Investor Confidence in Venture Capital In Africa Remains High

The African Private Capital Association (AVCA) has announced the release of its 2022 Venture Capital in Africa Report. The anticipated report – which captures VC performance in Africa by deal volume, value, and investment stage – indicates the industry’s resilience during global uncertainty.

The new report is a comprehensive overview of Africa’s innovation ecosystem, providing critical insights into the sub-regions, countries, and sectors that have cemented Africa’s rising position as a region for VC activity globally and the increasing importance of early-stage investment on the continent.

The report shows that despite a tough year for Africa stemming from the Covid pandemic, the Russia-Ukraine war and the slowdown in the tech sector, private capital inflows continue to propel economic growth and inclusion across the continent.

Resistance

Unlike other continents like North America, Asia and Latin America which saw a dip in venture capital flows in 2022 due to the Covid pandemic, political instability and slowdown in the tech sector, Africa’s venture capital activity remained largely affected.

Despite more cautious capital deployment around the globe, the AVCA report highlights that capital commitments in Africa remained strong. By comparison, Africa’s 21 percent year-on-year growth in deal volume was 3 times that recorded in Asia (7 percent), the only other region to record positive year-on-year growth in deal volume. Looking more broadly, Africa’s single percent drop in deal value from the previous year illustrates how the region was largely unaffected by heightened risk-off investor sentiment experienced in other markets across the globe, which resulted in contractions in start-up funding.

Abi Mustapha-Maduakor, Chief Executive Officer, AVCA, said, “Resistance against rippling effects of Covid-19 and global economic headwinds is a reminder of the high-quality investment opportunities on the continent. Despite lower participation by impact investors last year, as experienced globally, the impact continues to be achieved in Africa through a more connected marketplace that drives tech-enabled solutions from healthcare to education. Intuitive entrepreneurs and efficient capital allocation are transforming lives as a maturing VC industry continues to create longevity and opportunities for African industries and societies to reshape the future.”

Africa’s venture funding market was valued at $6.5 billion across 853 deals, including $1.3 billion of venture debt. Deal volume in Africa last year experienced an industry record, highlighting a near-decade of continuous growth and a compound annual growth rate (CAGR) of 31 percent between 2014 and 2022. Contributing to this growth is the increased participation of start-ups raising capital for the first time, accounting for 37 percent of deal volume.

A reduction in big-ticket investments, according to the report, aligns with the global trend of fewer late-stage deals influenced by challenging macroeconomic conditions. However, younger companies in Africa attracted the majority of venture funding across the continent, a testament to accelerated levels of ambition, entrepreneurship, and pioneering enterprise.

The report indicates that innovation was rewarded with venture funding, as seed-stage funding accounted for the majority of the continent’s VC deal activity while also demonstrating the highest year-on-year growth.

“The volume of early-stage (Series A and B) investment deals grew by 25 per cent between 2021 and 2022, increasing median deal value to $10 million, the highest globally – surpassing North America and Asia and closing the gap with Europe, and signifies Africa’s rapid growth trajectory. With over three-quarters of Africa’s funding originating from foreign investors, primarily composed of fund managers and investment firms based overseas, AVCA’s research indicates sustained investor confidence in the region,” it says.

The report also shows that the repeated investment in businesses was equally encouraging, highlighting investors’ long-term commitment to companies and their onward growth. The report details how 8 percent of early-stage investments were made in the same company more than once in 2022, while 409 unique companies received additional venture capital following investments in previous years. Continued investments contribute to the sustainability of these companies, the employment they generate, and the increasing impact they deliver, catalysing more robust commercial and social ecosystems.

A combination of early-stage investment and 15 super-sized deals valued at $100 million or more represents a growing maturity across the African VC industry. Maintenance of value amidst tighter global VC activity is another indicator of this evolution, supporting positive investor sentiment across the continent. This has also translated into an impetus to break barriers. Despite room for more growth, over a quarter of start-ups that received venture financing were either female-founded or included at least one female in the founding cohort.