Global Venture Financing Inequity: A Staggering Problem

The Imbalance in Global Venture Capital

The global venture capital ecosystem demonstrates significant inequities. Within the established U.S. market, factors such as an entrepreneur’s race, gender, and age demonstrably influence their access to funding.

Beyond these demographic considerations, geographical limitations also play a crucial role. Recent increases in fintech activity across Latin America and Europe, alongside broader VC growth in several Asian nations, are encouraging. However, a fundamental imbalance persists.

Acknowledging Existing Progress

It’s reasonable to acknowledge that global development is uneven. Building mature startup hubs often requires decades of sustained effort. Furthermore, progress is undeniably occurring in certain regions.

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Despite increasing global interconnectedness, the technological divide between countries isn’t shrinking rapidly enough. Considering the growing populations eager to embrace a more digital lifestyle, investment levels in emerging startup markets are surprisingly low.

Easier access to capital can accelerate ecosystem maturity by enabling faster startup formation cycles. This highlights that insufficient investment isn’t simply a consequence of immaturity, but can also hinder progress.

A Stark Comparison

The disparity in global venture capital distribution was recently highlighted in a public discussion. Dauda Barry, CEO of Adaplay Esports, noted that African startups had secured $500 million in funding during 2021.

This figure contrasted with the $1.4 billion raised across the entire African continent in 2020, according to Barry. Extrapolating from this trend, African startups are projected to raise $2.5 billion in 2021.

Clayton Collins, a media executive, offered a striking comparison. He pointed out that Stripe, a U.S.-Irish company, raised more capital in a single day than the total amount secured by African startups year-to-date.

Essentially, one company headquartered in the U.S. and Ireland surpassed the entire continent’s venture capital funding in a 24-hour period.

Data Verification and Further Exploration

Relying solely on data from social media platforms isn’t ideal for accurate analysis. Therefore, a deeper investigation was undertaken using data from Crunchbase and PitchBook to assess African startup investment in 2021.

This analysis builds upon previous research into the 2020 African startup ecosystem. Additional insights can be found in a discussion with the CEO of Jumia, a publicly traded African e-commerce company.

Are you prepared to examine detailed startup funding figures following recent IPO coverage? Let’s proceed with the analysis.

The Landscape of African Startups

The initial estimate of $500 million regarding African startup funding, as mentioned by Barry, appeared to be a rough approximation, typical of rounded figures. A more detailed examination of the data is therefore warranted.

According to PitchBook’s data on African investments up to 2021, 72 transactions totaling $750.6 million have been recorded. However, focusing solely on companies headquartered in Africa results in a lower figure. Crunchbase reports a total of $746.1 million in equity funding for African companies in 2021, but excluding private equity and non-equity investments reduces this amount to approximately $136.2 million.

Several organizations specialize in tracking African investment trends, including Disrupt-Africa and Partech Partners, the latter of which published a comprehensive report for 2020. Fortunately, Briter Intelligence, a firm concentrating on Africa, maintains its own venture capital database. Their 2021 data indicates 67 African funding rounds exceeding $500 million, excluding investments where the value remains undisclosed.

Reviewing Briter Intelligence’s 2020 report reveals that investment in the continent during the fourth quarter of 2020 was either at or near the $500 million mark, based on visual analysis of their charts.

Considering these various data points, the $500 million figure for African venture capital in 2021 could be accurate, despite inconsistencies in how different organizations calculate these results. With reasonable confidence in this approximate amount, the comparison between Stripe and the African market remains valid.

This disparity is quite remarkable.

It’s important to state that this analysis is not intended as criticism of Stripe. While there are valid reasons to question Stripe’s decision to remain a private company, its ability to secure funding at a valuation of nearly $100 billion is undeniably impressive. The company’s recent capital raise simply highlights the fact that some companies, depending on their location, have access to virtually unlimited capital, while others face significant funding constraints.

The ethical implications of this situation could be debated. However, as such a discussion is unlikely to change perspectives and might alienate some readers, a different approach is preferable: it is surprising that more venture capitalists are not directing investments towards Africa. This situation presents a clear opportunity for investment arbitrage.

The pandemic has facilitated remote investing through platforms like Zoom, effectively bringing Africa as close to investors as Europe, North America, Latin America, or any other region. Furthermore, competition for deals may even be lower! Recent years have also witnessed African tech IPOs and exits exceeding nine figures, demonstrating viable paths to substantial returns.

Beyond arbitrage opportunities, the increasing capital raised by African startups in recent years is encouraging. If they can achieve approximately six times their 2020 total of $1.4 billion (as reported by Partech Africa) this year, they will nearly equal the funding secured by the U.K. during the first quarter alone.

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