Funding for African startups doubles in first half of 2022

Bloomberg | Funding for African startups is on track to hit a record this year despite a slowdown globally, according to a recent report.

Venture capital deals on the continent reached US$3.5 billion in the 6 months through June, more than double the amount in the same period a year earlier, according to the African Private Equity and Venture Capital Association (AVCA). The funds were raised by 300 companies, with 27 percent of the companies led by female founders, or having at least one female founder. This compares to 25 percent in the previous year.

The increase in investment is largely driven by startups raising larger amounts to expand on the continent organically or through acquisitions. Kenyan-based e-commerce firm Wasoko raised US$125 million to enter Cote d’Ivoire and Senegal, and Kenyan solar fintech, M-Kopa raised US$75 million to grow operations in Ghana and Nigeria.

Fintech startups continued to attract the majority of investment inflows, accounting for 89 percent of deals in the financial sector. While West Africa accounted for the largest share of deals by volume, East Africa recorded the strongest growth in its share of deal volume when compared to the previous year.

If the current trend continues, fundraising will hit US$7 billion this year, 35 percent more than the US$5.2 billion raised in 2021, the AVCA said. A total of US$4.7 billion in startup deals were done on the continent in the period driven by a significant amount of fresh capital raised by fund managers in 2021, increasing interest in Africa’s venture ecosystem and overall larger ticket sizes.

The continent is also the only market to see more than single-digit growth in the period, according to the report.

Private capital investors achieved 22 full exits between January and June 2022, a 29 percent increase. This compares to 37 percent decline in exits globally as fund managers chose “to hold fast to their portfolio rather than risking divestment at unfavorable prices given falling valuations in public and private markets,” according to the report.

Still, there are indications that deals will slow on the continent next year as private capital fund-raising declined 20 percent in the first half of 2022 to US$700 million, the report shows. The drop reflects “a more challenging and competitive fund-raising environment for fund managers globally and fears of a global economic downturn” AVCA said.