Africa Growing Venture Capital Sector
"The future belongs to those who are innovative in their thinking."
On my previous article Africa Needs Less Charity and More Venture Capital I argued for the need for more public and private investments in Africa and to decrease the reliance on charity in order to create jobs, build and invest in infrastructures, grow African economies sustainably and ensure that we have well functioning African societal institutions and sovereign states.
To keep it short and sweet, charity is a palliative while public and private investments is the cure.
This time, I’ll delve deeper into Africa’s growing venture capital sector.
Over the past week, about 10 people reached out to me through messages and calls, and all of them agreed on the points I made on that article (dissidents are always welcome).
The good news is that it’s not just me and those 10 or 12 people that see the greenfield opportunities available in Africa.
Africa’s startup scene is thriving and Africa has seen a massive growth of capital flowing into these startups.
In terms of startup creation and yearly growth in venture capital funding, Africa is one of the most dynamic and exciting regions in the world.
2016=$367M
2017=$560M
2018=$1.16B
2019=$2.02B
2020=$2.04B
As we can see VC funding in Africa over the past 5 years has seen a growth rate of almost 2x per year.
Although these numbers look healthy and astronomic, when we compare them to more mature startup ecosystems such as the US, UK and India it’s clear the growth potential of Africa.
USA = $156.2B
UK = $15B
India = $11.5B
Africa = $2.04B
The almost two-fold yearly growth in funding into African startups is a testament to the increasing trust of African and foreign investors in the African tech ecosystem and the product of numerous factors.
1) Growing population
Africa has the highest population growth rate globally.
Africa has a population of 1.3 billion and this will grow to 2.4 billion by 2050.
Out of 1.3 billion people, 75% of the population is younger than age 35 and 41% is younger than 15.
2) Internet penetration
Internet penetration in Africa ranges between 35%-55% and Africa has 631 million Internet users.
Asia - 2.6 Billion
Europe - 727 Million
Africa - 631 Million
Even more astonishing is the growth rate of Internet usage in Africa: almost 14000%, while the second place is taken by Asia with 2143%.
3) Mobile adoption
Africa has a mobile adoption of an average of 93% across the continent and the number of mobile Internet subscribers has quadrupled over the past 10 years.
50% of Africans with mobile phones are actively using the Internet and are online.
Africa has 747 million SIM connections and this number is projected to grow to one billion by 2025.
With 444 million mobile subscribers, Africa is home to nearly nine per cent of all global mobile subscriptions.
Around a third of mobile users, 250 million, have a smartphone.
Nearly 300 million new subscribers are expected to access the mobile Internet in the next seven years.
This fertile environment presents numerous opportunities to young and upcoming founders and increases the chances of success of their startups.
4) Changes in population: age, education, income
In addition to having a growing and young population, Africa also has a growing well educated middle class with increasing buying power.
5) Geography
Africa is an underserved region and underserved regions yield more opportunities than more mature and saturated startup ecosystems due to more opportunities for innovation, the existence of untapped markets, pricing advantages and the pioneering mindset of founders and investors which gravitate towards those regions.
6)Changes in perception
There’s a slow perceptional shift and being an entrepreneur or a founder is beginning to be accepted and seen as prestigious as being a doctor, lawyer or accountant.
Investors see Africa as a greenfield market and are increasing their investments and investing long term in the continent.
7)Early stage startups
The proliferation of many new startups is great news for investors because early-stage companies need less capital and there’s a favourable risk/reward outcome.
8) Massive Market
It’s easy to forget that Africa is made up of 54 countries and although when we look at the markets of those countries individually they’re relatively small, as a collective market, the region represents one of the biggest markets in the world.
The recent African Continental Free Trade Area (AfCTA) will facilitate and encourage trade between African countries in what is now the biggest free-trade area in the world in terms of the number of participating countries since the formation of the World Trade Organisation in 1995.
Founders require support to nurture, cultivate and unleash their entrepreneurial ideas and potential, and access to capital in the early stages of company building is often vital.
It’s important to note that VC funding isn’t right for every business. There are many great businesses in Africa with predictable cash flow and revenue but which are not venture backable. In those cases, a line of credit or a loan is more reasonable to grow the business.
However many entrepreneurs don’t have good credit or credit history. They’re often just getting started and taking many financial risks. Hence even where loans are available this isn’t often a viable choice. Therefore equity or debt investment is worthy of consideration.
As an optimist by nature and a pessimist by experience, I’m confident that the growth in venture capital will continue for the coming decades and it won’t be long until Africa attains yearly VC funding in the two digits. All of us must make sure that this capital is first and foremost founder-friendly and we’re all playing the long game.
Africa’s future will be driven by entrepreneurs, pioneers and builders.
Let’s get building.