set to expand even more for Africa’s youth, as internet penetration increases, and as more people get democratized access to learning and tech training. Africa is the future of tech talent!

The experience of the pandemic and the rise of remote work and the gig economy have further assisted in heightening these possibilities, especially for Africa’s tech ecosystem. More than ever, the global startup world is looking to Africa for the best talent. Through greater close-knit partnerships, the power of Africa’s developing startup ecosystem is set to positively impact global markets.

The Crypto conundrum

While a number of African countries have responded with the hammer to the economic prospects of the crypto market, and blockchain technology by extension, there are yet remarkable opportunities for growth there. Africa is reckoned as the fastest-growing crypto market, for emerging economies, and the third fastest globally. This spike in crypto activity and usage is important to take note of as it indicates the increasing possibilities that the market holds, and its attractiveness therewith.

Kenya is spearheading the crypto revolution with its leading use of the P2P trading option, and its dynamic mobile money infrastructure. Through partnerships, the crypto market is steadily and increasingly becoming relevant in the African market, as it is encouraging transactions without unnecessarily cumbersome fees and delays.

Especially in the fintech sector, the power of blockchain technologies to drive innovation and adoption is beyond doubt astounding.

Conclusion

Africa's startup growth in investment is still on an epic rise - Startup Lagos
Summary of raises for the month of January 2022 across deals of $1 million and above

It is remarkable that this growth is not stalling, and is set to hit even greater targets in the new year. This can be seen in the funding that the first month of the new year has brought in already, and how the ecosystem is appearing even more attractive for investors. Within last month, InstaDeep had raked in the largest amount of funding at $100 million Series B, with other startups recording significant wins as well.

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