The African tech space continues to buck the continental trend, clocking up an increase in funding as other sectors face less certain economic times.
Last year, according to a report by Disrupt Africa, over 120 African tech startups received a total of $185.7 million in funding. This year looks set to be another bumper year, if notable rounds for the likes of South Africa’s WhereIsMyTransport and Zimbabwe’s Esaja in the last few weeks are anything to go by.
International investors are joining the party, with the likes of Mark Zuckerberg, Bill Gates and Steve Case backing digital startups on the continent.
Facebook boss Zuckerberg invested in coding accelerator Andela, Microsoft’s Gates has used the Bill & Melinda Gates Foundation to support the likes of Ghanaian fintech startup expressPay, while AOL founder Case, alongside wife Jean, has invested in the likes of BRCK and M-KOPA Solar.
Well, there are huge opportunities for returns to be gained by tapping into an economically developing Africa and its young tech savvy population. Meanwhile, investment has genuine impact and ability to cure social ills, especially in areas such as power provision and financial services.
There is an argument that pretty much all businesses in Africa have some form of social impact about them, as they creates jobs and income. The likes of Zuckerberg and Case want returns, but they also want to have a social impact, a desire that is bringing more and more impact investors to African shores.
The opportunities in Africa are in sharp contrast to elsewhere in the world, where, especially in terms of technology uptake, saturation is fast approaching. Investors are looking to diversify away from low-return and more highly competitive markets, and the “final frontier” that is Africa has become increasingly attractive.
This development has come at the same time as the risk profile of African markets improves, with investors more tempted to fund companies on the continent as a result of more transparency, better information and the growth of startup ecosystems in places like Cape Town, Lagos and Nairobi.
All of this has created a new “scramble for Africa”, as investors look to gain an early mover advantage.
This funding is going to companies across a number of sectors. According to the Disrupt Africa report, solar was the most popular area for investment last year, bringing in almost 33 per cent of the total as the likes of M-KOPA Solar and Off Grid Electric raised large rounds.
This makes sense. According to the African Development Bank (AfDB), 620 million Africans lack access to power. That is a huge untapped market, with the possibility of huge returns and massive social impact, especially given the development of innovative business models such as pay-as-you-go.
“The market in Africa is relatively unique in the sense that there are two major motivations. Investing in a market which globally has the largest growth potential is a huge draw, but so is the opportunity to have a significant positive impact, and accelerate the rate of development in countries which need it the most,” says Simon Bransfield-Garth, chief executive officer (CEO) of pay-as-you-go solar company Azuri.
The same ability to marry high returns with social impact can be seen in financial services, with fintech startups raising almost 30 per cent of the total funding last year. With 80 per cent of Africa’s population, around 330 million adults, unbanked, there is a huge opportunity here too.
Other sectors are not missing out, though some have been on the decline relative to previous years. E-commerce is one such area. While foreign-owned international behemoths such as Jumia rake in the cash, smaller e-commerce entities are less attractive.
“There is obviously long-term potential in consumers, e-commerce and tech in Africa. There are, however, only a handful of players big enough to absorb large amounts of money. So if you’re an investor with lots of money, looking for exposure to the industry pan-Africa, you have to invest in Jumia, Konga or Takealot,” says Paul Cook, managing partner at Silvertree Internet Holdings.
“As a result, valuations will be high – supply and demand in funding. It is definitely the case that finding investment gets easier the bigger the number you’re raising, and that feeds through to valuations.”
Cook’s suggestion that finding investment gets easier the more cash you need to raise is a fair one. The funding space for African tech startups is still not as developed as it could be, with companies looking for smaller ticket sizes often excluded given foreign investors do not invest such small amounts.
It is vital the funding continues to snowball. Though there are more active investors on the continent, there are still not enough. Tech startups are creating jobs, and addressing issues in areas such as education, health, energy and food security. We are not there yet, but the signs are that after years of being ignored by overseas investors, Africa is now at the forefront of their minds.
