BY KENNETH EZE, ABUJA
African startups got up $3.9 million daily in investment from Venture Capitals in 2020 while their counterparts in the US, received VC investment of $428 million per day, in the same period.
Partech Research revealed this in a recent report.
The firm stated in the report that “The degree to which Africa’s tech innovation and investment landscape has been impacted by the COVID-19 pandemic is a mixed bag of results.
“On one side, the number of deals have increased; while at the same time, the total value of the equity deals decreased, by the estimates of a few reports.
“This shows that even though ticket sizes diminished, investment appetite in tech innovation in Africa is high. From a global point of view, Afrca’s tech ecosystem is still miniscule – VCs invested $3.9 million per day into African startups in 2020; while in the US, startups received VC investment of $428 million per day.”
This is remarkable because, the World Bank’s “findings show a 4.3 per cent contraction in the global economy, and Foreign Direct Investment into Africa declined by an estimated 18 per cent in 2020. In parallel to this, the VC market in Africa saw a decline in the total value of deals by 29 per cent,” Partech stated.
“Paradoxically, despite the total equity value and overall ticket sizes being diminished in 2020, Africa’s startup ecosystem recorded the highest number of deals – an increase of 44 per cent in 2020,” Partech added in the statement.
The firm opined that though in comparison to other global regions, Africa underperforms in VC activity.
“Africa’s top-performing market, Nigeria, is an interesting case as it does not appear in the top five countries on the ranking of startups by country of incorporation – many startups that raise capital in Nigeria are not incorporated in the country.
“As Africa’s top ecosystem, Nigeria ranks considerably low in ‘Ease of doing business’. Africa’s second-largest ecosystem, Kenya, had a $5.80 per capita in VC investment in 2020 – the highest in the continent. Kenya is also a top destination for expats.”
Basically, VC approach investment in Africa either from the Nigerian way or the Kenyan way, which is incorporating outside of the country, or seeking capital within their country of incorporation, respectively.
Partech pointed out that markets in Southern Africa are attracting more investments because of lower valuations, while the Egyptian market has gained investor traction because of considerable demographic size.
It called on countries to enact relevant legislation, that is, “Startup Acts”, to make it easier for businesses to incorporate locally, and easier to start a business as an entrepreneur, but also to start a local investment fund and invest in seed-stage businesses from the country.
However, Nigerian startups continue to dominate the fintech sector, largely due to fair regulations being put in place by major banks and the large population that remains unbanked and unconnected.
“Corporate venture capital has the wind in its sails and sees a growing interest in Africa. Interestingly, the link between the corporate open innovation department and the corporate venture capital is not always clear within the corporate. Corporate VC tends to be more medium to long term in its objectives than traditional VCs.”
Based on the AfricArena observations and working with investors across the world, our views are that 2021 will see a substantial surge in deals, accelerating throughout the year. We estimate that investment into tech startups will be between $2.25 and $2.8 billion, making it the best year in the history of tech investment on the continent,” it added.
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