While the region is rich in natural resources, its greatest asset is its young people. The average African is 19 years old and increasingly keen to innovate, leading to a rise in the number of entrepreneurs on the continent.
According to Partech, African tech startups raised more than $5.2 billion in 2021, from 681 rounds of investment. This is three times the amount invested in 2020 and faster growth than any other region globally.
Nigeria and fintech, the shining stars of African entrepreneurship
Activity remains concentrated in the ‘Big Four’: Nigeria, South Africa, Egypt and Kenya, where more sophisticated startup ecosystems historically exist.
These four countries account for about a third of the continent’s startup incubators and accelerators, and receive 80 per cent of foreign direct investment (FDI) into Africa, according to the African Development Bank.
Out of the seven unicorns to emerge from the continent, four are from Nigeria (Flutterwave, Chippercash, OPay and Andela), with the rest in Egypt (Swvl), Senegal (Wave) and South Africa (GO1).
We are increasingly optimistic about French-speaking Africa, however. This includes Morocco and Tunisia, as well as Côte d’Ivoire and Senegal where activity is picking up. Recently, we have also completed several deals in Sudan, the Democratic Republic of Congo (DRC), Cameroon, Togo, Botswana, Madagascar and Zimbabwe.
According to Statista, less than half of Africans have access to banking. There is therefore an explosion in fintech startups, with solutions for remittances, money transfers, payments, as well as neo-banking, financial infrastructure and business banking.
This sector continues to capture the largest share of investment in the continent, representing almost two thirds of total funding into technology companies operating across Africa. According to Partech, fintech claimed $3.3 billion last year, with the lion’s share spread across the Big Four.
Logistics and energy are next by volume of funding. Other sectors experiencing a boost include e-commerce, agriculture and healthcare.
Overcoming barriers to growth
Admittedly, challenges remain for entrepreneurship to take off properly in Africa, which still suffers from unstable jurisdictions, lack of government support, poor infrastructure, and the need for more and better education. The link between government, business and society is also disconnected.
There are few ‘Friends & Family’ investors and limited angel or seed investors to support startups, especially at the beginning of their journey. A significant gap exists in early-stage venture funding where most VC funds focus on $1m to $10m Series A- and B-type deal sizes.
This is a key barrier, not only for startups looking to scale, but to building a wider entrepreneurial ecosystem.
We started Launch Africa Ventures to address this vital but missing part of the investment funding value chain. We are the first fund in Africa that aims to solve the funding gap and valuation arbitrage in the seed to Series A bridge-funding investment landscape.
Our pan-African fund invests primarily in B2B and B2B2C technology-driven ventures that are active at the cross points of new tech infrastructures and the broad industries they impact – fintech, logistics/mobility/commerce, edtech and healthtech. We are frontier investors and were the first in the DRC to invest in MaxiCash, one of Africa’s fastest growing fintech startups.
Our investees benefit from successful alumni ventures from world-class accelerators and incubators. They also benefit from select referrals from top Africa-focused VC funds that typically invest only at the Series A and B stage.
Providing capital to under-served communities
We launched our $36.3 million Fund 1 in October 2020, at the height of Covid-19. Through this, we have backed more than 125 startups across 21 countries.
The need to address the early-stage funding gap has become even more pressing since the pandemic, with more and more top-tier African tech ventures looking for pre-Series A bridge capital. These companies are in urgent need of a financial push to extend their runway and create significant social and economic value to the market.
Furthermore, quick scaling of innovation is paramount to the future of African businesses and consumers, especially in key sectors with large potential: financial services, healthcare, education, logistics & delivery, big data and artificial intelligence.
This is not about developing ‘imaginary’ tech, but tools to solve real problems in our communities. In Africa, unlike in more mature markets, there is a unique commercial ‘need-to-have’ vs ‘nice-to-have’ focus on companies that offer the opportunity to improve quality of life for hundreds of millions of people through technology.
We have invested in Zindi.Africa. This platform hosts the largest community of African data scientists: nearly 50,000 experts who can solve concrete data science problems. Entrepreneurship in Africa is always on your doorstep: just open your eyes, walk along the street and you’ll find ideas to solve problems.
Take Lumkani for instance, a highly innovative South African startup that aims to prevent fires in townships that can destroy entire communities. This social enterprise has created an early-warning heat detection system, networked within a 60-metre radius, that uses technology to track rises in temperature.
The detectors ring and alert neighbours of danger, so everyone can help extinguish the fire. This is a brilliant example of tech that solves a major day-to-day challenge.
Africa’s future is female
Investing in innovative, community-orientated solutions is at the heart of what we do. Prior to my current life as a venture capitalist, I worked for nearly two decades as an investment banker, starting my career at Goldman Sachs in New York.
I have worked for most of the large African banks, including the African Development Bank (AfDB) where I was Chief Investment Officer. I could not see how banking was fundamentally changing the quality of life of Africans, however. The wealth created was simply not trickling down. So, I left to start an impact fund focused on rural areas, especially small businesses run by women.
I then spent eight years working to make a real difference to those communities, by providing market access, training people, helping to facilitate the delivery of products, etc. We were training women in those communities to become managers, then equal owners and eventually they would acquire the investor equity through a management buyout – an unusual, but effective, way to do impact investing.
Five35 Ventures is a $30m seed-stage venture fund investing in pan-African female-focused tech start-ups, not only because of the superior returns offered (female entrepreneurs deliver 35 per cent higher ROI, according to the Kauffman Foundation), but because we believe, like many, that women can help to solve the most meaningful challenges in Africa and help to better distribute wealth.
Female entrepreneurs will spend 90 per cent of their revenue on looking after children, the elderly and their whole ecosystem. If female founders were given the same capital opportunities as male founders, with equal access to capital, networks and partnerships, Africa’s estimated average increase in GDP would be a staggering five per cent, according to a report from the Kauffmann Foundation.
The fund is led by an experienced team offering fundraising, deal flow and unique post-investment support, and benefits from support from our ecosystem partners WomHub, a venture builder and accelerator, and Launch Africa Ventures.
More needs to be done, however, and there are still not enough female founders.
For every $1 invested in female entrepreneurs, $25 goes to male entrepreneurs, according to the World Bank.
A year ago, Five35 Ventures conducted extensive research to understand why, and identify the real needs and challenges faced by female tech founders. The respondents listed the main challenges as lack of access to funding, followed by a need for more advice, strategic partners and education.
An incredible 91 per cent of female entrepreneurs we spoke to had not benefited from any funding, while 64 per cent stated they did not have access to the right advisors. Female entrepreneurs are too often excluded from current capital allocation mandates – and everyone is a loser from that situation.
In addition to accelerating support for female entrepreneurs, my message to investors is simple: you cannot ignore Africa. It makes business sense to invest in this vastly expanding, yet overlooked, market.
The continent’s startups are showing stronger returns and faster growth than ever before. The time to reach unicorn status is also decreasing significantly, which is incredibly exciting, not only for aspiring entrepreneurs but the entire African business community. Whether you’re an investor or entrepreneur, the time to act is now.