This deep dive was initially published in our VC Stack newsletter. Make sure to subscribe here to not miss any future episodes.
In 2021, Africa defied all the odds and grew faster than any other region amid global VC growth. The year ended with 3x the amount of investment and 2x the activity of 2020: $5.2B in total equity funding across 681 rounds. The attention garnered by this monumental growth led thousands to join the conversation on the rise of African investments and the future of the continent’s tech ecosystem. With Africa representing close to 20% of the global population and capturing 1% of global VC funding, it remains a relatively untapped market.
We had the opportunity to hear from three investors in the space: Tamim El Zeim from Seedstars Africa, Diego Arias García from Plug and Play and Hossam Shafick from Silicon Badia. All of whom pointed to the continent's macro trends as massive opportunities in the coming decade. With young consumers going online, the projected growth of the middle class and the vibrant markets eager for innovative ideas.
Hossam Shafick sums up quite well why he is so excited about investing in Africa: "Not only is Africa a sizeable, growing population, but it’s also one that loves the internet - 2 in every 3 Africans use the internet, some of whom don’t even have access to clean water! (according to the World Bank) ".
The ‘Big 4’ refers to the continent's four major investment markets: Nigeria, South Africa, Egypt, and Kenya. In 2022, these four countries amassed 72% of venture capital funding by volume, accounting for $3.5 billion and 531 deals. Many investors are drawn to these markets since a significant portion of the continent's startup incubators and accelerators are located in these countries due to their large populations and high GDP. However, Diego Arias García, from Plug and Play, notes up-and-coming regions like Morocco, Senegal, and Tunisia are proving that some of the best-performing companies can also grow out of smaller markets.
While many aim to spread investments outside the ‘Big 4’ expansion throughout the continent is anything but easy. Navigating regulatory frameworks, language barriers, and currency differences can be equivalent to starting an entirely new business (The State of Africa 2023).
Top Investment Destinations by VC Funding, 2022
Top 5 Companies, 2023 (Y-Combinator)
Fintech has remained the most funded vertical with a total of $1.9B invested this past year. Nigeria takes the spot for the largest market in total equity funding and equity deals in 2021 and 2022. That being said looking at companies that are digitizing the fundamental sectors of the economy is a good start. Plug and Play, for example, have focused on healthcare, fintech, B2B SaaS, and logistics. However, education is another key vertical Investor, Diego Arias García is looking at. Despite the concentrated capital flow, the continent as a whole brought in 1,149 unique investors in 2022.
Tamim El Zeim, Partner at Seedstars Africa, warns that inexperienced investors who analyze opportunities in Africa based solely on their knowledge from their home country pose a significant risk. He states that successful copycats have had to adapt to the unique characteristics of African markets, and failing to understand these subtleties can be risky for foreign investors. Additionally, he encourages the diversification of the portfolio across several countries. Internationalizing companies early helps mitigate that risk by being exposed to several currencies early on.
Top Sectors by Deal Count, 2022
Top Sectors by VC Funding, 2022
We are an early-stage venture capital fund investing in high-growth companies active across Sub-Saharan Africa. Seedstars Africa Ventures provides entrepreneurs access to pan-African and international support.
Ajim Capital is an early-stage fund that provides startups in Africa financing from Pre-seed to Seed. We support founders from the earliest days with hands-on strategic advice and access to our global network of investors and experts.
Partech is one of the most active tech investors in the world, bringing together capital, operational experience, and strategic support for entrepreneurs at seed, venture, and growth stages.
With a decade-long track record of venture building alongside some of the smartest female-led founding teams in Africa, we back female-focused startups across multiple sectors that tackle the most meaningful challenges across the continent.
Launch Africa is a leading Pan-African VC fund solving the significant funding gap in the Seed and pre-Series A investment landscape in Africa. We back startups across multiple sectors, regions, and products that tackle the most meaningful challenges on the continent.
We provide growth capital and deep strategic value to founders in Africa while positioning them for international expansion and impact. We believe every investment is a partnership and value-creation goes far beyond just capital.
Plug and Play, Africa Ventures is open to pre-seed to Series A deals. Investing across multiple verticals including fintech, healthcare, education, and future of work within a range of markets: Egypt, Morocco, Kenya, Nigeria, Cameroun, etc.
Since our establishment in 2012, our firm has invested in over 100 tech startups globally worth over $30BN cumulatively and spanning over 15 different industries within tech.
Interested in learning more about Africa's growing startup ecosystem? Check out these additional readings!
