Financing the Digital Economy

There are currently over 640 active technology hubs across the Continent, according to Disrupt Africa, and startups raised almost US$500 million in funding in 2019 – year-on-year (YoY) growth of almost 50%. Topping the list are fintech startups, which raised $107.4 million in 2019 (25% of all funding). Despite this momentum, however, there’s a concerning trend: globally, women-led startups only receive 2% of all venture capital (VC) funding (South African women-led startups received 4.5% of all funding). Female-led startups are in short supply and, where they are available, they often lack the investor backing to scale. Additionally, of all startups, only 22% are founded by at least one woman. Africa-specific data is lacking, but sources suggest only 9% of startups have women-leaders and are female-led.

Meanwhile, Partech Africa has just published its 4^th annual report on African tech start-ups. The report shows that VC Tech investment is significantly redefining the scope of private equity in Africa and, further, the economies of the Continent. The report covers equity deals in tech and digital spaces, and funding rounds higher than US$200,000, including both disclosed and undisclosed deals. The report only focuses on African start-ups i.e. companies with their primary market in Africa (i.e. in terms of operations and revenues). In 2019, according to Partech, 243 African tech start-ups raised a total of US$2.02bn in equity through 250 rounds, representing a +74% growth YoY. The yearly funding amount continues its exponential growth, having expanded by 5.5 times over the last 36 months. There were 18 countries with at least one equity tech deal above US$ 200,000 in 2019 compared to 19 countries in 2018. Partech reports that the leaders were: – Nigeria raised US$ 747m, Kenya $564m, Egypt $211m, SA $205m. In French-speaking Africa, Senegal was the leading hub with US$ 16 Million raised in 6 deals.

As African technology ecosystems have blossomed over the past decade, undeniably there have been increased interest from investors. However, a word of warning, every year annual funding reports offer insight into the state of play with regard to investment in the ecosystem but these reports reach different conclusions. So far for 2019, three reports (Partech Ventures, WeeTracker and Briter Bridges)  focused on African startups have shown differing funding totals.

A good success case study is the Pan-African fintech startup, Flutterwave, which has announced a $35 million Series B round, and partnerships with payment processing company WorldPay and payment giant Visa as it plans to expand to Francophone and northern Africa. Founded in 2016 by Iyinoluwa Aboyeji and Olugbenga Agboola, Flutterwave allows clients to tap its API as well as facilitate payments for companies in Africa to pay companies abroad, including in other continents. Flutterwave will now be the payment provider for WorldPay’s clients worldwide. As part of the series B deal, Visa’s physical and virtual cards will be expanded on Flutterwave’s network. In the last years of operations, the fintech company claims to have processed 107 million transactions worth $5.4 billion up from 14 million transactions worth $1.5 billion in 2017 and has raised a total of $55 million. After raising $20 million in its first 2 years, the company became the most valuable African company in Y Combinator’s portfolio, with a valuation of over $150 million.