Africa’s “big four” countries – Kenya, Egypt, South Africa, and Nigeria – continue to lead as markets that have long attracted the interest of global investors, accounting for approximately 90% of all funding in Africa in 2023. However, venture capitalists must explore the undiscovered opportunities in other areas of Africa’s technology environment.
While investment and deal count declined slightly in 2023, tech sector activity in the venture capital ecosystem remains strong and promising. In contrast to other developing nations, Africa’s resilience is unique, and success does not always require capital-rich surroundings.
Also Read: 5 Business Tips From African Entrepreneurs
Despite the well-known issues of the global financial climate, such as rising interest rates, currency depreciation, inflation, and layoffs, the Partech Africa Report ascribed the funding contraction to two important factors. Firstly, due to a considerable drop in valuations and increased economic needs, startups embraced cautious capital-raising techniques, putting cash efficiency above fundraising.
Second, there was a significant retreat of investors from the market, with a 50% fall in the number of investors engaging in funding rounds in 2023 compared to the prior year. This reduction was especially noticeable among major institutional funds, which normally play an important role in generating larger funding rounds.
Africa continues to be the world’s fastest-growing venture capital markets
Furthermore, the fall in global IPO volumes and proceeds is said to have pushed the focus toward outright purchases as the principal investment vehicle.
Despite the current obstacles faced by global venture capital, a broader perspective eliminates fears about poor growth in 2024. Despite an unfavorable macroeconomic backdrop, Africa continues to be one of the world’s fastest-growing venture capital markets.
While West Africa continues to draw the most venture capitalist deals, North and East Africa are close behind, outpacing Southern, Central, and other multi-regional sectors. The expanding number of entrepreneurs and startups in the continent, together with start-ups developing distinctive and new mass-market solutions, contributes to the growing interests of global investors in businesses. Various variables are driving the growth of industry players, emphasizing the dynamic and attractive nature of the venture capital ecosystem.
On the other hand, foreign investors outweighed local investors, with African-based investors accounting for slightly less than a quarter of the overall number of investors operating in Africa.
However, the number of investors involved in VC deals on the continent surpassed a thousand, including both venture capital and venture loan deals. Despite these numbers, the emphasis on this reliance is waning in discussions, as attention shifts to the benefits reaped by tech entrepreneurs and the wider economy.
Investment is inextricably linked to assessed risk and return likelihood. Meanwhile, the continent continues to demonstrate the qualities of a rich ground for creativity. Unfortunately, non-“Big Four” countries continue receiving smaller funding.
This then prompts key stakeholders, including investors, founders, incubators, accelerators, governments, and regulators, not only in the continent but around the world, to examine weaknesses in the tech-funding sector. It is critical to expose more investors to exceptional start-ups throughout the continent. Unquestionably, giving fiscal and non-fiscal incentives for venture capitalists to participate in the banking and technology industries will increase investment in the continent.
Essentially, there is an urgent need for more skilled data scientists, software developers, data engineers, analysts, and other data professionals to fulfill the continent’s expanding demand. Africa must launch projects and revive its education system to meet this demand. While understanding that addressing this requirement may take time, governments must invest in benchmarking. By learning from industrialized countries, Africans can gain vital insights and skills that they can then apply to benefit the continent.
There is a need to make non-“Big Four” countries more enticing to startup investors. Countries can use the African Continental Free Trade Area (AfCFTA) to recruit investors. The AfCFTA allows nations, including those in non-“Big Four” countries, to draw increased startup funding by lowering investment obstacles and improving investment governance in their respective countries.
However, before venture capitalists can enter the industry, it is critical to understand that Africa is not a homogeneous market. African marketplaces are distinctive, and the limits are likewise different. Issues such as infrastructure restrictions, regulatory regulations, and socioeconomic conditions necessitate a regionalized approach. The goal is to expand investments outside the “Big Four”.
This, in turn, encourages African governments to improve their legal and institutional structures to build a welcoming investment ecosystem for both investors and start-ups.
