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It was last year. A good start to 12 months for African tech startups.
For the first time, the sector attracted more than 1,100 unique investors in 2022, a record $6.5 billion in fundraising, data from Partech shows.
Indeed, even some of the 2021 gains have been eclipsed in 2022 as investment on the continent is higher than a year earlier, with early-stage companies flocking to back startups following exits from local companies. Like Jumia and Paystack.
As the rest of the world ramps back its collective enthusiasm for 2021, what has fueled such an increase? To find out, we asked a few investors who had the biggest deals in Africa last year.
Late-stage investors, mostly international VC firms, grabbed the headlines by writing huge checks, while pre-seed and seed-stage investors contributed to the growth of the continent’s tech ecosystem.
In Africa, incubators, accelerators, angels and seed investors simply outnumber big funds – simply because it’s so hard to raise big funds here. They accounted for more than 70% of the 1,100+ investors involved in at least one deal on the continent last year.
“This shows that the African investment environment is still very promising as it continues to grow, and there is increasing demand for many startup ecosystems, including the startup ecosystem. Also, the number of syndicates and investment groups consisting of Africans at home and in the diaspora as well as founders of later companies have increased and are now investing in other founders,” said General Partner Kola Aina. At Ventures Platform.
“These are all signs of a growing ecosystem,” he added.
However, the investment community recognizes that there is still a long way to go and many opportunities to exploit.
“We’re building a more sustainable capital base for African tech. It’s not enough to have 1,000 active investors,” said Stephen Deng, founder and partner of DF Lab. “We need thousands of active investors supporting different stages of startups, especially on the growth side, providing both equity and debt.”
That said, Africa has not been unscathed – many investors have noted a slowdown in deal flow and efficiency in 2022, and expect investors to be more cautious about who they invest in and at what level.
“We’ve definitely noticed that deals are slow to materialize,” said Karima El Hakim, Plug & Play Egypt’s country director.
A round that closes in one or two months in 2021 took three or four months in 2022. [ … ] We’ve certainly seen valuations strengthen, and many startups have ventured into lean business models.
Read on to find out what these investors have to say about Africa’s hot startup sectors, investment trends, their predictions for 2023, how to scale and more.
We talked to:
- Cola Aina, General Partner, Ventures Platform
- Zacharias George, Managing Partner, Launch Africa Ventures
- Olumide Soyombo, Co-Founder, Voltron Capital
- Stephen Deng, Co-Founder and Managing Partner, DFS Lab
- Karima El Hakim, Head of State, Plug and Play Egypt
- Einoluwa Aboyeji, Founding Partner, Future Africa
- Maya Horgan Famodu, Founder and Partner, Aggressive Capital
- Kyane Kassiri, Partner, RaliCap
Cola Aina, General Partner, Ventures Platform
Your organization was among the African investors who wrote the most checks to startups at the seed level last year. How do you write so many checks and fund great companies?
We return to the first principles, starting with the essence of the thesis. We also have a very extensive Top Funnel, where we made initial contact with over 2,500 startups and ideas in 2022 and ultimately connected to the top of the funnel with less than 1%. We also get strong referrals from our founding community, which improves our signal-to-noise ratio.
No matter how many deals we do, there’s a pretty strict housekeeping process. We’ve continually improved it over time to ensure we’re effective in evaluating deals and providing feedback to founders.
Many startup funding organizations are often criticized for not doing due diligence and being lazy for using “broadcast and pray” methods. How will this affect the investment landscape? Has this resulted in unrealistic reviews?
Markets are cyclical – founders and investors adapt to current market conditions. Today, the market suggests a slow and deliberate pace given the uncertainty of the global economy. This is a development that we welcome, meaning that our desire for real hard work and strength is now back in fashion. Although things are a bit slower, the investment landscape remains unchanged; Startups with strong fundamentals and a good head start attract capital and do well.
According to a report on African VC activity in 2022, the most active African investors were involved in 15-20 deals. Will we see the same numbers in 2023 or will things change?
Despite bleak macroeconomic conditions, many investors still believe in potential in Africa. We expect to make more investments this year in light of a few market trends such as lower prices, greater focus on profitability and capital efficiency, more cost-cutting initiatives, and corporate buyers with strong balance sheets to acquire startups.
