Despite the difficulties caused by the coronavirus pandemic, there are plenty of reasons for optimism in the African venture capital market, says Macky O’Sullivan of King & Spalding.
You must speculate to accumulate, so the proverb goes, and we are certainly in an era of speculation. Like most of the world, Africa is in unprecedented times amid a pandemic that has seen the rapid spread of the coronavirus disease across the globe. Against this backdrop, aggregate real GDP growth for Sub-Saharan Africa was – the first annual GDP contraction reported by the International Monetary Fund (IMF) for the Sub-Saharan Africa region since 1992.
However, in a year marred by the coronavirus pandemic, early-stage start-ups on the African continent continued to see notable growth in funding. According to the sixth edition of the annual African Tech Startups Funding Report, 2020 released by start-up news and research portal Disrupt Africa, 2020 was a record year for investment into the African tech start-up ecosystem, with more start-ups raising more money, from more investors than ever before. There was a 42.8% increase in the number of active investors who invested into start-ups on the continent compared to the previous year.
Additionally, start-up funding crossed the USD 1 billion mark again as it did for the first time in 2019 with investors pouring at least USD 1.3 billion of venture capital, including undisclosed rounds, into African start-ups with around USD 1.07 billion of these deals publicly disclosed according to a new report from Briter Bridges.
Kenya, Nigeria, South Africa, and Egypt remain emphatically Africa’s ‘big four’ from a funding perspective, accounting for 77% of funded start-ups and 89.2% of total investment. Nigeria (85), Egypt (82) and South Africa (81) lead the way from the perspective of a venture, but when it comes to total combined raised capital it is Kenya that is Africa’s leader, with start-ups from the East African country raising over USD 190 million in funding in 2020. Though these markets remain clear leaders, there are signs of growing activity elsewhere on the continent, with start-ups backed in 24 African countries, up from 19 in 2019, 20 in 2018, and 18 in 2017.
While speculation continues on how and when countries will emerge and recover from the pandemic, some sectors have gained increased investor interest and are thriving. Healthcare is one such sector. Compared to dominant sectors such as fintech, healthcare start-ups in Africa have historically gained a small percentage of the continent’s annual venture capital haul — only 9.3% according to Partech’s 2019 Annual Africa Report. However, the pandemic has brought about a surge in interest in the healthcare sector on a continent where access to medical care is often restricted.
Start-ups across Africa are rising to the challenge and are innovating in various areas to help solve the challenges associated with the delivery of good quality, accessible and affordable healthcare.
One such start-up is Helium Health, a Nigerian company that has developed a digital solution to record-keeping in the healthcare sector on the African continent where only 30% of hospital visits are recorded.
The company has built a solution around the peculiarities of the African market by developing an electronic medical records system that healthcare providers, regardless of their levels of computer literacy, can use. West Africa’s largest electronic medical records provider offers a product suit that digitises data, formalises monetisation and enables telemedicine for health care systems in Nigeria, Liberia, and Ghana.
The start-up recently raised USD 10 million in an investment round led by Dubai-based Global Ventures with participation by investors across Africa (Africa Healthcare Master fund (AAIC)), Asia (Tencent and Ohara Pharmaceutical), and the United States (HOF Capital and Y Combinator). The founders plan to use the latest funding round to hire and expand the company’s operations to North and East Africa, including Kenya, Rwanda, Uganda, and Morocco
Notwithstanding the renewed interest in healthcare, the financial technology sector remained the most attractive to investors in 2020, with more start-ups securing funding than any other sector and a combined total that dwarfed all others. In all, 99 fintech start-ups raised investment over the course of the year, representing 24.9% of the overall total, while the combined amount raised by fintech companies over the course of the year jumped 49.3% to over USD 160 million.
The challenges with low financial inclusion and outdated banking technology and payments systems in some African countries with large consumer bases has meant huge investment has been put into start-ups addressing these problems, with highlights including the purchase of Paystack in October 2020. The Nigerian payments start-up was acquired by Stripe, the US payments giant, in a deal that will see both companies continue to operate independently. Paystack had been on Stripe’s radar for some time prior to acquiring it. Like its US counterpart, the Nigerian start-up went through Y Combinator — that was in 2016, and it was actually the first-ever start-up out of Nigeria to get into the world-famous incubator.
Flutterwave was another Africa-focused fintech firm that last year announced a USD 35 million fundraising round and partnerships with WorldPay and Visa as it targets expansion in North and Francophone Africa. The start-up, founded in 2016 by Nigerians and headquartered in San Francisco, specializes in individual and consumer transfers – one of several fintech firms aiming to facilitate and capitalize on Africa’s booming payments market.
As part of the deal, Flutterwave will become the African payment provider for Worldpay’s clients worldwide, making the company the latest African fintech firm to attract global cash and big-name partnerships. While the agreement is not exclusive, it is WorldPay’s only partner on the continent.
Despite projections of an economic downturn in Sub-Saharan Africa for the first time in 25 years in the wake of the global pandemic, 2020 was a strong year for venture capital investment on the continent. Looking forward, commentators expect that the Covid-19 crisis will continue to be a key driver of venture capital investments on the African continent in 2021. Innovation arises in times of crisis. This pandemic will undoubtedly provide fertile ground for the continent’s entrepreneurs to find ways to solve problems and create value while stimulating economic development, which could improve the lives of countless people.
Macky O’Sullivan is a senior associate in King & Spalding’s private funds and capital markets practices in Dubai