African tech-dominated startups will continue to attract investment, albeit at a slower pace, after record venture capital funding last year.
The sector has seen inflows of $2.7 billion since January, more than double the $1.2 billion in the first five months of last year, according to data compiled by Futuregrowth Asset Management.
“We still see African venture capital growing year-on-year, but at a more moderate rate of growth,” said Ian Lessem, managing partner of Cape Town-based HAVAIC, which does between four and eight investments in start-up companies. across South Africa, Nigeria and Kenya each year.
The charts and map below show how funding surged last year and which markets will continue to attract the most inflows in the future.
In 2021, Nigeria and South Africa led the way as investment jumped to $5.2 billion, according to Cape Town-based Futuregrowth, which oversees around $12 billion across a number of investment classes. ‘assets. Funding will likely slow in the coming months as US investors, who brought in most of the money last year, pull back amid a slowing global market.
“The fundamentals of many businesses in Africa remain very, very strong,” Lessem said. “Good companies will always raise capital. They may have to work a little harder.
Nigeria, with a population of over 200 million, is an important market in its own right, while Kenyan companies have typically operated in a regional trading bloc of over 170 million people before expanding further.
International funds including Tiger Global LP, Softbank Group, Andreessen Horowitz, General Atlantic LP, Social Capital, Quona Capital Management Ltd. and Dragoneer Investment Group LLC, have invested around $4 billion in African startups in recent years, according to Futuregrowth.
The money mainly went to tech companies providing services in finance, trade, energy, agriculture and health. Some have seen their valuations reach over $1 billion, including Flutterwave Inc., Cash shredderAndela, OPay and Vague.
Africa-focused seed funds such as Norrken 22Novastar Ventures, Partech Africa and TLcom Capital Partners Ltd. are currently raising around $700 million to expand their investments on the continent, according to Futuregrowth.
Nigeria and South Africa attracted the most funds last year, followed by Egypt and Kenya. Senegal and Ghana also place themselves on the startup map, according to research by Futuregrowth.
“Senegal is growing a lot,” said Amrish Narrandes, head of private equity and venture capital at Futuregrowth. Still, “you have the players in those geographies, those three or four will dominate” in the future, he said.
HAVAIC’s Lessem agrees that West Africa is a region to watch.
“You have an interesting new region bubbling up, which is Francophone Africa,” he said. “It’s a reasonably well-functioning trading bloc, a common currency, similar cultures, a large community population and markets, and an ever more tech-savvy youth.”
In South Africa, where the Futuregrowth High-Growth Developmental Equity Fund invests in startups, the value of venture capital deals has increased ninefold since 2016.
Naspers Foundry, Knife Capital Ltd.HAVAIC and Allan Gray Ltd. E squared also help to stimulate growth.
The relative depth of South Africa’s capital markets compared to other African countries will help shield it from declining interest from foreign lenders, Lessem said.
“With deep local capital markets which in recent years have started to focus on venture capital, South Africa is not as dependent on foreign funding as other African markets,” he said. declared. “Their local markets are much less deep.”
There were 122 deals in the country last year, with $832 million (R13.3 billion) raised. The sector is now expected to “stabilize”, Narrandes said.
The South African market is likely too small to see startups grow big enough to raise money through initial public offerings, he said. Instead, they are more likely to be taken up by companies listed on the Johannesburg Stock Exchange.
“The size of the companies is not getting big enough to warrant an IPO locally,” he said. “Given the size of our economy, it makes more sense to be gobbled up by a JSE-listed company.”