We saw some unrealistic valuations in 2021 – it was as if the founders had forgotten how to build for $200,000. I stay away from such deals. ” Olumide Soyombo, Co-Founder, Voltron Capital
What differences do you notice in the investment landscape in 2022 compared to 2021? Were the deals less or more competitive?
For global venture capital, 2021 has been a rough one. But last year was where things started to slow down, starting with the public markets and then emerging in the later stage of the startup cycle.
The challenging market environment has had an impact on fundraising – compared to 2021 we noticed that some rounds took longer to close, some founders had to raise lower and more conservative valuations than they originally planned. Unfortunately, some investors have cut deals.
Doubled to $1.5 billion by 2021, we have observed an increase in debt funding, which we believe is an indicator of the maturity of the ecosystem and the growing/diversified financing needs of entrepreneurs.
Has your investment strategy changed with the current market conditions?
not really; If anything, we feel the market has shifted back to where we were: favoring diligence and rigor over speed.
In the year In 2022, the African tech market had more than 1,100 active investors for the first time and saw more deals than in 2021. What does this say about Africa’s current investment landscape?
This shows that Africa’s investment landscape is still very promising as it continues to grow and demand for many startup ecosystems (including startup ecosystems) is increasing.
An increasing number of syndicates and investment groups, consisting of Africans at home and in the diaspora, as well as founders of late-stage companies, are now investing in other founders.
These are all indicators of ecosystem growth.
Looking forward, which sectors will you continue to monitor, and which trends do you expect to emerge? why?
We have seven key areas of interest that we remain committed to: Financial Services and Insurance, Life Sciences and Health Tech, EdTech and Digital Talent Accelerator, Enterprise SaaS, Digital Infrastructure, AgTech and Food Security.
That said, we follow innovation closely and are open to exploring new heights. We are currently very excited about AI and climate technologies because they offer an unprecedented opportunity to create a better and more sustainable future for all, ensuring that Africa is not left behind.
How do you prefer to receive leads? What’s the most important thing a founder should know before calling you?
Warm introductions are great, but not always accessible to every founder; That’s why we have a channel to receive decks through the application link on our website.
The investment team reviews and arranges meetings with founders who align with our building concepts.
Our thesis is the most important thing for founders to know because it is our first screening criteria. We are an early stage fund that invests in market-creating innovations in non-consumptive solutions in Africa.
By 2023, we want to invest in francophone West Africa and more companies in East and North Africa. We’re looking forward to supporting more women-led companies, and are usually more than happy to invest in early seed companies.
Zacharias George, Managing Partner, Launch Africa Ventures
Your organization was among the African investors who wrote the most checks to startups at the seed level last year. How do you write so many checks and fund great companies?
We have strong relationships with most of the continent’s leading incubators, accelerators and venture building studios. We can cherry-pick the best companies to graduate from these programs before their pitch date, which is a win-win for both the programs and us.
Likewise, our strong relationships with Series A and Series B VC funds across the continent (and globally) enable them to refer to us great companies that they love, but are too primitive for them.
According to a report on African VC activity in 2022, the most active African investors were involved in 15-20 deals. Will we see the same numbers in 2023 or will things change?
Africa accounts for 17% of the world’s population, about 4% of global GDP, but only about 1% of global venture capital.
This capital funding-economic value-targeting market arbitrage opportunity is obvious and is being used all the time by investors who have done their homework (and rightly so).
Technology-enabled jobs in Africa will continue to grow, and from:
- Consumers’ purchasing power has increased.
- High penetration of smartphones.
- Better digital communication through both e-commerce and social commerce.
- Advanced enterprise-startup collaboration from a channel distribution and customer acquisition perspective.
I expect to see similar numbers in 2023, and hopefully even better.
What differences do you notice in the investment landscape in 2022 compared to 2021? Were the deals less or more competitive? Has your investment strategy changed with the current market conditions?
Compared to the bull flow in African VCs in 2021, last year was definitely a more cautious and cautious investment landscape. Offers in 2021 were very competitive, as some founders were able to raise prices that were often unrealistic.
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