Ceteris Paribus: African venture capital funding up 133% HY 22

Capital venture

DEFYING global trends and establishing new record highs, Africa’s venture ecosystem registered a year-on-year growth of 133% in the first six months of 2022 compared to the first half of 2021.

According to a report by the African Private Equity and Venture Capital Association (AVCA), private capital investment in Africa in the first half of 2022 saw a total deal volume of 338 deals with a cumulative deal value of US$4,7 billion.

This is against the global trend which saw a 3% decline in Venture Capital Funding. By comparison, Latin America shed 10,5% and North America 10% over the period.

“This decline in funding globally can be attributed to pronounced contractions in developed markets in Q2. Illustratively, the United States saw a contraction of -25% in startup funding compared to Q2 2021, while Germany and France saw contractions of -39% and -15%, respectively. Further East, Asia’s venture market also succumbed to this downward spiral in funding, albeit to a more moderate degree with China recording a contraction of -3% in Q2 2022 from the year before,” said the publication.

“In addition to Africa’s hitherto immunity to the decline in funding seen globally, economic growth predictions for sub-Saharan Africa in 2022 H2 also allow for a relatively positive outlook for the second half of the year. At 3,7%, this forecast is a modest shadow of the double-digit growth witnessed in the mid-2010s. Nevertheless, they remain higher than growth averages predicted for Latin America and the Caribbean (2,5%), Europe and Central Asia (2,9%), and the global average (2,9%) in 2022,” added the report.

Three main factors contributed to strong deal activity: the substantial amount of fresh capital raised by fund managers in 2021 as investors made deployments across various strategies and sectors, and an increasing interest in Africa’s venture ecosystem by international investors and domestic venture capital firms.

Named the “2022 H1 African Venture Capital Activity Report;” the document predicts that the total value of VC deals will reach US$7 billion by the close of 2022 — a 35% YoY increase from the US$5,2 billion raised in 2021 if this pattern continues

“Assuming all else remains unchanged and a similar compound annual growth rate carries forward into 2022 H2, we can expect the total volume of VC deals to reach approximately 900 deals by the close of 20225 —a 38% YoY increase from the 650 deals that took place in 2021,” reads the report.

Financials remain a juggernaut of the ecosystem as the most active sector by both volume (32%) and value (44%), followed by Consumer Discretionary which drew 17% of deal volume.

Overtaking Information Technology, the Industrials sector emerged as the third most active sector by volume in 2022 H1, accounting for 16% of the total number of VC deals that took place in the period, notes the report.

Africa’s financial services industry attracted the biggest funding with FinTech companies, in particular, comprising 89% of the total number of deals within Financials.

From a regional perspective, West Africa continues to dominate private capital deals by volume (34%). East Africa experienced the strongest growth in its share of deal volume compared to the corresponding period last year. Kenya’s role in this was key, with early-stage venture deals in Financials and Consumer Discretionary — mainly online retailing — contributing significantly to this remarkable growth.

Venture Capital Funding for African start-ups leapfrogged in 2021 as it grew 2,5 times from the 2020 outturn, flying through the roof to set a new annual record. According to Briter Bridges, Venture Capital (VC) firms invested around US$5 billion in 2021, the equivalent of the combined African start-up inflows recorded in 2018, 2019, and 2020.

  • Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — [email protected]

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