African Startups: The Next Big Thing for Investors

02.07.2018.Allison Bradley.0 Likes.0 Comments

It is factual that investing in the African market can be a herculean task. The reason is that cultural, bureaucratic, and developmental hurdle is enormous. The number of “little” startups in Africa is larger than any other in the world. Most of the small or medium-sized businesses/startups in the continent are not qualified to be called such, because they cannot match up with their contemporaries around the world.

However, in Africa, there are numerous problems such as less availability of data and these problems are opportunities for individual investors – only if, they know their onions. As we know every societal deficiency is a platform for innovation, with Africa’s substantial human capital, evolving culture, and hunger for change, any startups started in line with her core deficient areas would do well.

In this article, we’ll talk about how startups in the African tech industries are gaining momentum through venture funding over the last couple of years, and how equity crowdfunding platform can be of great help to individual investors seeking to leverage on this goldmine.

Africa’s venture capital industry size and market landscape

Africa has been bustling with indigenous tech entrepreneurs using technology to tackle the continent’s challenges, and are attracting massive funding in the meantime. A report by Partech Ventures[1] – a San Francisco-based venture firm – shows that the total amount of money (560 million USD dollars) invested in African startups in 2017, experienced a major boost by 53% increase as compared to previous years.

In 2016 report, 77 funding rounds (held by 74 different startups) were staged, but in 2017, the number of investment funding round participated in by startups increased by 66%, i.e., 124 companies participated in 128 funding rounds. This report by Partech includes startups whose primary market is in Africa not excluding whether or not they are incorporated or headquarters on the continent.

Financial inclusion pulled 45% of the total investment across all sectors with $253 million raised. The reason for this is that Africa lags far behind other continents when it comes to financial inclusion – a 2014 statistic by World Bank shows that only 16% of adults in sub-Saharan Africa had access to formal saving services.

South Africa, Kenya, and Nigeria are the largest economies of the continent, and also the top three markets with South Africa receiving 30% of the total share of investment; Kenya gained 26% of the total share of investment and; Nigeria received 20% of the total investment share. Startups in the French-speaking region of Africa, received the lowest funding since those nations have smaller economies.

African startups making the wave in 2018

It is important to list out some of these tech startups making waves in Africa’s ecosystem over the last number of years. The companies mentioned herein all represent the best of African talent. In no particular order, they include:

  1. Flutterwave: Flutterwave provides various range of services that allows its global merchant, financial institutions, and PSPs to accept customer-friendly payments types including MasterCard, mobile money, Visa and more to countries like Nigeria, Ghana, Kenya, and South Africa.
  2. VConnect: The Nigeria-based tech startups provides services that help connect customers’ needs with available suppliers. Nigeria has a population of over 180 million people, but nation lacks necessary infrastructure that makes life easier. It is difficult to find an electricians or auto local services, but with VConnect, customers can find any services providers in just a few minutes. Millions of business are registered with VConnect.
  3. LifeQ: LifeQ is a South African firm which helps its customer have a better understanding of their body and fitness by use of bio-mathematical modeling and complex combination of sensors. It plans to grab a significant share of the global 1 trillion pounds healthcare market.

How Equity Crowdfunding can solve the Inadequate Funding System

Despite having some successful startups, the number of failed startups are much more than those that succeeded. This is because there is lack of follow-on capital for these start-ups. Also, the fear of failure due to lack of funding has caused many African startups to focus more on acquiring follow-on capital now and then than the growth of the startup.

The negative side of chasing follow-on capital is that the business, in particular, suffers excruciatingly for the fact that, the energy that should have been channeled into developing the company is being used elsewhere.

The cries of “no funding” in the African tech startups can be subsided through strategic planning and partnership. For this reason, equity crowdfunding platforms should be used by individual investors seeking to invest in a startup.

Although crowdfunding is predominant in the developed world, the potential exists for developing countries to capitalize on this new form of funding. Crowdfunding helps individual investors to investigate numerous potential investment online at one time and determine quickly whether the startup fits their portfolio strategy, risk appetite, or other criteria.


Categories: VC Industry
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