Categories: Startups

AVCA: “Enabling private investment in Africa”, a report on Venture Capital and Private Equity investment in Africa

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The African Private Equity and Venture Capital Association (AVCA) recently published a report titled Venture Capital in Africa: Mapping Africa’s start-up investment landscape. So before we get into the report lets do some background

Who are AVCA?

The African Private Equity and Venture Capital Association is a Pan-African body that promotes and enables private investment in Africa. The association was founded in 2000 and their head office in the United Kingdom.

“AVCA plays an important role as a champion and effective change agent for the industry, educating, equipping and connecting members and stakeholders with independent industry research, best practice training programmes and exceptional networking opportunities.

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With a global and growing member base, AVCA members span private equity and venture capital firms, institutional investors, foundations and endowments, pension funds, international development finance institutions, professional service firms, academia, and other associations.

This diverse membership is united by a common purpose: to be part of the Africa growth story.”

AVCA

They host training events, industry workshops, they have a running podcast, networking events as well as research and reporting on the state of venture capital and private investment in Africa.

The report

Venture capital landscape

“The Venture Capital (VC) landscape in Africa has gradually
evolved over the last two decades to become a recognised
and definable investment theme, simultaneously attracting
international investment to the continent while also encouraging
the development of local venture capital firms and home-grown
financing solutions”

The growth of Private Equity and Venture Capital investment in Africa shows that foreign direct investment (FDI) far exceeds that of official development assistance (ODA).

In 2012, 17 countries recorded receiving FDI and that figure jumped to 26 in 2017. Africa’s macroeconomic growth which averaged 4.6% from 2000 to 2016 was key to driving the VC industry and creating a good environment that spurred on innovators.

Africa’s GDP was above the world’s average in 2019 and the continent remained the second fastest growing region in the world. Private Equity and Venture Capital funding has progressively increased, encouraged by the favourable economic outlook. The ever growing markets and the expansion of the consumer middle class, as well as Africa being home to the largest free trade area.

Sub-Saharan Africa’s opportunities are vast, and its challenges are persistent. Home to the world’s largest free trade area and a 1.2 billion-person market, the continent is creating an entirely new development path, harnessing the potential of its resources and people

The World Bank

The state of entrepreneurship in Africa

Entrepreneurship is still in a state of relative infancy on the continent. But it is encouraging to see that some governments have seen how important entrepreneurship in relation to economic growth. Countries like Tunisia and Senegal have startup legislation to create a better local environment for innovation and entrepreneurship. Startup legislation is also being pursued in Rwanda, Ghana and Mali.

VC activity is growing along with all the developments happening on the continent. The number of reported VC deals reached a six-year record high in 2019.

Fintech is above the rest when it comes to VC funding. Utilities, logistics, healthcare, agribusiness and e-commerce have made considerable strides.

The number if VC deals from 2014 to 2019

There have been 613 reported VC deals on the continent between 2014 and 2019. 139 of those deals have been in 2019 alone, showing a 22% increase form 2018.

Deals through the years:

  • 2014 – 69
  • 2015 – 94
  • 2016 – 96
  • 2017 – 101
  • 2018 – 114
  • 2019 – 139

Which countries have seen the most VC and PE money

South Africa, Kenya and Nigeria have taken the lion’s share of VC and PE funding on the continent. South Africa accounted for 21%, Kenya 18%, Nigeria 14%, Egypt 9%, Ghana 3%. 21% of VC investment went to African startups who aren’t based on the continent.

It is a little worrying that South Africa’s 21% is identical to the number of investments made to African startups outside the continent. It may be a case of individuals in the diaspora having greater access to backers.

Money invested between 2014 and 2019

The money invested year-on-year has had its ups and downs but the most notable spike came last year with a record US$1.4 invested according to AVCA. That figure reflects on the progress happening in Africa because the total sum of VC deals between 2014 and 2019 was US$3.9 billion.

Share number and value of VC deals per sector 2014 to 2019

Sector % share of VC by volume % share of VC deals by value
Financials 19%23%
Information Technology19%6%
Consumer Discretionary18%28%
Industrials 12%18%
Utilities11%17%
Communication services 8%3%
Healthcare7%3%
Consumer Staples 4%<1%
Materials 1%<1%
Real Estate 1%<1%

It isn’t surprising that financials, IT and consumer discretionary grossed the most. They are typically the ones are born of necessity and increase the access of goods and services to many who wouldn’t otherwise have access. Utilities on the other hand have grown increasingly popular in early stage deals. Alternative energy solutions are the ones that have been the biggest draw.

E-health has seen considerable growth this year because of the coronavirus pandemic. It will surely sit higher up when the figures for this year are out

The share of investor participating in Africa by region 2014 to 2019

There is a diverse array of investors from different countries making investment in African ideas. The majority is coming from North America constituting 42% of all the investment in Africa. Europe has a 23% share, local investment stands at 20% Asia Pacific at 8%, the Middle East 6%, Latin America and The Caribbean at 1%.

Takeaways

It is great to see that the numbers year-on-year for VC deals in Africa have continued to climb. The figures for 2019 are particularly encouraging. For 2019 to account for nearly 36% of the total revenue over a 5-year period means that Africa is being taken seriously.

However, the proportion of foreign to local investment is worrying. Of course there are investors out there with a lot of financial resources, but it would be great to see more local investment. Maybe I am alone in this but I think that more local investors should get in on the ground floor. The dash for African ideas and inventions should, I think, have African investors at pre-seed level.

That is not to say that foreign funding is a bad thing. If there are VCs and individuals out there wiling to invest in an idea that will better the continent, they are most welcome.

I would also like to see more countries follow the example set by Tunisia and Senegal in crafting Startup legislation. Entrepreneurs can, if given the right environment, help in job creation and poverty reduction.

I encourage you all to read the full report which can be found here.


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Published by
Valentine Muhamba

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