Africa VC Investment: Record Highs Predicted for This Year

Growth in African Startup Investments

Investment activity within African startups has demonstrated consistent expansion since tracking began in 2015. Initial reports from Disrupt Africa and Partech indicated venture capital investments of $186 million and $277 million, respectively, during that year.

These initial figures, while representing a starting point, were notably smaller when contrasted with funding secured by established U.S. companies like Snapchat. Despite this disparity, the trend has been positive, with increasing capital flowing into the African tech ecosystem.

Record Highs and Pandemic Impact

2019 witnessed a peak in venture capital investments for Africa, as detailed in Partech’s annual report. A total of 234 African tech companies secured $2.02 billion across 250 equity rounds.

This represented a substantial 74% increase compared to the $1.163 billion raised by 146 startups in 164 rounds during 2018.

Initial projections anticipated continued growth into 2020, but the onset of the global pandemic altered this outlook. AfricArena, a tech ecosystem accelerator, forecasted venture capital funding to range between $1.2 billion and $1.8 billion.

Year-end reports from Partech and Briter Bridges ultimately placed total investment at $1.4 billion and $1.3 billion, respectively, aligning with the revised predictions.

Future Projections and Current Trends

Current forecasts from AfricArena predict a further increase in VC funding for African startups, projecting figures between $2.25 billion and $2.8 billion for the current year.

Achieving this would surpass the previous high set in 2019, establishing a new record for the continent.

As of April 30th, disclosed venture capital funding exceeded $800 million, according to Maxime Bayen of BFA Global. Maintaining this momentum throughout the year could result in African startups raising over $2 billion.

Shifts in Investment Patterns

In 2020, while the number of early-stage deals increased, there was a decline in growth-stage deals and the average size of investments. This contributed to the overall reduction in funding activity.

Seed rounds experienced an 80% year-on-year growth, representing 64% of all deals completed. Total seed funding reached $220 million, a 47% increase.

Series A and B rounds also saw growth, with Series A deals increasing by 9% (86 rounds) and Series B deals by 16% (29 rounds). However, the investment amounts for these rounds decreased by 5% ($447 million) and 8% ($449 million), respectively.

Growth deals decreased by 16%, and only two deals exceeded $50 million, compared to ten in 2019, which included companies like Interswitch, OPay, Branch, and Andela.

Factors Influencing Future Growth

Surpassing the $2 billion mark in 2021 hinges on increased deal-making by venture capitalists and the ability of startups to secure large growth rounds similar to those seen in 2019.

The former appears to be progressing, with African startups consistently attracting investment. However, replicating the substantial funding rounds of 2019 remains a challenge.

Currently, only two African startups – fintech companies Flutterwave and TymeBank – have raised over $100 million in a single funding round.