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The venture capital scene in Africa has consistently grown, with an influx of capital from local and international investors reaching unprecedented heights in recent years. To understand how much growth has occurred, African startups raised a meagre $400 million in 2015 compared to the $2 billion that came into the continent in 2019, according to Africa-focused fund Partech Africa.
However, that figure isn’t the only yardstick. With other outlets like media publications WeeTracker and Disrupt Africa disclosing different results for the African venture capital market, we compared and contrasted their results last year. The result of that investigation detailed differences in methodology, as well as similarities.
In comparison to Partech’s $2 billion figure for 2019, WeeTracker estimated that African startups raised $1.3 billion while Disrupt Africa, $496 million for the same year.
It was expected that these figures would increase in 2020. But with the pandemic bringing in utter confusion and panic, companies downsized as investors re-strategized, and due diligence slowed during the first few months of the year. Also, new predictions came into light in May with AfricArena pegging expected deals to close between $1.2 billion and $1.8 billion by the end of the year.
Investments did pick up, and from July, VC funding on the continent had a bullish run until December. Although 2020 didn’t witness the series of mammoth deals in 2019 and didn’t reach the $2 billion mark, it proved to be a good year for acquisitions. Sendwave’s $500 million purchase by WorldRemit; Network International buying DPO Group for $288 million; and Stripe’s larger than $200 million acquisition of Paystack were high-profile examples.
In 2019, Partech Africa reported that a total of $2 billion went into African startups. For 2020, the number dropped to $1.43 billion. Briter Bridges pegged total 2020 VC for African startups at $1.31 billion (for disclosed and undisclosed amounts), up from $1.27 billion in 2019. Disrupt Africa noted an increase in its figures moving from $496 million in 2019 to $700 million in 2020.
Just as last year, contrasting methodologies from the type of deals reviewed, to the definition of an African startup, contributed to the numbers’ disparity.
Cyril Collon, general partner at Partech, says the firm’s numbers are based on equity deals greater than $200,000. Also, it defines African startups “as companies with their primary market, in terms of operations or revenues, in Africa not based on HQ or incorporation,” he said. “When these companies evolve to go global, we still count them as African companies.”
Briter Bridges has a similar methodology. According to Dario Giuliani, the firm’s director, the research organisation avoided using geography to define an African startup due to factors contributing to business identities like taxation, customers, IP and management team.
For Disrupt Africa, the startups featured in its report are seven years or less in operation, still scaling and have a potential to achieve profitability. It excluded “companies that are spin-offs of corporates or any other large entity, or that have developed past the point of being a startup, by our definition of one.”
Despite the drop in total funding, Partech says African startups closed more total deals in 2020 than previous years. According to the firm, 347 startups completed 359 deals in 2020 compared to 250 deals in 2019. This can be attributed to an increase in seed rounds (up 88% from 2019) and bridge rounds due to shortage of cash amidst a pandemic-induced lockdown.
A common theme in the three reports shows fintech, health tech and clean tech in the top five sectors. But, as expected, fintech retained the lion’s share of African VC funding.
According to Partech, fintech represented 25% of total African funding raised last year, with agritech, logistics & mobility, off-grid tech and health tech sectors following behind.
Briter Bridges reported that fintech companies accounted for 31% of the total VC funding over the same time period. Clean tech came second; health tech, third; agritech and data analytics, fourth and fifth, respectively.
Fintech startups raised 24.9% of the total African VC funding counted by Disrupt Africa. E-commerce, health tech, logistics and energy startups followed, respectively.
2020 also showed the Big Four countries’ preponderance in terms of investment destination, at least in two out of the three reports.
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