Investor’s Guide to Africa: Top 3 VC Trends in 2021
After an exceptional year for Venture Capital in Africa, the African VC ecosystem rose to globally competitive levels. We explore 3 key VC trends that made 2021 the year of African Innovation
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There’s plenty to explore in the African VC ecosystem, especially after the exponential year of venture investment in 2021. After observing a pandemic-induced slump in VC funding, Venture Capital gained back momentum in the African continent, a large part of that is attributed to a record of 6 Mega Deals- but we’ll get to that later. Nearing the $3Bn mark, the African ecosystem observed a 250% YoY growth in funding over 2021 surpassing capital deployed in MENA for the year. The latter wasn’t a first for the African market, for in 2019 VC funding in African startups surpassed MENA-based funding by almost 30%. While this gap was bridged in 2021, marking an excess of only 4%, the African ecosystem stood out with its top 4 geographies.
As we debut our flagship Africa reports, it’s important to remark the impact of the top 4 geographies on the general VC funding level of the continent. In fact, the top 4 most funded geographies Nigeria, South Africa, Egypt, and Kenya were able to raise almost 90% of all VC capital in the region over 2021. This is not to say that the influx of capital did not also trickle down to more nascent ecosystems like Senegal observing 2,300% YoY growth, Cote d’Ivoire 840%, and Morocco 94% in 2021. However, as the African VC ecosystem becomes a powerful player on the global map, which we’ve seen reflected in the level of FDIs in the region and the expansion of African startups within and beyond Africa, we detail 3 key VC trends that came to fruition in 2021:
Exceptional VC Recovery
As mentioned before, Africa’s VC ecosystem observed a staggering recovery from pandemic funding levels, where venture capital investment tripled (growing by 250% YoY) in 2021. While Nigeria remains the largest market, ranking 1st in terms of capital investment and 2nd by number of transactions, it was South Africa that observed the highest YoY funding growth (more than 440%) over the past year, reflective of the level of innovation South African ventures have been able to achieve. This phenomenal recovery could be attributed to a mix of drivers including a risk-off investor tendency towards later-stage deals, large funding rounds including a record of 6 Mega Deals, and burgeoning international investor participation, driving unprecedented capital into the region.
The average round size across Africa climbed to all-time-high values across all funding stages, where the average Series B round-size for example grew by more than $15M to cross the $30M mark in 2021. With international investors like Tencent Holdings, Tiger Global, Sequoia Capital, and Soft Bank consisting of almost 70% of all investors backing African startups, venture capital in the region was boosted to globally competitive levels in 2021.
FinTech as the Industry of Choice
The FinTech craze across Africa has been truly remarkable in 2021, where FinTech was the leading industry in all of the top 4 markets. Accounting for more than 60% of all capital deployed in Africa over 2021, FinTech startups closed the highest number of deals in each of the top 4 geographies. In geographies like Nigeria, the sector accounted for more than 70% of total VC investment in the country, while this proportion is driven to almost 90% in South Africa.
This large proportion of VC funding in the sector proves exceptional when compared to other established markets like MENA where FinTech raised 17% of total capital or Turkey where the sector raised only 3% of total investment. This is in part due to the 5 Mega Deals closed in the FinTech sector by alternative payment providers, neo-banking solutions, and digital payment infrastructure builders OPay, Flutterwave, TymeBank, JUMO, and Wave Mobile Money. Yet, even without these 5 Mega Deals, the sector would still account for a solid 36% of all capital raised in 2021.
African Startup Expansion
Finally, African startups recorded a record-high of Exits in 2021. The 40 Exits recorded in Africa over the past year we higher than the past four years combined, with 30% recorded only in South Africa. These Exits not only reflect a healthy level of liquidity events undertaken by African startups, but most importantly signals startups expanding into, within, and outside of Africa. In light of cross-pollinations like Nigerian HealthTech Meddy acquiring Qatari Helium Health, or news of Pakistan-based T&L startup Airlift expanding operations into the South African market, it is evident that the African market has become a hot spot for venture growth. Over 2021, we saw inter-African expansions including South African SweepSouth acquiring Egyptian home services startup Filkhedma, Egyptian MaxAB acquiring Moroccon WaystoCap, and Ghanian mPharma acquiring its Ugandan counterpart Vine Pharmaceuticals. We also saw non-African startups and international players entering the vivacious market with acquisitions like Jordan-based Aumet Inc acquiring Egyptian Platform One, KSA-based DIGGIPACKS acquiring its Egyptian counterpart FWRUN, or global FinTech Player Zip Co acquiring South African FinTech Payflex.
Access more data in our recently released reports Africa 2022 Venture Investment Report, Nigeria 2022 Venture Investment Report, Kenya 2022 Venture Investment Report, South Africa 2022 Venture Investment Report, and Egypt 2022 Venture Investment Report.
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