Funding for African start-ups explodes, defying the global trend

As funding for start-ups are falling across the globe, Africa stands out as a notable exception, its underserved population outweighing the impact of inflation and slowing economies.

Funding for start-ups on the world’s second-largest continent more than doubled to $3.1 billion (R52 billion) in the first six months of the year, according to research firm Africa: The Big Deal. This compares to a decline ranging from 3.7% in Europe to 43% in Latin America and the Caribbean.

“Macro trends affecting technology names in developed markets will have less impact on Africa. Klarna, PayPal and others are hurt by fears about inflation and what it means for consumer transactions,” said Lexi Novitske, general partner at Norrsken22, an Africa-focused tech fund set up by the founders. of Swedish start-ups. “The story of Africa is more about bringing the underpenetrated market online.”

If the trend continues, start-up funding could exceed the record $5 billion raised last year. Entrepreneurs are racing to deliver services ranging from payment and healthcare to educational offerings to more than 1.2 billion people on the continent, which lacks adequate financial infrastructure and last-mile delivery. Yet the amount received by African companies is tiny compared to countries like the United States, where companies raised $123 billion in the first six months of the year, 11% less than the last year.

For some investors, this shows the opportunity in Africa.

“The African venture capital market is much less advanced than that of developed markets,” said Amrish Narrandes, head of private equity and venture capital at Cape Town-based Futuregrowth Asset Management. “It follows that we can expect more growth in the African market.”

Africa’s advantages range from the underdeveloped nature of its markets to a relatively young population that is quick to grasp the technology offered by start-ups. The average age of an African is 18, compared to 31 in South America and Asia, the youngest continents, according to Visual Capitalist.

“Solving Real Problems”

“Startups in Africa are solving real problems, where existing businesses either don’t exist or don’t have the momentum to bring about change,” according to the African Private Equity and Venture Capital Association. Traditional banks have failed to expand access to financial services and decrepit state postal services provide opportunities for delivery businesses, he said.

Yet even in Africa, hubs are growing at different speeds. In the six months to June, the amount of seed capital raised more than quadrupled in Kenya, while it more than doubled in Nigeria. New funding has changed little in South Africa, according to Narrandes.

The pace of the increase will also likely ease in the coming months as economic difficulties elsewhere are having some impact, as many funding rounds were agreed months earlier, Novitske said.

“I hear from many founders that things are slower,” said Ido Sum, partner at TLcom Capital, a pan-African fund. Even so, “the fundamentals are still very attractive, probably more so than many other regions,” he said. — Antony Sguazzin, Samuel Gebre and René Vollgraaff, (c) 2022 Bloomberg LP

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