Africa’s startup ecosystem recorded the highest number of deals in 2020 despite the pandemic.
AfricArena, an African tech ecosystem accelerator predicted in 2020 that venture capital funding in the continent’s startups would fall between $1.2 billion and $1.8 billion. Reports at the end of the year by Partech and Briter Bridges showed that total investment raised at the end of the year was $1.4 billion and $1.3 billion, respectively making AfricArena’s prediction somewhat true.
This year, AfricArena in a report titled “The state of tech in Africa 2021” is predicting that VC investment in Africa will increase between $2.25 billion and $2.8 billion.
The degree to which Africa’s tech innovation and investment landscape have been impacted by the COVID-19 pandemic is a mixed bag of results. On one side, the number of deals has increased; while at the same time, the total value of the equity deals decreased, by the estimates of a few reports. This shows that even though ticket sizes diminished, investment appetite in tech innovation in Africa is high.
Regions in Africa that received more VC investment in 2020
According to the Partech report, Nigerian startups received the most investment in 2020 at a total value of $307 million in 71 deals and an average deal size of $4.3 million. This is 59% lower than the $747 million invested in 38 deals at an average of $19.7 million in 2019.
The top four countries include Nigeria, Kenya, Egypt and South Africa.
Nigeria is not in the top five countries on the ranking of startups by country of incorporation. As reported by TechCrunch, it appears that most startups operating in Nigeria that raised capital are not incorporated in the country. This phenomenon is likely due to the difficulty of doing business in the country.
The acquisition of Paystack by Stripe, Visa’s 10% stake in Interswitch, and Flutterwave’s recent “Unicorn” status validates Africa’s fintech space and its ability to innovate at a global scale.
Future projections on funding of African startups in 2021
So far in 2021, African startups have raised over $800M as of 30th April 2021 according to Maxime Bayen.
This year, AfricArena, in a new report, is predicting that VC funding in African startups would increase between $2.25 billion and $2.8 billion. If this is achieved, it will surpass 2019 figures.
According to the report, “Going into 2021, the situation remains marked by several inhibiting factors: the great difficulty to travel into and across the continent, the macro-economic uncertainties, as well as a slower commitment of capital from LP to new GP Funds, and the increased difficulty to raise capital in very early stage. On the upside, the “great digitalization” started by the pandemic is creating many opportunities in education, fintech, B2B solutions, and eCommerce, and leapfrogging digital transformation issues across the corporate spectrum.
We foresee that the first two quarters of 2021 will be similar to Q4 2020, with the mix of factors mentioned above. 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 was ranging from under $1.6 billion to over $3 billion, with the worst-case scenario based on a prolonged and fragmented impact on the African economies, and the best-case scenario factoring in a full recovery by Q1 2021. Based on the above observations, our views are now that 2021 will range between $2.25 and $2.8 billion.”