Venture capital investment in Africa has surged over the last six years, according to a report by the African Private Equity and Venture Capital Association (AVCA).
Venture capital (VC) firms invested a record $1.4bn into African start-ups last year (compared with $0.4bn in 2014), while the number of deals reached a six-year high of 139.
The AVCA report on African VC deal activity between 2014 and 2019 was published on June 24.
Fintech and information technology were the leading start-up segments, both attracting 19% of the 613 VC deals recorded in the six-year period, followed by consumer discretionary (18%) and industrials (12%).
Utilities and energy
African entrepreneurs have had success raising early stage funding in other sectors, such as utilities, driven by investor interest in start-ups developing green energy solutions.
While VC firms globally have begun to show interest in African start-ups, the AVCA report found the majority of investors involved in the VC deals were US-based, accounting for 40% of total investments.
The next most active VC investors between 2014 and 2019 were based in South Africa (9%), the UK (8%) and Nigeria (4%).
Despite growth in the last few years, Africa lags other regions of the world. The continent accounted for a fraction of the $270bn of global VC funding in 2019, according to PitchBook data.
Southern Africa was the leading sub-region for VC investment – attracting a quarter of the 613 deals recorded between 2014 and 2019 – followed by East Africa (23%) and West Africa (21%).
However, the AVCA report found that multi-regional VC deals accounted for half of the total value of VC investment in the period. One notable example is New York-based Andela, which raised $100m in 2019 to help build remote engineering teams across its campuses in East, West and North Africa.
The sub-regions’ largest economies – South Africa (21%), Kenya (18%) and Nigeria (14%) – accounted for the lion’s share of VC deals across the continent, while Egypt (9%) and Ghana (3%) also performed well.
Despite VC investment being concentrated in a handful of economies, technology hubs have emerged in a number of African countries, as governments implement supportive policies to boost entrepreneurial ecosystems.
Senegal became the second African country to pass start-up focused legislation in December 2019, following Tunisia, which passed a pioneering supportive legal framework for start-ups and small businesses in 2018.
Both countries aim to create a better environment for innovation and entrepreneurship by providing tax breaks and reducing complexity of business regulations, said Alexia Alexandropoulou, a research manager at AVCA.
“Adopting such public policies dedicated to start-ups across Africa would create a robust and dynamic ecosystem for Afro-entrepreneurship to thrive, which in turn would stimulate increased and diversified VC investment in Africa,” she added.
Mali, Rwanda and Ghana were also developing supportive start-up legislation prior to the coronavirus crisis.
While the pandemic has posed serious socio-economic challenges to African start-up ecosystems, AVCA is sanguine about VC investment this year.
Several VC firms have managed to raise funds despite the tough market conditions, such as pan-African TLcom Capital which raised a $71m fund in February and invested $1m in Nigerian fintech Okra.
“We anticipate VC deal activity in Africa will remain stable as VC firms continue to deploy capital and support early stage businesses in Africa,” Ms Alexandropoulou said.