Funding for African startups is increasing, challenging the global trend

as financing for Startups are located all over the world, and Africa stands out as a notable exception, where its deprived population outweighs the impact of inflation and slowing economies.

Funding for startups on the world’s second-largest continent doubled to $3.1 billion (52 billion rand) in the first six months of the year, according to research firm Africa: The Big Deal. This compares with a decline ranging from 3.7% in Europe to 43% in Latin America and the Caribbean.

“Macro trends affecting tech names in developed markets will have less impact on Africa. Clarna, PayPal and others are being exposed to concerns about inflation and what that means,” said Lexi Nowitzki, general partner at Norrsken22, an Africa-focused technology fund set up by Swedish start-up founders. For consumer transactions: “The story of Africa is more about offering an unpenetrated online marketplace.”

If this trend continues, startup funding could surpass the record $5 billion raised last year. Entrepreneurs are racing to provide 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. However, the amount received by African companies is minuscule compared to countries like the United States, where companies raised $123 billion in the first six months of the year, 11% less than last year.

For some investors, this signifies opportunity in Africa.

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

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

solving real problems

“Startups in Africa are solving real problems, as there is no existing business or does not have the dynamism to make changes,” according to the African Private Equity and Venture Capital Association. She added that conventional banks have failed to expand access to financial services and that the crumbling government postal services are providing opportunities for delivery companies.

However, even within African axes they grow 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. The new funding hasn’t changed much in South Africa, according to Narandis.

Nowitzki said the pace of the increase will likely ease in the coming months because economic problems elsewhere are having some impact as several funding rounds were agreed months ago.

“I hear from many founders that things are slower,” said Ido Som, partner at TLcom Capital, an African fund. Nevertheless, he said, “the fundamentals are still very attractive, perhaps more so than in many other areas.” – Anthony Sguazyn, Samuel Gebre and Rene Vollgrave, (c) 2022 Bloomberg LP

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