By Antony Mutunga
Start-ups are known for building solutions, through the generation of new technology, to tackle consumer needs and development challenges. Examples are mobile money, which helped to increase financial inclusion, and the drones that are now used to transport medicine supplies to remote areas.
Countries such as Kenya, Egypt and Nigeria have invested immensely in technology start-ups, the result of which has been a rise in investments for African tech start-ups throughout the continent.
According to Disrupt Africa, in 2016 tech-start-ups in the continent raised over Sh13 billion ($129 million). In 2019, the total investment raised, according to the African Tech Start-ups Funding Report 2019, stood at Sh49.6 billion ($491.6 million). In addition to the increase in total funding, there was an increase in the number of tech start-ups as well. They increased in number from 146 in 2016 to 311 companies in 2019.
With the number of investors also increasing by 61 percent to 261 as compared to 2018, the report dubbed 2019 as the record year of funding. Looking to handle one of the major challenges in Africa; financial inclusion, much of the funding went to start-ups involved in fintech. According to the report, the year saw 77 fintech start-ups raise $107 million.
Tom Jackson, Disrupt Africa’s co-founder, believes that the sector is receiving much funding due to its potential. “Investing in fintech start-ups offers investors serious potential returns, given the size of the untapped markets these companies can reach. There is also a strong impact angle in that new forms of financial service provision have the ability to empower and connect un-served Africans,” he said. However, even though the sector received a majority of the funding, it was a decrease when compared to 2018. The share of the fintech start-ups in the total funding decreased from 39.7 percent to 21.8 percent.
In terms of individual countries, Kenya obtained majority of the funding in 2019. According to the report, the country had a record of 45 tech start-ups which raised Sh15.02 billion $149 million or 30.3 percent of the total funds. In comparison to the previous year, this was 58.6 percent increase.
According to Dr Bitange Ndemo, former ICT Permanent Secretary, the increase can be accredited to investors getting back to the basics. “Many are looking at what the 4IR technologies can do, especially in agriculture. There is promise that block-chain, AI and IoT will bring new enterprises. I can see the focus of 2020 conferences and what some of the VCs are looking at. Kenya has created some of the necessary legal sandboxes,” he said.
Following Kenya on the list was Nigeria whose tech start-ups were able to raise Sh12.3 billion ($122 million). Next on the list was Egypt which had taken over from South Africa in the top three. With investors targeting other countries apart from the known tech hubs, Egypt was able to have the largest number of start-ups, 88, to acquire funding in 2019.
As the year starts, it is already clear that the investments will continue to grow as will the number of start-ups. This is evident in the attraction of new investors to the tech start-ups. For instance, Janngo, Africa’s first social start-up studio pledged Sh6.7 billion (60 million euro) through its investment vehicle, Janngo Capital Start-up Fund to back African tech start-ups. The company aims to ensure that 50 percent of the funds go towards financing women-led start-ups founded or co-founded by women, or benefitting women.
As the sector continues to receive more investments, it is without a doubt only a matter of time before the funds hit the one billion mark. As tech start-ups in the continent continue to increase, those founded by Africans need to take a leaf from those founded by foreigners as they seem to acquire a majority of the funds. Still on a growing path, tech start-ups will be crucial for Africa as they will help many to improve their living standards while at the same time introducing innovations to tackle Africa’s challenges. (