The African continent has experienced a resurgence of entrepreneurial initiatives in recent decades. Africa today has a growing global economy, with its gross domestic product (GDP) growing and expected to rise from US$ 2,980.11 billion in 2022 to US$ 4,288.08 billion in 2027, an increase of 43.89%. This development can become a hub of opportunity, provided divisions and infighting do not weaken some countries too much.
Growth greater than 200%
Land of multiple natural and intellectual riches, endowed with a galloping demography with economies in search of development strongly marked by the informal sector, Africa makes people dream. This more or less attractive potential gives rise to start-ups with sometimes very disruptive digital solutions, with a strong social impact but endowed with very high development prospects. Hence the interest of investment funds in search of nuggets, companies with explosive growth.
Africa is today the greed of investment funds and international financial institutions that see in it an Eldorado of promising investments. Especially as the evolution of the startup ecosystem in Africa has taken an extraordinary leap with incredible growth of over 200% in one year. Foreshadowing an even more fertile future for startups.
Investor confidence in the world of African entrepreneurship and innovation has evolved significantly. In 2017, nearly $560 million was raised by African start-ups, an increase of 53% over 2016. Five years later, more than 159 operations marked the first half for a total of funds injected close to double that of the year 2021 The seed rounds continue to take the lion’s share. And even as small-scale fundraisers appear to be holding up, the more advanced operations are also staying the course.
Compared to western countries, funding mobilized in Africa remains minimal at present. However, the mainland nuggets changed at high speed; with nearly US$5.2 billion in funds raised in 2021 and over US$7 billion for start-ups on the continent in 2022. Individual amounts raised already exceed tens or even hundreds of millions of dollars.
The continent’s sprouts attract more and more international investors. And the activities of the African tech ecosystem in 2022 are growing exponentially, allowing the continent to experience the fastest growth in the world and attract twice as many opportunity seekers, including investors who have demonstrated commitment in the market.
This does not mean that we should ignore the support of finance and development institutions such as Proparco, the Agence Française de Développement Group (AFD), the European Union blending mechanisms, the African development (AfDB), BoostAfrica, Muller Medien, to name but some, which have undeniably played a crucial role through the complementarity of interventions that allow the constitution of an ecosystem conducive to the emergence of start-ups (through creation incubators, accelerators, etc.). the most attractive African business ecosystem.
Main sources of investments in African startups
Almost all investors come from North America and mainly from the United States, which is the most active. They were cited at least 200 times in the various transactions that took place during the first half of 2022. After the United States, Africa is the second region that does not measure efforts to promote its nuggets.
More than 1,200 investors have already participated in the various funding rounds for African start-ups during the first half of 2022. As more and more investors around the world turn to Africa, it is US venture capital firms that look be the most active on the continent. The first place goes to the Californian accelerator Y Combinator, followed by the North American African Development Foundation (USADF), which recently entered the African market and is already on the second step of the podium. Asian investors are led by Japan’s Kepple Africa Ventures, which continues to expand its interests on the continent as major Japanese players, including SoftBank Group, seeded there for the first time since 2019.
Other investors such as Gold Ventures, Capital Limited and Partech have also earmarked funds for African startups. Cathay Innovation, led by Chinese investor Mingpo Cai, is also part of this dynamic, providing 150 million euros to young African offspring. The same goes for Cathay Innovation and its partner AfricInvest, who plan to invest in several areas. So far, the startups in Africa that have received the most attention are generally those developing financial technology (FinTech). It can be expected that Cathay Innovation will choose the same, evolving in this sector of activity.
A financial chessboard worth cracking
Several international financial frameworks support the development of innovative entrepreneurship in Africa. They offer technical and financial support to start-ups on the continent, allowing the reinforcement of the capacities of the hubs, incubators and accelerators that support them. These are among others:
-Janngo Capital Startup Fund, the manager’s second investment vehicle, is Africa’s largest technology venture capital fund. The company intends to invest €60 million in startups that leverage technology to achieve the Sustainable Development Goals (SDGs) in Africa. It also plans to inject up to 5 million euros in investments in technological start-ups in the start-up phase. Launched in Davos in 2020, Janngo Capital’s latest fund will invest 50% of its resources in companies founded, co-founded or that benefit women.
-BoostAfrica : a joint initiative supported by the European Union and led by the EIB and the African Development Bank (ADB) with financial support from the African, Caribbean and Pacific Group of States (OACPS). It aims to unlock the entrepreneurial potential of young Africans through venture capital fund investments.
-Proparco : the private sector finance arm of the French Development Agency (AFD Group) with funding of €2.3 billion approved in 2021. As part of the French ChooseAfrica initiative, it intended to commit €3.5 billion to the benefit of African startups, VSEs and SMEs during the period 2018-2022.
🇧🇷Burda Principal Investments (BPI), the growth capital arm of media and technology company Hubert Burda Media, with successful investments in unicorns such as Etsy, Vinted and Carsome.
-Muller Medien, a German family media conglomerate; With its New Business segment, Mueller Medien owns more than 60 seed investments, including Booksy, UrbanSportsClub&bookingkit.
🇧🇷Digital Africa Seed Fund : Launched in November 2019 at the initiative of AFD, it supports innovation in Africa and offers direct financing solutions to African start-ups. It also contributes to strengthening the capabilities of the hubs, incubators and accelerators that support them. With a budget of 15 million euros, it allows AFD to support the programs of six local partners that support and finance digital start-ups from the beginning of their activity.
Many other players remain very active as well, such as USAID, Tiger Global, not forgetting Future Africa, CatalystFund, Microtraction, Raba, Voltron Capital, Social Capital, to name a few.
The four target countries
The quartet formed by fintech, blockchain, healthtech and education are the most represented sectors. As for the candidates’ preferred destinations, they focus on the “Big Four” of the start-ups ecosystem, namely Nigeria where, alone, start-ups raised more than 1.7 billion euros, that is, 34% of all funding in Africa ), Kenya, South Africa and Egypt. These are the four countries on the continent where start-ups raise the most “money” thanks to determinants such as population growth, the presence of talent and relatively controlled political risk. Egypt, South Africa and Kenya also attracted more than half a billion dollars each. Senegal is ranked 5th. Francophone Africa, although accelerating 2.6 times faster than the rest of the continent, is currently lagging behind. The Maghreb countries are far behind in this ranking.
Africa continues to be a land of investment opportunities, sometimes with some uncertainties on the rise. But it is conditioned by the improvement of the political and juridical-legal contexts. Although it is still far from achieving penetration similar to that of the American, European or Asian continent, venture capital investment is registering strong growth in some countries of the African continent. Note, however, that African start-ups need much more than investors and funds to take the next step. External influence games will play a significant role in this emergence of activities in the immaterial African world.
Désiré Kadio-Morokro (MSIE41 from EGE)