Local Investors Drive Resilience of Africa’s Startups

Total funding invested into African tech startups hit $6.5 billion in 2022.

That’s according to a report published by venture capital (VC) firm Partech this week, which also showed that African firms largely escaped the global VC funding drought in 2022, with startup investment — spread across 764 deals — growing 8% compared to the year prior.

And while that investment figure pales in comparison to the estimated $445 billion raised globally last year, Cyril Collon, general partner at Partech, told PYMNTS that the growing potential of Africa’s tech startup scene, buoyed by a surge in FinTech funding, remains unmatched anywhere in the world.

“If you look at different types of KPIs [key performance indicators] and compare them with Southeast Asia and LatAm, Africa is [way ahead of the curve]. It took twice less time there to get to 500 first deals in a year [and] twice less time to get the first five unicorns,” Collon noted, adding that African founders have “the most amazing playground to build at scale.”

Related: Global Startup Uncertainty Drives Mega Investments in Africa’s Burgeoning Tech Scene

Beyond that competitive advantage which he said makes the region “the most resilient ecosystem in the world,” Collon added that Africa’s tech ecosystem crossed the 1,000 mark of unique equity investors for the first time in 2022, further cementing its position as the most attractive investment market globally.

Also related: African FinTechs ‘Least Hit’ by Global Tech Funding Winter, but for How Long?

The fact that there is increasing local investment at the early-stage level also makes a huge difference, he noted, pointing to the proportion of local investors — 70%-plus, per Collon — that make up the region’s investment landscape today.

“If we can take control of that and build a new generation of fund managers who are able to tackle the pre-seed, seed and series A-level [challenge], we’re going to win. And that is [already] happening,” he said.

Debt: Strong Alternative Source of Capital

Unsurprisingly, the African FinTech sector, which continues to play a critical role in accelerating financial inclusion across the region, netted the most VC funding in 2022 across all sources of capital, claiming 39% of the total equity volume ($1.9 billion) and 45% of the total debt volume ($691 million), per the report.

But while the sector continues to grow and dominate the VC funding landscape, other sectors such as logistics and supply chain, HealthTech, AgriTech and EdTech are also witnessing unprecedented growth, Collon said.

He also highlighted the CleanTech space as another promising sector that received huge amounts of capital in 2022. In fact, CleanTech alone received 18% of total equity funding at $863 million and 39% of the total debt funding activity at $605 million, an impressive feat, per Collon, given the limited number of deals recorded in the sector last year.

The higher share of debt funding is particularly noteworthy, he further noted, pointing to a new generation of debt providers outside the traditional banks and other financial institutions that are transforming the debt asset class and helping it to mature.

Overall, he said debt is a very good KPI to determine where the region stands in terms of the maturity of sectors and viability of the models. And the fact that debt funding in 2022 more than doubled in volume to reach $1.55 billion — roughly 24% of the entire $6.5 billion raised — is a strong indicator of industry maturity across all sectors.

As Collon said, “2022 is the year that confirmed debt as being a strong alternative source of capital for African tech startups.”

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