African Fintech startups saw a flood of VC funding last year

As rising borrowing costs and recession worries weighed on global venture capital investment in 2022, Africa’s startup ecosystem attracted record funding.

While most regions experienced double-digit declines in startup funding last year, Africa showed gains in total investment volume, deals and number of investors. Startup funding on the continent grew by roughly 5% in 2022, compared to a 62% decline in Latin America and 39% in the Asia-Pacific region.

Globally, venture capital funding fell 35% to $445 billion, albeit still well above the levels posted in the years before the Covid-19 pandemic.

Total funding for the continent passed $3 billion for the first time and hovered around $4.8-5.4 billion by the end of the year. The hope is that continued capital flow to the start-up ecosystem will support broader development goals, ranging from increasing financial inclusion to enabling digital transformation and the energy transition.

Outstanding performance

The continent’s “big four” markets – Nigeria, Egypt, Kenya and South Africa – continued to attract the lion’s share of funding for African start-ups, accounting for around 75% of the total in 2022, according to market research firm Briter Bridges.

Africa’s largest economy, Nigeria, received the most funding, with more than $1.2 billion, or about 28% of the regional total. This is partly thanks to the number of start-ups in the country, with 209 in Lagos alone.

Nigeria’s large population and growing measures for inclusion are driving the success of financial technology (fintech) startups, in particular, with payment solutions such as “buy now, pay later” microloans and cryptocurrency continue to grow.

After becoming Africa’s fourth unicorn in 2021, fintech firm Flutterwave raised $250 million last February – its largest funding round to date – bringing its total valuation to over $3 billion.

Kenya was the only other African market to receive more than $1 billion in funding, doubling the total for 2021. The East African country has stood out in recent years thanks to developments in clean energy, which accounts for 90% of its power supply.

Clean energy technology attracted the largest share of Kenya’s 2022 funding, with off-grid solar company Sun King raising $330 million in its latest Series D funding round. The company provides direct-to-consumer, affordable solar networks, expanding solar power available to around 165,000 homes in eight African countries.

Funding company M-KOPA, which started offering pay-as-you-go solar panel home systems, also raised $75 million in its fifth equity round, bringing its total funding up to $190 million.

Thanks to its dynamic tech ecosystem, Egypt has experienced significant growth since recording the highest number of funded startups on the continent in 2019. The $811 million raised by Egyptian startups in 2022 represents an 81.2% increase from 2021, which in turn was up 215% from 2020.

The fintech segment accounted for about half of funding in Egypt this year, well above the share received by the e-commerce segment, which is typically more active. In May, fintech firm PayMob secured $50 million in a Series B round, reportedly the most raised by an Egyptian firm in the segment to date.

While South African tech start-ups secured 12.3% of total funding on the continent by 2022, both the number of firms supported and the volume of investment fell over the past year. Alongside the typically dominant fintech segment, however, e-health and artificial intelligence firms are attracting increasing interest.

Leveling the playing field

Activity in 2022 extended beyond the big four, with agreements reached in 27 countries on the continent. Ghana, Morocco and Tunisia attracted significant funding, while Côte d’Ivoire, Senegal, Tanzania and Uganda also saw significant investment activity in 2022.

Although Ghana remains below the Big Four in terms of funding volume, firms in the West African country raised $149 million in 2022, a 652% increase from the previous year. Tunisia also experienced strong growth, with 28 funded firms giving it fifth place in the continent’s rankings for this metric despite the relatively small size of the market.

Central Africa, which has historically received the least funding of any subregion, collected almost double the amount it received in 2021, largely attributed to the growth of web3 company Jambo. Based in the Democratic Republic of Congo, Jambo has raised $7.5 million in seed funding to build a web3 user portal, which helps unlock monetization revenue opportunities.

Investments flowing into Africa’s startup ecosystem come from a wide range of sources, with at least 987 disclosed investors present in the market in 2022. Local and international early-stage funds – including Launch Africa Ventures, the continent’s most active investor backing 45 startups − and accelerators are the primary the investment sources. Venture capital firms and large investment groups such as Tiger Global, Sequoia Capital and SoftBank are increasingly active in Africa, as are African entrepreneurs.

In terms of gender distribution, male-led firms continue to attract the majority of capital flowing to the continent. Overall, women-led firms accounted for 4% of funds raised across Africa in 2022.

Sustained growth can, however, help bridge the gender gap. If trends continue, Africa could gain a greater share of global financing.

Since 2015, funding for the continent’s tech start-ups has increased by more than 1,000%, while the number of funded start-ups has increased by 406% annually over the same period.

Despite promising growth prospects, African start-ups raise the least funding of any region, at around 1.2% of the global total, despite representing about 3% of GDP and 17% of the population. This underlines a significant potential for increased investment, especially given the continent’s demographic growth trajectory in the coming years.

By Oxford Business Group

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