Venture Capital Investment in Africa is Expected To Reach A New High This Year.

Since reports began keeping track in 2015, investments in African startups have grown at a healthy rate. That same year, the publications Disrupt Africa and Partech published independently researched and contrasting figures indicating that venture capital investments totaled $186 million and $277 million, respectively. When you consider that Snapchat, which was founded four years ago, raised more than $500 million in a single round that same year, those are ridiculously low figures for a continent. While the funding gap between Africa and a single high-growth U.S. startup persists, the good news is that more money is flowing into the continent.

According to Partech’s report, Africa’s venture capital investments reached an all-time high in 2019. According to Partech, 234 African tech companies raised $2.02 billion in 250 equity rounds totaling $2.02 billion. This represented a 74% increase over the $1.163 billion raised by 146 startups in 164 rounds in 2018.

There was a widespread belief that 2020 would set a new high, but that was before the pandemic. As a result, African tech ecosystem accelerator AfricArena forecasted that venture capital funding for startups on the continent would range between $1.2 billion and $1.8 billion. Year-end reports by Partech and Briter Bridges pegged total investment raised at $1.4 billion and $1.3 billion, respectively, in what the publication described as an educated guess or a calculated prediction.

In a new report, AfricArena predicts that VC funding in the continent’s startups will increase between $2.25 billion and $2.8 billion this year, which, if met, will surpass 2019 figures for a record high on the continent.

An excerpt from the report explains the reasoning behind the prediction:

We foresee that the first two quarters of 2021 will be similar to Q4 2020 with a mix of factors. Vaccine campaigns will likely take longer than hoped to have a meaningful impact. However, this rollout – regardless of how long they will actually take – will eliminate the major uncertainty about the end of the pandemic, which is only a question of time.

As a result, we expect an extremely strong acceleration of deals from seed to Series B as well as major growth deals, together with some IPOs (Nigeria’s Interswitch, for example), that will propel deal activity to never seen before levels of activity. As of April 2020, our forecast for 2021 ranged from under $1.6 billion to over $3 billion. The worst-case scenario was based on a prolonged and fragmented impact on the African economies and the best-case scenario factoring in a full recovery Q1 2021. Based on the above observations, our views are now that 2021 will range between $2.25 and $2.8 billion.

According to Maxime Bayen, deal tracker and senior venture builder at BFA Global, the total disclosed venture capital funding was slightly more than $800 million as of April 30. If this pace continues, African startups could raise more than $2 billion this year.

Image Credit: AfricaArena

The number of early-stage deals increased in 2020, but there was a decrease in growth deals and overall ticket sizes, resulting in a decrease in funding activities. According to Partech, seed rounds increased by 80% year on year and accounted for 64% of all deals closed. African startups raised a total of $220 million in seed funding, a 47 percent increase year on year. Series A and B round expanded in lockstep. Series A deals increased by 9% (86 rounds) and Series B deals increased by 16% (29 rounds), but their investment sizes decreased by 5% ($447 million) and 8% ($449 million), respectively.

Growth deals fell by 16%, with only two transactions exceeding $50 million, compared to ten in 2019. These transactions included Interswitch, OPay, Branch, and Andela.

The driving force for VCs to make more deals and startups to replicate the large growth rounds of 2019 is to exceed the $2 billion mark in 2021. The former appears to be in place, as African startups continue to raise funds on a weekly basis. However, there is still work to be done for the latter, as only two African startups — fintech startups Flutterwave and TymeBank — have raised more than $100 million in a single round so far.