I must admit that it is a wonderful time for innovators in the African tech space! If you doubt this, you only need to read an article or ten that describe just how impressively well African tech startups performed in 2021.
Even at the time of this writing, many high-profile multi-million dollar investment rounds have been closed, including the likes of Egypt’s social commerce platform, Brimore, the South African gaming platform, Carry1st, and Nigeria’s wealth management startup, Bamboo, to mention a few.
Considering that we are only seven weeks into 2022, it’s an auspicious way for players in the tech ecosystem to start the year. Is this a good indicator that 2022 will surpass its predecessor funding-wise? Well, that remains to be seen. But there are good reasons to be optimistic.
Let me share a few. Starting with the most obvious, 2021 was a groundbreaking year that witnessed African startups raise record-high investments. For this analysis, I will draw insights from Partech’s 2021 African Tech Venture Capital Report.
2021: Africa’s year in tech investments
When recounting achievements, I think it would be amiss if we did not give credit to whom it is due. For one, investments are not closed in a vacuum. As most startup founders can attest to, it takes a lot of resilience, grit, and determination, not to mention ingenuity, to receive financial support- all of which African founders have in spades. As such, being able to raise astronomical amounts of money calls for hearty congratulations to all our guys.
That said, how did Africa’s tech industry fare across boards during the past year?
Based on the report recently published by Partech, a venture capitalist firm that aggregates funding data, African tech companies- over 600 of them- in 2021 raked in a total of $5.2bn in disclosed funding. This 3.6x year-on-year growth solidifies Africa’s tech VC position as the world’s fastest-growing ecosystem.
Deservedly, this has generated a lot of media attention as it appears that Africa has shaken off the COVID-induced lethargy of 2020. In terms of stage breakdown, seed ($1.2m), series A ($8.8m) and series B ($24.5m) round sizes witnessed a significant increase, while growth deals recorded 12 deals worth at least $100m, totalling $1.9bn of the whole funding value.
With the record sum thrice that of 2020 due to a resurging interest in large rounds (that is, rounds above $50m), particularly growth stage startups like Chipper Cash, Flutterwave and OPay, among others, it won’t be out of place to assume that megadeals and large are back on the table after a hiatus that began way before 2020.
In my last piece, I touched a bit on how Nigeria has become a powerhouse in the African tech ecosystem. That, my friends, is no empty hype!
An estimate of $1.8bn was invested in Nigeria in 2021; this makes up one-third (34 per cent) of all African equity funding, pushing the country far ahead of other African countries. To hear the report tell it, “Nigeria is now playing in its own league” as the “undisputed leader” pulling ahead of other hotbeds for investments in the continent, namely, Egypt, South Africa, Kenya and more recently, Senegal.
According to Partech, fintech, the most funded sector, took 25 per cent of the total African funding raised in 2020. However, players in the space upped their game such that in 2021, fintech startups attracted a whooping $3.2bn which represents 62 per cent of the continent’s total equity. Other sectors too had a good year, though not as much as fintech. The emerging top five sectors that broke into the $200m range are logistics at $388m (six per cent), edtech at $291m (five per cent), commerce at $285m ( five per cent), and enterprise at $261m ( five per cent).
With the fintech sector taking centre stage yet again, it came as no surprise that of the five newly minted unicorns- Flutterwave, Opay, Wave, Chipper Cash and Andela- only the latter does not belong in the fintech category.
Now on to the second reason to be excited about Africa’s exploding tech scene: active participation from local investors.
Addressing the white capital, black founders dilemma
It’s no news that foreign investments make up the bulk of investment secured by African startups. While this is usually a welcome development, many founders are beginning to warm up to the idea of an inclusive African economy where African-based capitals are injected into the continent’s tech ecosystem.
Of course, this concept is based on the assumption that black capital exists in Africa and that the possibilities of unlocking it are high. One argument for increasing local VC participation in the startup ecosystem in Africa is to surmount what African founders perceive as white privilege biases in the attitudes and expectations of foreign investors.
As the tech sector matures, we are beginning to notice a trend among the few indigenous founders who have become the continent’s success stories. 2021 saw more African investors stepping up and providing funding for African startups.
From venture capital funds focused on women-led startups to individual founders who also invest in startups, there’s no doubt that these players better understand the local context and the unique challenges that Africa faces; hence they sit in a unique position to change the funding narrative in the continent.
Another reason Africa’s tech community might be hopeful that this year will surpass the previous one is if governments enact the right regulatory policies.
Are favourable regulatory policies here to stay?
To better stimulate the appeal of Africa’s tech ecosystem as a choice investment destination, governments across the continent are looking at providing startups with greater regulatory clarity, better access to finance, and an enabling environment to scale and grow. Hence the clamour for Startup Laws.
A number of countries in Africa have designed startup bills that would help provide regulatory policy, fiscal and monetary frameworks for innovative entrepreneurship to scale as well as ensure the sustainability of their tech industry. Others like Nigeria are still in the process of changing the status of their startup bill into law.
What the foregoing underscores is the need for more dialogue between African governments and stakeholders within the local tech ecosystem to deepen technological transformation in the continent.
Don’t miss important articles during the week. Subscribe to techbuild.africa weekly digest for updates.