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In Africa, private capital gathers momentum


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Investor confidence in venture capital in Africa stays strong during global uncertainty

By Victor Adar

Venture debt has emerged from the periphery to become a key component of the African investment ecosystem in recent years, as early-stage and high-growth companies opt to remain private longer and seek creative forms of financing that minimize founder dilution.

According to the African Private Capital Association’s (AVCA) 2022 Venture Capital in Africa Report, private capital inflows continue to propel economic growth and inclusion across the continent.

The report captures venture capital performance, value, and investment stage, putting Africa’s venture funding market at $6.5 billion across 853 deals, including $1.3 billion of venture debt.

It also highlights that the number of ownership of companies that were sold to a few investors in Africa last year, popular as deal volume, experienced an industry record, highlighting nearly a decade of continuous growth and a compound annual growth rate (CAGR) of 31% between 2014 and 2022. Contributing to this growth is the increased participation of start-ups raising capital for the first time, accounting for 37% of deal volume. 

“Resistance against rippling effects of Covid-19 and global economic headwinds is a reminder of the high-quality investment opportunities on the continent. Despite lower participation by impact investors last year, as experienced globally, the impact continues to be achieved in Africa through a more connected marketplace that drives tech-enabled solutions from healthcare to education,” Abi Mustapha-Maduakor, Chief Executive Officer, AVCA, said.

In the wake of the Covid-19 pandemic and the resulting capital injection, central banks responded to “looser monetary policy”. Interest rates climbed through the year, seeking to rein in rampant inflation against wider economic and geopolitical instability. The preceding shook the global venture funding landscape, which dipped by 32% from the $681 million invested in 2021.

The slowdown in the tech sector, historically the largest driver of venture capital activity, contributed to a wider decline. North America and Asia are two key markets for investment in tech, which despite attracting the most capital, also accounted for 73% of the global VC industry’s funding deficit. Africa’s closest socio-economic comparator, Latin America, saw funding reduced by more than half. This should serve as a reminder that a reduction in big-ticket investments aligns with the global trend of fewer late-stage deals influenced by challenging macroeconomic conditions.

“2022 was certainly a lean year for venture capital, but several silver linings remain. A look at the bigger picture quickly nullifies concerns about what may appear at first glance to be below-potential growth in 2022. The fact that Africa recorded positive net growth in 2022 is remarkable compared to the global context, which experienced significant contractions in venture capital deal activity to varying regional degrees. While far from unaffected,” said AVCA.

Despite the disruptions brought by declining revenue, layoffs, and companies collapsing thanks partly to the Covid-19 pandemic, capital commitments in Africa remained strong, a testament to accelerated levels of ambition, entrepreneurship, and pioneering enterprise. By comparison, Africa’s 21% year-on-year growth in deal volume was three times that recorded in Asia (7%), the only other region to record positive year-on-year growth.

“Intuitive entrepreneurs and efficient capital allocation are transforming lives as a maturing VC (venture capital) industry continues to create longevity and opportunities for African industries and societies to reshape the future,” Maduakor said.

Looking more broadly, she noted, Africa’s single percent drop in deal value from the previous year illustrates how the region was largely unaffected by heightened risk-off investor sentiment experienced in other markets across the globe, which resulted in contractions in start-up funding.

According to the AVCA report, seed-stage funding accounted for most of the continent’s venture capital deal activity while demonstrating the highest year-on-year growth. The volume of early-stage (series A and B) investment deals grew by 25% between 2021 and 2022, thereby increasing median deal value to $10 million, surpassing North America and Asia, closing the gap with Europe, and signifies Africa’s rapid growth trajectory.

With over three-quarters of Africa’s funding originating from foreign investors, primarily composed of fund managers and investment firms based overseas, the report indicates sustained investor confidence in the region. It also highlights that the repeated investment in businesses was equally encouraging, highlighting investors’ long-term commitment to companies and their onward growth.

The report details how 8% of early-stage investments were made in the same company more than once in 2022, while 409 “unique companies” received additional venture capital following investments in previous years. Continued investments contribute to the sustainability of these companies, the employment they generate, and the increasing impact they deliver, catalysing more robust commercial and social ecosystems.

A combination of early-stage investment and 15 super-sized deals valued at $100 million-plus represents a growing maturity across the African venture capital industry. Maintenance of value amidst a tough business environment is another indicator of this evolution, supporting positive investor sentiment across the continent. This has also translated into an impetus to break barriers. Despite room for more growth, over a quarter of start-ups that received venture financing were either female-founded or included at least one female in the founding cohort. 

Of the 786 venture capital deals, 235 were in West Africa, again recording the highest volume of deals across the continent, followed by North Africa (178) and East Africa (168). With $1.1 billion, North Africa led deal values across the continent, as East Africa attracted $899 million and West Africa secured inflows of $843 million. Nigeria, Egypt, South Africa, and Kenya remain the most attractive locations for venture capital investment, accounting for 64% of deal volume and 51% of deal value combined.

North Africa’s prominence in the venture ecosystem is best highlighted by a CAGR of 57% in investment volume and 120% in investment value between 2017 and 2022. Spearheaded by Egypt, economies including Morocco and Tunisia drove further growth. The three countries saw 170 deals with a reported value of $798.5 million, dominated by the Information Technology, Consumer Discretionary, and Industrials sectors.

Further, the continued interest in investments across multiple sub-regions is illustrated in the $1.84 billion in inflows directed to start-ups with a multi-regional geographic footprint. Accounting for 10% of deal volume but a significant 35% of deal value speaks to the size of each investment and more companies’ ability to drive geographic expansion.

Active sectors

Financials (31%), information technology (15%), and consumer discretionary (15%) were the three most active sectors by volume for the third year running in 2022, highlighting the prevailing areas of growth. The dominance reflects Africa’s evolving demography, improved connectivity, and the changing nature of African consumerism. Driven by technology-enabled services, new products, and merchants are reaching new demographics, notably a young, digitally savvy,
urban workforce.

A market opportunity of 300 million Africans within digital banking encapsulates the financial sector’s dominance. More bespoke solutions and improved accessibility are also catalysing private capital activity in the sector, valued at $2.2 billion in 2022.

Industrials, valued at $819 million, are driven by mobility technology and commercial and professional services such as software improving human resource management. Investment in these areas exemplifies Africa’s place as a region of interest, innovation, and world-class service delivery.

Sector focus within venture debt shows some similarities, with financials (30%), utilities (28%), and industrials (15%) responsible for the majority of activity. Venture debt also accounted for four super-sized deals, in excess of $100 million, while venture capital saw 11 deals of this size.   (


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