Startups How African startups raised venture capital in 2022 •...

How African startups raised venture capital in 2022 • ukbusinessupdates.com

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Earlier this month, we reported that investor sentiment about venture capital activities being put into this was more reserved than optimistic. Investors believe that the market correction that overtook the continent in the second half of 2022 will continue this year. But before that, there was a shared optimism that African startups would raise more VC funding last year than in 2021, when the continent crossed the $4-5 billion threshold for the first time.

There was reason to believe that. For starters, by the first half of 2022, Africa appeared to brave the global decline in venture capital funding after its startups raised $3 billion, double the amount raised in a comparable period the previous year; therefore a doubling by December seemed plausible. It didn’t work out as expected as stock deals on the continent hovered around $4.8-$5.4 billion by the end of the year, according to insights from data trackers British Bridges, Partech and The big dealwith small percentage differences from their 2021 figures.

“Despite the challenges presented in the second half of the year, 2022 was another year of growth for Africa in terms of total funding raised, number of deals and number of investors involved. This is particularly noteworthy given that every other region experienced a double-digit decline in financing activity over the same period,” said Max Cuvellierco-founder of The Big Deal on Africa’s investment activity in 2022.

Most technical observers share Cuvelier’s view of VC activity in Africa. However, it is noteworthy to point out that deals reported in Africa are several weeks or months behind their global counterparts, so the continent most likely went flat year over year. As in previous years, let’s take a look at the 2022 numbers from the three data trackers and compare them to 2021.

Total funding and number of deals

Briter Bridges: African startups raised a total of $5.4 billion in estimated funding in 2022, including secret rounds, for more than 975 deals, according to the market intelligence agency. Briter Bridges recorded $5.2 billion in total funding for more than 790 deals the previous year.

Partech: The venture capital outfit tied funding for African tech at $6.5 billion (combination of equity and debt deals) over 764 rounds. Equity deals accounted for $4.9 billion in 693 deals. However, contrary to the findings of Briter Bridges and The Big Deal, Partech’s data shows that total equity financing on the continent is down 6% from $5.2 billion in 681 rounds.

The Big Deal: The report estimates the total funding raised by African startups at $4.8 billion in 1,000 deals. It’s a significant increase of $4.33 billion over 820 rounds in 2021.

Sectors: Fintech is still clear

Briter Bridges: While fintechs have taken a major hit from the global VC decline, the sector remains the most supported in Africa, among others. By 2021, fintechs will account for 62% of total venture capital funding raised by startups on the continent; the number dropped to 38% last year, according to Briter Bridges. Rounding out the top five: cleantech (15%), logistics (12%), mobility (8%) and e-commerce (5%).

Partech: Fintech remains the most financed sector in Africa across all sources of capital, with 39% of total equity volume (up from 63% in 2021) and 45% of total debt volume. Other sectors have experienced substantial growth and captured a significant share of equity finance activity this year: Cleantech (18%), e/m/s commerce (13%), enterprise (11%) and mobility (4%) round out the top -five list.

The Big Deal: Fintech accounted for 37% of total funding raised in African tech, compared to 53% in 2021, according to the data tracker. Energy comes a distant second at 18%; logistics follows at 13%, while retail, telecom, media and entertainment are the next best-funded sectors.

Top Countries: Big Four are still hotspots for African VC investment

Briter Bridges: Companies in the “Big Four” (Nigeria, Kenya, Egypt and South Africa) captured 75% of all investment value and number of deals. According to Briter Bridges, Nigeria (25.4%), Kenya (24.2%), Egypt (18.4%) and South Africa (10.9%) are among the top countries by value of investments. Ecosystems outside the top four are countries such as Ghana, Uganda, Tanzania, Morocco and Tunisia.

Partech: Nigeria accounted for 23% of total African technology equity financing. South Africa is second with 17%, Egypt third with 16% and Kenya with 15%. Outside the top four countries, startups from Ghana, Algeria, Tunisia and Senegal raised the most own funds.

The Big Deal: Nigeria topped the African VC investment destination with $1.2 billion. Kenya is a close second with $1.1 billion, followed by Egypt with $820 million and South Africa with $555 million.

For female-led startups, little has changed

Briter Bridges: Entirely female-founded teams accounted for 4.9% of total funding raised by African startups last year, according to the tracker. When these companies have at least one male co-founder, the number rises to 9.7%.

Partech says female-founded startups, including those with at least one male co-founder, accounted for 13% of total equity funding, down 3% from 2021. However, they raised 22% of all deals in 2022 , an increase of 2% from 2021. The investment company has not provided data on only fully female-founded startups.

The Big Deal: Women-founded startups, or teams with diverse gender diversity, received 13% of total equity investment in Africa. Last year it was 18%. On a more reassuring front, however, the share of all-female teams rose from 1% to 2.4%, which is still appalling.

Other lessons from Africa’s venture capital performance in 2022

Dario Giulianifounder and director of Briter Bridges, said that if we look at a 10-year time frame, Africa’s technological ecosystem has been constantly growing at a decent pace, and in that sense it is detrimental to focus on the variation of recent years due to the various outside phenomena such as COVID, abundance of cash post-COVID and the global market crash.

He also argues that while all the metrics grew, from the number of deals to exits and new international investors to new early-stage local investors, the weight of mega deals over total funding and the fact that they mostly come from American, non-African focused investors has created a certain dependence on foreign capital. “While at the same time it can provide opportunities for local funds to gain ground and make better deals,” he added.

For Tidjane Deme, general partner at Partech Africa, more emphasis should be placed on how startups are beginning to embrace debt financing. With 71 debt deals (65% yoy) representing $1.55 billion (106% yoy) in total financing, Partech noted in its report that 2022 confirms the growing impact of debt as a driving asset class for the African tech ecosystem.

Startups in cleantech and fintech have built deep and sophisticated operations, attracting a new generation of debt providers with creative structures. Some examples are MFS Africa and Solarise Africa. But while the number of active debt investors on the continent has grown 2.5x from last year – with a good mix of local debt institutions, international lenders with emerging market vehicles and development finance institutions (DFIs) – Deme believes the market needs more debt funds in addition to managers Symbiotics and Lendable that will provide ample capital to startups that are beginning to appreciate its importance.

“We [Partech] don’t do debt, but we’re on boards of directors of companies that we’ve encouraged to take on debt because the obvious next step is to get non-dilutive capital that can drive growth. At one point it was too early to create venture capital funds because the pool of startups that needed it wasn’t deep enough because you need a big pool of startups to absorb that debt before you can see local specialty vehicles, Deme said. “But I would expect to see more and more of those popping up from now on, or you’ll see existing equity players create debt vehicles and decide to supplement their offerings.”

Shreya Christinahttp://ukbusinessupdates.com
Shreya has been with ukbusinessupdates.com for 3 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider ukbusinessupdates.com team, Shreya seeks to understand an audience before creating memorable, persuasive copy.

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