According to a recent report by the African Private Equity and Venture Capital Association, the venture capital and entrepreneurial landscape in Africa is expanding. The value of VC deals in Africa has doubled in just one year to US $ 1.4 bn in 2019 from US$ 0.7 bn in 2018.
The significant expansion in the value of VC transactions in 2019 can be attributed to Africa’s burgeoning startup ecosystem.
However, the majority of VC transactions in Africa are relatively small, as 65 percent of VC deals attract less than $5 million investments which when compared to US VC deals form just 10 percent of the share.
Although Africa has the highest rates of female entrepreneurship in the world, there is a funding gap of about $42 billion between men and women entrepreneurs on the continent, according to the African Development Bank. In 2018, for instance, African startups received some $725 million in venture capital funding. Of this, just 2% went to businesses owned by women.
However, recent social shifts have led many VC funds to course-correct and invest in women in Africa. South Africa’s Alitheia IDF fund had raised $75 million to invest in mid-sized, women-centered businesses.
Janngo Capital, founded by Senegalese entrepreneur Fatoumata Ba, committed 50% of the €60 million ($82 million) it had raised to startups founded, co-founded, or benefiting women. Others taking similar initiatives include Future Africa, a co-investment VC firm founded by Nigerian serial entrepreneur, Iyin Aboyeji and Catalyst Fund
A variety of countries in Africa have pursued policies that enable a conducive business environment for startups and small businesses which is focused on driving the overall number of investments manifold.
These entrepreneurial business solutions have focused on addressing African consumer needs and structural problems and adopted leapfrogging technology to provide innovative solutions to the people.
This has reflected in the stellar performance of startups that have grown in Africa such as a Kenyan-based company, M-Pesa, which provides financial services using a mobile phone platform with over 12 million active users and Jumia, an e-commerce platform and the continent’s first unicorn being valued over 1 billion USD.
The reforms that have been inculcated recently include reducing the complexity and cost of regulatory processes such as eliminating capital requirements and creating a one-stop-shop. 5 Sub-Saharan African economies among the 10 topmost improved globally in ease of doing business in 2014.
This explains the accelerating trend of VC investments in Africa to record highs in 2019 and expectations of growth with a similar intensity in the future.
The evolving nature of external financial inflows to the continent is a testament to the growth of venture capital and private equity investments in Africa.
The reasons why Africa is in such a favorable position – by 2030, it’ll be home to nearly 1.3 Billion people with $6.7 trillion worth of consumer and business. Ease of Doing Business, increased political stability, social mobility of almost half of the population to upper and middle class by 2030 will drastically ease business expansion and generate numerous jobs.
Today, 29 countries in Africa require less than 15 days to open a business.
There is no doubt that Africa provides a promising long-term economic outlook with a new massive market under the world’s largest free-trade area. Africa’s economic potential makes it an increasingly attractive investment destination for investors seeking high-growth businesses with long-term impact.
