In almost every region, startups raised significantly less venture capital money in the second quarter of this year than in the same period of 2021, with the exception of Africa. Between January and June, no other region came even close to matching the continent’s funding growth.
If the semi-annual growth rate continues through December, 2022 will set a new record year for the amount of venture capital investment raised by African startups. The magic number is $7 billion, according to the African Venture Capital and Private Equity Association (AVCA), a group for investors on the continent. Last year was a Record high of $5.2 billion.
AVCA’s report enumerated deals for the first six months of 2022 and showed that 300 unique companies raised $3.5 billion in more than 440 deals. That dollar figure accounts for just 1% of global VC funding over the period, a reminder that Africa still receives the bare minimum share of global startup funding. At the same time, the deal value has doubled compared to 2021 showed “the depth of opportunity and potential that the continent has to offer”, said the report.
What drove African venture capital funding to skyrocket?
Global VC funding fell 3% year over year in the first half of this year, with the biggest falls in Q2, leading to what some have dubbed “silent crash.“Meanwhile, Africa is up 133%. Why?
Aside from the perception that there are many opportunities for investment in Africa, African governments can be credited with efforts aimed at “making entrepreneurship and investment flourish,” says AVCA.
An example of such efforts is Zanzibar, where the government is located Foundation of ‘Silicon Zanzibar’ with tax incentives and easier work visa requirements to attract tech companies. A similar low-tax initiative is underway in Zambia with the aim of making it “Estonia or Singapore from Africa“, as described by one of those involved in April. Flutterwave, Chipper Cash and Kuda Bank are among the many Startups who want to get involved and use.
The other ingredient VC is said to be luring to Africa against global macro tailwinds is that sub-Saharan Africa’s forecast growth of 3.7% for the second half of this year beats figures for Latin America, Europe and the global average (2, 9% ). Taken together, then, it would not be surprising that at least 16 Africa-focused VC funds have closed their own increase or have reached a milestone along the process.
If these funds are deployed, AVCA expects its activities to “ensure the moderate short-term health of the industry.” The group expects VC deal volume to reach 900 by the end of the year, more than a third more than the 650 deals in 2021.
It can be useful to soften this projection with some unfolding reality. VC financing for African startups in the third quarter of this year reduced by 53% compared to last year, according to The Big Deal, a newsletter that tracks fundraising in Africa. It ended six quarters of positive quarterly growth year-over-year and was the first quarter since Q3 2021 that Africa didn’t raise $1 billion. However, increased activity in the last three months of this year could offset the decline and produce record year AVCA projects.