Investment

Startups in Africa have raised over $3 billion as of the end of the third quarter of 2021

Startups in Africa have raised over $3 billion as of the end of the third quarter of 2021

Startups in Africa and Q3 Roundup

Startups in Africa have far exceeded expectations this year, raising the bar in what appears to be a Cambrian moment for Africa’s tech renaissance. The continent has witnessed significantly huge successes this year in startup growth and engagement. According to Maxime Bayen and Max Cuvellier, startups on the continent have attracted over $3 billion in investment, through 515+ deals of $100,000 and over (with 200 of these deals at $1 million and over), within just three-quarters of the year. Of three-quarters, March, July, August, and September have been the highest performing months, with more than half of the investment coming within these months. August and September particularly, have drawn in over 47% of investment this year, to the tune of $1.4 billion.

Investment in startups in Africa from 2018 to 2021 (YTD)
Investment in startups in Africa (2018 – 2021)

Put in perspective, this year, asides from the spike in mammoth-sized deals across the continent, funding has nearly doubled from last year. According to Techcrunch, even though 2020 proved to be a good year for acquisitions, investment into the continent did not hit up to $2 billion. A lot of this is attributed to the global shakes due to the pandemic, and the increased speculativeness of investors, given the significant market uncertainties during the year. This year, however has proven phenomenal, with over four new unicorns (Flutterwave, Wave, OPay, and Andela), transmogrified from the astounding investment deluge.

In addition to these stats, Nigeria has been a high performer, drawing in 44% of total funding raised this year, so far, at $1.27 billion, followed by South Africa at 16%, Egypt at 15%, and the other 23 countries at 25%. Of the entirety of African countries, over 28 countries on the continent have not recorded any significant funding activity thus far.

It’s startup season: Which are the top investors scouting for African startups?

Andela, Africa's newest unicorn
Andela, Africa’s newest unicorn

In what is now the most involved year for VCs, over 600 investors have participated in at least one of $100,000 deals and above in Africa so far. This shows that many investors are finding value in the African tech space, and are coming in to cast their nets. Still, the stats show, in spite of this flurry of activity, a bulk of these investments come from foreign VC firms, with local investors and high net worth individuals in Africa, not participating enough in the process.

At the top of the list of VCs scouting for scalable initiatives in Africa, and putting money where their mouths are, are Kepple Africa Ventures, Launch Africa Ventures, Y Combinator, LoftyInc Capital Management and Flat6Labs. In an earlier article, we detail what the focus is for each of these investors and how they are hoping to fire the growth potential of startups across the continent. There are still other investors looking at committing greater funds to Africa’s chrysalis of tech innovation. Just earlier, African Development Partners III Fund closed over $1.15 billion to invest in Africa, with a focus around investments with the highest standards of impact and environmental, social, and governance (ESG) work. Following suit, Google has launched a $50 million equity-based investment fund for African startups. Realistically, it is raining investments in Africa!

Fintech, flourishing: As Startups in Africa move upwards

African sectors with largest volume of investments in 2021

Fintech is leading the pack in attracting investment on the continent, especially as investors find huge scalable opportunities in the fintech sector. This year, fintech has attracted over 57% of the entire investment to Africa, to the tune of $1.6 billion, half of which has been raised from startups from Nigeria. With the vast numbers of the unbanked and underserved in Africa’s emerging markets, and the mandate to increase financial inclusion across the continent, the fintech sector has seen a revolution within this year. Many fintech companies are diversifying their business portfolios into the emerging banking space, with neobanking market positions. This is remarkable because these companies are finding ways of challenging traditional banking infrastructure with new market entry strategies such as utilizing credit-led models to capture market share.

There has also been an explosion of relevance on mobile payments and mobile money across the continent, with companies like M-Pesa driving the accelerated pace of this interest. With its recent success, capturing over 50 million active users, the company is making giant strides in branching across Africa, the necessity for mobile payments. Wave also, only recently joined the league of unicorns, with a stupendous rise to this coveted status in just two rounds. Without a doubt, fintech is powering the future of innovation and tech in Africa, with other sectors like energy and education/jobs following behind.

Bridging the Gaps

In spite of this flood of investments to Africa, there are still lingering setbacks, as many startups are still cut off from this funding. With the dynamic and sometimes, volatile market environment in Africa, many startups that are badly positioned for investment opportunities, flounder and fail. As such, many are unbelieving, with some justifiable reasons, as to the tech transformation that these funds are bringing into the African space. While many of these startups are not positioned well for investment, with poor documentation, lack of proper market research and execution fatigue, a number of these startups are likewise not prepared to handle the pressure that comes with VC funding. Without significant traction on their products already, it could be ‘stepping into the quicksand’ for these startups, if they capture funding at this delicate stage of growth. There are also criticisms, articulated in an earlier article of the Silicon Valley-styled investments that come into Africa. Africa is not Silicon Valley, and any investments that should come into the continent should pay adequate attention to the local market contexts of the different countries of Africa.

Also, gaps have come into even clearer light with regards to gender, as Maxime Bayen and Max Cuvellier show that over 94% of funding to Africa has been raised by startups with a male CEO (This includes founding teams with at least a female present). On the flip side, female single founders and all-female founding team counterparts, however, have only attracted about 0.6% of total investments to Africa.

Till infinity and beyond

Africa is reaching for the skies, and is crystallizing remarkable growth in her tech innovation spaces. With a wealth of human capital, and boasting of the youngest population globally, with projections to reach over 840 million youth by 2050, the continent is brimming with talent. Alongside this, mobile penetration is increasing vastly through the entire breadth of the continent, especially in sub-Saharan Africa, as a recent report by GSMA shows.

With a young population, and growing penetration of tech, innovative solutions to Africa’s diverse challenges are coming to the fore. Necessity, it is said, is the mother of invention. With the vast challenges that Africa faces, there exist pari passu, scalable opportunities for value and relevance. This is what is fuelling the increased focus on Africa, and the willingness of the world to invest on Africa’s future.

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