Understanding Startup Funding Rounds in Africa

In the world of startup financing, letters are attached to funding rounds for it to be conveyed like a signpost. Although, not all rounds have a letter attached to it like the bridge round, a rescue financing. However, the letter represents the number of times a startup has looked for external funding. The number of rounds also reveals the startup’s growth philosophy.

Only a few African startups have been able to close the significant five funding rounds. 

Iroko, founded by Jason Njoku, is one of the startups that have done it. Since 2011 of the company’s launch, the startup has raised $40 million. In 2016, Iroko raised $19 million in a Series E round. It had previously received $8 million in a D round, which was in 2013.

A Look at the Startup Funding Rounds in Africa

Pre-seed and Seed: Kippa and Autochek

Founders typically fund a firm with their own money before seeking funding from family, friends, or wealthy individuals known as angel investors.

All of this falls within the pre-seed funding category. A financing round might range from $950,000 for OnePipe to $3.2 million for Kippa. The size of the round is determined by the number of angel investors connections who are available to take a chance on a founding team’s concept.

At the seed stage, institutional investors become involved, and things grow a little more serious. A startup may raise seed money from various sources at different times or in a single round. The amount can range from $125,000 like YCombinator does to millions of dollars, as 4DX Ventures did with Autochek $13.1 million seed round this year.

Series A: Sabi and Africa Health Holdings

After a business has established a track record that includes a large user base and consistent sales statistics, the startup may seek Series A capital to expand its user base and product offerings. There may be opportunities to scale the product across other markets. In this round, it’s critical to have a plan for creating a long-term profitable business model.

‘A’ rounds are typically always in millions, ranging from $6 million raised by Sabi to $18 million raised by Africa Health Holdings. 

Series A investors are usually in the round for the long run and are ready to provide strategic support to help the startup scale. They have a strong interest in the startup’s success, and they go beyond just providing money but also getting involved in introducing them to networks of customers or suppliers to widen the product’s reach. 

If a company is satisfied with its growth rate and is not in a rush, it may close a Series A round and wait a bit before moving on to the next round. Others turn up the heat by bringing in more from investors, supposedly capitalising on what they envision as a post-Series A adoption boom.        

Series B: Ozow

The news about Ozow $40 million Series B led by Tencent this year was massive funding for this round. 

Indeed, a closed B round indicates that investors recognise a startup’s need to reach a certain degree of growth. It could mean expanding operations beyond a single location or launching a new product line. In a nutshell, Series B is the time to focus on business development in earnest.

Due diligence is more difficult in this round than in earlier rounds because new investors will scrutinise the startup’s growth expectations more closely.

Series  C, D: Chipper Cash, MFS Africa

In terms of deal structure, every formal round following a Series A isn’t that different. As the letter alphabet ascends, one or two more investors may join each round.

‘C’ stage companies know what they are about because they have spent the ‘B’ stage developing their business growth thesis.

Chipper Cash is one startup that recently raised $150 million in a Series C extension round, reaching a $2 billion valuation.

Series C and D agreements do not have to be large like MFS Africa $100 million or Andela’s $100 million ‘D’ investment in January 2019. As long as they have a formal follow up round with more institutional investors.

Pushing a startup forward with more money from rounds, C and D are expected to get it closer to profitability or a type of exit through an acquisition or an initial public offering.

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