REPORTAGE

Venture Capital in Africa:
Top trends from 2022

Highlights from the report "Africa Tech Venture Capital 2022” from Partech

The annual Africa Tech Venture Capital report from Partech dropped in February showing moderate growth for the African tech ecosystem in 2022, after a standout 2021. African tech grew faster than any other region in 2021, tripling the total investment from the previous year to USD6 billion for 640 startups, thanks to 14 megadeals (deals greater than USD100 million) with large international investors. If 2021 was the year of the megadeal for African tech companies, 2022 was the year of the African outlier: African tech was the only market to see net growth in funding.

African startups raised USD6.5 billion in 2022 – a year-on-year growth of 8%. However, there was still a pull-back by global investors, highlighted by the fact that there were just seven megadeals in equity funding.

Looking ahead to 2023, analysts anticipate continued growth in VC funding as global interest in the African tech market continues to grow and generate positive returns for investors. To get a sense for how the future of African VC might take shape, here are four key trends from 2022.

Fintech still leads in VC funding.

Despite an economic downturn that heavily impacted the number and magnitude of Fintech deals, Fintech remains the most funded sector in Africa. Spurred by megadeals in 2021, Fintech accounted for only 32% of deals but 63% of the funding. Although the total amount invested in Fintech in 2022 dropped by a staggering 41% year-on-year to USD1.9 billion, the sector remained resilient, attracting more investment as new mobile-based financial tools have developed at scale across the continent. By comparison, the second strongest sector – Cleantech – captured USD863 million.

There are clear winners in the Fintech race. For instance, the combined total funding raised for Fintech in South Africa, Egypt, and Kenya is still less than that in Nigeria, US$798 million. South Africa is in second place with nearly USD390 million raised. Other sectors that showed strong growth and received a substantial portion of the equity funding include Cleantech (18%), e-commerce (13%), and enterprise (11%).

African tech is gaining the confidence of global lenders.

The appetite of top-tier international investors for African tech has been increasing more than any other emerging market, as shown by the rise in megadeals in Nigeria, South Africa, Egypt, and Kenya in 2021. A significantly large number of key investors entered the African market for the first time that year, while others who were already active increased their commitment, adding two or more deals during the same year.

While there was a slowdown in equity investors in 2022, Africa’s tech ecosystem attracted 1149 active investors compared to 891 in 2021, representing a 29% year-on-year growth. Of particular note is the growth in the number of committed investors, which increased from 65 in 2021 to 89 in 2022. Notable investors included Tiger Global, Softbank, Sequoia, General Atlantic, Target Global, DST Global, Tencent, and Kingsway Capital.

More female founders received funding, but not as much.

Last year, 22% of rounds went to female-founded start-ups, 2% increase from 2021. However, female-founded startups raised just 13% of the total equity funding, a drop of 3% from 2021. Most deals for teams with female founders (79%) came in seed stage rounds, which aligns with the overall trend (73% seed funding). Nigeria led the way in number of deals to teams with female founders at 43, followed by Kenya (30), Egypt (25), and South Africa (16). Meanwhile, female-founded teams in Kenya raised the most funding at USD146 million, followed by Nigeria at USD127 million.

Access to debt funding is increasing.

Another notable highlight of the 2022 report is the growing access of African tech entrepreneurs to debt funding, a sign of the increasing maturity in the sector. Growth in debt funding compensated for the slight decline in equity funding rounds. Debt funding grew by over 8% year-on-year and doubled in volume to USD1.5 billion, representing nearly a quarter of the total funding.