Nairobi. African start-ups are beginning to see the opening up of the world’s largest single market - the Africa Continental Free Trade Area (AfCTFA) - as more and more of an opportunity to raise seed funding and support regional growth - and a recent report says the trend is likely to continue as the AfCTFA gains ground.
The African Private Equity and Venture Capital Association highlights AfCFTA’s potential to deliver high-value investment deals for local start-ups with a presence in multiple regions, in their report.
“Multi-region VC deals continue to account for the largest share of deals by value, and this trend will likely persist as the African Continental Free Trade Area (AfCFTA) gains traction, enabling regional integration and consequently supporting startups with a multi-region focus in Africa,” said the association in a report, Venture Capital in Africa.
According to Venture Capital in Africa, multi-regional start-ups accounted for 47 percent of the 1.1 billion US dollars in deals sealed in 2020. Multi-regional VC deals also had the largest median deal size, at 6.2 million US dollars, which is three times higher than the median deal size of 2 million dollars, according to the report.
Financial services firm, JUMO, with a presence in East, West and South Africa, raised 55 million dollars in debt and equity funding in 2020, from Leapfrog Investments and other investors. This was among the largest investment deals closed by a multi-region start-up during the period, as Africa’s start-up scene weathered Covid-19 to mop up high-value growth funds.
The number of venture capital deals in Africa in 2020 more than doubled to 319 from 140 in 2019, with the 2020 figure corresponding to over a third (34 per cent) of the total volume of VC deals sealed on the continent over the last seven years.
“This exponential growth is particularly significant considering the economic turbulence caused by the Covid-19 pandemic, which ushered sub-Saharan Africa’s first recession in 25 years,” said the report.
Over a seven-year period, Southern Africa attracted the highest volume of start-up deals (24 percent). Commitments by African governments to create a supportive and competitive environment is also opening new opportunities, with Kenya and Tunisia the pace-setters in this area.
Tunisia enacted the 2018 Startup Act in 2020 and Smart Capital, the state-designated operator of the Startup Act created thirteen specialised investment funds with a focus on seed to late-stage investments, helping drive the sector forward. Kenya’s government introduced the Startup Bill 2020, introducing tax-related incentives and protection for intellectual property for ventures where Kenyans are majority owners.
“As more technopoles are established across the continent and startups continue to be vital engines for economic growth, more African governments are championing the goal of nurturing vibrant and supportive ecosystems,” reads the report in part.
South Africa has the largest share of early-stage deal volume (22 percent) on the continent, followed by start-ups with headquarters outside Africa (21 percent). Kenya had a 16 percent share and Nigeria 15 percent, with Egypt coming up strongly with a share of 12 percent.
Morocco’s and Algeria’s start-up ecosystems have also been vibrant over the years, with the report showing in 2019, Heetch, a ride-sharing app targeting late-night transportation seekers raised 4 million dollars in a funding round from Cathay AfricInvest Innovation Fund. Digest Africa, an online database for African startups shows Morocco’s 10 most funded start-ups have to date raised a total of 24 million dollars across 13 rounds, with 68 percent of this amount going to proptech startup, Mubawab.