Q1 2023 is well underway now – how are your new year’s resolutions holding up? No judgement – I’m not really one for those (too many failed attempts), but I do believe that history unravels in seasons. A unique season is unfolding regarding Africa’s place in the world and this is especially evident in the Continent’s venture space, as an overview of 2022 illustrates.
Exceptional Growth
In 2022, Africa was the only region in the world where early stage funding increased. There are discrepancies on the total amount of funding raised between various sources, but it is agreed that Africa obtained a new record by raising in the region of $5.4 billion USD in 2022, surpassing its 2021 milestone of $4.9 billion USD. In stark contrast, most regions of the world experienced “double-digit drops” in early-stage funding. In fact, global venture funding dropped 35% in 2022 with little sign of improvement. Despite significant dry powder (uninvested capital), investors are forced to be more circumspect and focus on business fundamentals instead of what’s trending. In fact, most of the world is bracing for an extended economic winter especially in Europe where energy and supply chain woes are taking effect. It’s no surprise that Africa has shown itself as the most resilient region when it comes to venture growth.
Increasing Investor Confidence
There are levels and the African early-stage landscape achieved a new level with more than 1000 unique investors in 2022. This increased activity signals very clearly that quality and proprietary deal flow is accessible in the region. As per previous trends, 75% of the funding by value and quantity was concentrated in Africa’s four main tech ecosystems: Kenya, South Africa, Nigeria and Egypt. It is also important to note that there was a greater proportion of local investors engaged at Series A and below last year, which is exciting. The growth of local ownership in tandem with increased global investor interest in the African venture space speaks to a healthier environment for investors to access.
A Maturing Landscape
The African venture funding landscape showed signs of maturing in 2022. The spread of sectors that received funding was more diversified last year when fintech dominated with just 38% of deal share compared to 62% in 2021. I believe that fintech has acted as a catalyst by creating an investment momentum over the past few years which is now benefitting other sectors. Another indicator of the maturing process was the growth of venture debt funding to $1.5 billion USD (approximately 102% year-on-year growth) vis-à-vis equity funding. This development points to more companies becoming cash efficient, whereby healthy unit economics have created positive cash flow which can be used to service debt and avoid dilution. The maturation process of African ventures creates the runway for accelerated growth in the coming years.
Setting new targets
Despite these encouraging developments across Africa’s tech landscape, Africa still only receives about 1% of global venture capital dollars. Africa: The Big Deal argues that if Africa were to obtain a representative share of global venture capital dollars, it would amount to more than $70 billion USD compared to it’s current $5.4 billion USD.
With this target in mind and strong fundamentals enabling rapid growth, the opportunities within the African venture landscape are vast. As we look to a 2023 that may see the continuation of global economic headwinds, savvy trade and investment stakeholders will tap into Africa’s talent pool, investment opportunities and innovation mix to obtain mutual wins during a global season where this is difficult to achieve elsewhere. After all, we’re just getting started.
