African startups
Home Opinions Insight & Analysis Why African Startups Are Experiencing a Rise in Venture Capital Seeds
Insight & Analysis - 2 weeks ago

Why African Startups Are Experiencing a Rise in Venture Capital Seeds

Venture capital seeds, or “venture capital,” refer to a type of financing, also known as “private equity,” that an investor (or a group of investors) gives to a small business (often a startup) to support its business operations. The reason for this financing is in relation to the long-term growth potential that the investors see in the business or startup.

Investment banks, well-off investors, and other financial institutions – known as venture capitalists—generally give private equity and all other forms of financing. They receive interest on their investments as the startup grows and begins to profit.

In recent times, there have been reports that indicate a decline in the funding of startups across the globe, but this has not been reflected in the budding African market. Contrary to the reports of declining figures across the globe of the number of startups receiving venture capital, African startups are raising unprecedented amounts of venture capital seeds at a record speed.

The curious case of Africa’s venture capital inflow

In fact, Africa is the only continent in the world, for now, that is experiencing a rise in venture capital flows and venture captial seeds. Moreover, Africa seems to be experiencing a renaissance in this regard as they are recording improvements both in the number of startups springing up across the continent and the number of venture seed capital ventures received.

Speaking on the development, Eric Idiahi, Co-Founder and Partner at Verod Capital, one of the leading West African private equity investors in the continent, was quoted as saying, “we are seeing a time where funding for African startups rose to a massive $3.14 billion in the first six months of this year alone. That is unprecedented and it really shows the interest in the continent!”

Confirming this, Dr. Akintoye Akindele – a renowned West African entrepreneur and founder of Platform Capital, says, “Africa investment firms and angel networks have started putting money into African companies. It took African entrepreneurs almost 10 months to raise $1 billion in 2019. 

It took the same group eight months to raise $1 billion in 2020. It took them four months to raise $1 billion in 2021 and it has taken them less than six weeks to raise $1 billion in 2022. That means capital is coming in faster into deals and last year for the first time in our history, African investors invested more than European investors. This is a major milestone.”

Real reason unearthed

But the big question on the lips of observers and critics alike is, how have African startups been able to position themselves to attract such huge venture capital funding despite the numerous challenges facing entrepreneurs and businesses in the continent?

According to experts, the answers to these questions are not far-fetched. Experts say that African entrepreneurs are experiencing the surge in venture capital seeds because they have been able to establish businesses that tend to solve pertinent socio-economic problems on the continent.

Unlike in the past, and albeit unlike other entrepreneurs across the globe, African entrepreneurs are developing businesses that provide substantial and sustainable solutions to provide financial inclusion and bridge the gaps in education, healthcare, and food security.

According to Akindele, the goal is to invite investors to see Africa and African businesses in that light – “to see Africa the right way. This is because we know the narrative that exists about Africa and the negative questions we get asked.”

“Africans need long-term, nurturing and patient capital. Four to five years is too short in Nigeria for a business to turn capital around and grow and deliver profit to capital providers. I believe from my experience that five to six years does not create enough alignment,” says Akindele.

As you know, Africa is home to the youngest population in the world. The median age in the continent is currently less than 20 years, and 70% of the population is under the age of 30.

In a report by the Global Impact Investing Network, almost half of global impact investment capital generated globally goes to Africa, and experts say it goes a long way to reflecting the success of entrepreneurs in the continent.

Conclusion

This resource inflow and the attendant success recorded by African startups will continue into the immediate and forseeable future and, no doubt, greatly impact the African continent positively. It is hoped that Africa will indeed be better on the long run for this upward trajectory of resources being attracted into the continent.

NEXT: Microsoft Dismisses 10,000 Workers, 5% of its Workforce

Leave a Reply

Check Also

5 Likely Ministers in a Tinubu Presidency

For Bola Ahmed Tinubu, history will decide whether he gets his first and possibly only sho…