African startups raised a record $1.19 billion in venture capital funding in the first six months of 2021
African startups raised a record $1.19 billion in venture capital funding in the first six months of 2021
It's a prosperous time for African startups. In the first six months of 2021, startups on the continent raised a whopping $1.19 billion in funding, with deals valued at $1 million or more accounting for nearly 95% ($1.14 billion).
According to African data newsletter The Big Deal, this amount is more than double what was raised during the same period last year.
Kuda, Flutterwave, Termii, Havenhill, Kwik, Afriex, Bankly, and Appzone all closed notable funding rounds. Flutterwave, a fintech startup, paved the way with a historic $170 million Series C funding round to become Africa's third payments unicorn.
FinTech is still VC favorites in Africa
Financial technology services continue to be the preferred sector for venture capitalist investment in Africa. According to the report, nearly half (48 percent) of funding went to fintech start-ups during the period.
This is an improvement over the 38% contribution during the pandemic in H1 2020 and the 14% contribution during the record-breaking 2019 season.
Regionally, startups based in the top four startup ecosystems continue to be preferred. Eighty percent of the funding raised by startups during that time period is based in one of the big four.
Nigeria and South Africa, on the other hand, lead the pack, accounting for 28% of startups that raised funding.
US VCs closed more deals in Africa than African VCs
While the increased funding demonstrates the increasing viability of African startups, foreign venture capitalists continue to outpace indigenous ones. 110 (30 percent) of the 369 investors who have participated in at least one $100k+ deal in Africa this year are based on the continent.
There are 133 in the United States. This means that the US has more investors than Africans in a deal in Africa. To put this in context, no local venture capitalist invested in Flutterwave's much-lauded $170 million Series C.
However, the report noted that investors based in Africa are significantly more active than investors based in the United States.
On this basis, it's puzzling why African investors have fewer deals and a perceived funding gap when compared to foreign investors, particularly when it comes to later-stage investments.
According to Dayo Koleowo, a Partner at Microtraction, most local venture capitalists invest small amounts in early-stage startups, whereas foreign venture capitalists are typically more buoyant.
He added, however, that local venture capitalists will shift their focus to larger investments as more Nigerian early-stage startups succeed in the long run.
“As the market matures and we see more successful small early-stage funds, we will see local small early-stage venture capital firms raise larger funds and be able to participate in later stages than they typically do, as well as provide follow-on funding to their portfolio companies.”
All eyes on Africa – Why African startups are raising more money
The current boom in venture capital funding in Africa is far from over. It has been gradually increasing in size over the last five years. Among other factors, the African market has attracted venture capitalists to the continent.
Lauren Cochran, Managing Director at Blue Haven Initiative, a venture capital firm that has invested in several African startups, including Twiga Foods, spoke with Technext about what VCs look for in startups.
The team is critical. According to Lauran, venture capitalists must ascertain how committed individuals are to their business and idea.
The second is comprehending the issue they are attempting to resolve. The Blue Haven MD explained that sometimes people see a problem they don't fully understand or haven't evaluated thoroughly and attempt to solve it, which frequently fails.
Another is the ability to attract other experts in their fields to collaborate on the problem you're attempting to solve.
“It's similar to the founder's charisma and ability to attract talent. That, I believe, also applies to investment. More people are interested in collaborating with you, and more people are interested in funding you. That's a little bit like a secret sauce for some people," she explained.
Lauren elaborated on this by stating that having technical expertise on a team is critical because attracting tech talent truly requires tech talent. That, she added, is why startups frequently include technical co-founders.
According to the report, approximately half of all deals in Africa are signed by a founding team duo.
Apart from the team, VCs consider the market. According to the Blue Haven MD, venture capitalists frequently hope to uncover billion-dollar problems, but in the worst-case scenario, several hundred million dollars.
Finally, traction has been established. Lauran notes that venture capitalists frequently prefer to see some degree of product market fit. As a result, the majority will avoid investing in a pre-revenue startup.
She added, however, that it does not have to be perfect. “The startup can focus on one line of business and generate revenue, but they will have ideas for additional lines of business that they may not have been able to build yet as part of the technology, or they may lack sufficient funding.”
In Conclusion
With the apparent increase in funding, it appears that African startups are getting a lot right. They are particularly adept at gaining VCs' trust by meeting several of the aforementioned criteria.
At this rate, 2021 will easily surpass 2019's record for African funding.
For instance, the fintech sector's share is already higher than in previous years, when the majority of fintech funding was raised in H2 (89 percent of it in 2019, and 76 percent in 2020).
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