Funding for African startups is on track to hit a record this year despite a slowdown globally, according to a new report.
Venture capital deals on the continent reached $3.5 billion in the six 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. The funds were raised by 300 companies, with 27% of the companies led by female founders, or having at least one female founder. This compares to 25% in the previous year.
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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 $125 million to enter Cote d’Ivoire and Senegal, and Kenyan solar fintech, M-Kopa raised $75 million to grow operations in Ghana and Nigerian.
Fintech startups continued to attract the majority of investment inflows, accounting for 89% 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, fund raising will hit $7 billion this year, 35% more than the $5.2 billion raised in 2021, the AVCA said. A total of $4.7 billion 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% increase. This compares to 37% 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.
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Still, there are indications that deals will slow on the continent next year as private capital fund-raising declined 20% in the first half of 2022 to $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.
