Development of African Venture Capital in Recent Years

The African private sector is largely constituted of micro- or small-sized enterprises that run along some large commercial corporations. There are an insufficient number of middle-sized enterprises; this “missing middle” limits the economic growth of the private sector. Current and new small-scaled enterprises need to grow to increase market competitiveness domestically and internationally. To reach this goal financing and business support is needed. Venture capital has played a critical role in the African economy within the recent decade.

African venture capital has increased exponentially in recent years; in 2015 African startups raised only $400 million compared to the $2 billion they raised in 2019. Venture capital in Africa is dominated by American investors and entrepreneurs. 42% of venture capital transactions are attributed to North American investors with only 20% of total investments stemming from African investors. Also, startups that receive the most funding are often not founded by Africans; 8 out of the top 10 African startups are founded by foreigners.

By volume, most African venture capital deals from 2014-2019 were focused in financials, information technology and nonessential goods and services. However, the start of the coronavirus pandemic in 2020 induced an interest in funding essential or emergency services, such as healthcare, food production, energy, and education. In particular, the healthcare sector experienced significant growth which will likely continue in 2021.

Despite aforementioned equity issues, venture capital plays an important role in the overall African economy by facilitating startups to develop innovations that drive economic development, poverty reduction, and job creation. In our next post on African VC, we’ll discuss the potential for Africa to have a technology revolution and disrupt old-school business.