Private Equity News & Analysis

The rise of venture capital

Startup-friendly legislation and growing foreign investor interest gives African VC a boost.

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Of the 613 reported venture capital deals in Africa in 2014-19, 139 occurred last year – representing a six-year high and demonstrating VC’s impressive growth trajectory on the continent. According to data from the African Private Equity and Venture Capital Association, deal volume grew 22 percent year-on-year between 2018 and 2019 alone, so it is unsurprising that Alexia Alexandropoulou, research manager at AVCA, describes VC activity in Africa as “taking centre stage”.

“We have seen VC activity on the continent skyrocket,” agrees Sabrina Katz, manager of research at EMPEA. “Venture capital fund managers participated in investments totalling $764 million in 2019, more than quadrupling the 2018 total.” Almost half of VC fund manager capital deployed in Africa last year went to Nigeria ($358 million), according to EMPEA data.

Alexandropoulou also points to Kenya, South Africa and some North African markets, such as Egypt, as burgeoning startup hubs. Southern Africa accounted for the highest volume of VC deals on the continent over 2014-19, and 79 percent of those were headquartered in South Africa.

In some regions, growth has been facilitated by efforts to build a more supportive legislative framework for startups. “In Francophone Africa, Tunisia and Senegal have both passed Startup Acts to create a better local environment for innovation and entrepreneurship, and startup legislation is also being pursued in Mali, Ghana and Rwanda,” says Alexandropoulou.

Africa’s startup scene is increasingly catching the eye of international investors. Last year saw an unprecedented number of China-focused venture capital fund managers participating in funding rounds for the continent’s startups, says Katz. “More Japanese investors are also entering the African VC space,” she adds.

Delivery services and logistics, distributed solar power generation and fintech are areas that have drawn particular interest, notes Katz. Indeed, EMPEA data show African fintech firms received $266.5 million from VC fund managers in 2019, more than double the $91.9 million invested over the previous four years combined. Notable deals included two rounds totalling $170 million for Nigerian mobile payments and services platform OPay, which saw participation from China’s Source Code Capital and GSR Ventures, among others.