African start-ups miss $1 billion mark in capital funding

African start-ups’ venture capital ecosystem dimmed in 2020 with start-ups failing to hit a billion-dollar mark in disclosed funding as Covid-19 took centre stage on the African continent.

This is authored in a 2020 Index report by Digest Africa and Crunch Base, two research firms that track the performance of venture capital funding across Africa.

The report highlights 2020 venture funding trends showing that what started off as a promising year of start-ups investment growth in 2020 took an irresolute turn that the continent is still trying to recover from.

The report shows that in 2020, there were a total of 481 funding rounds, of which 361 representing 74 percent were disclosed raising $854.6 million in total disclosed funding, excluding exits.

This is a 28 percent drop in deal count and 53 per cent drop in value compared to 2019. 

Following the analysis from the report on total disclosed funding between 2018 and 2019.

 There was a 51 percent Year on Year growth rate with $1.19 billion in 2018 that grew to $1.8 billion in 2019. It was anticipated that this would grow further in 2020.

Uganda ranked as the second most funded country in the East African region, raising total funding of $9.6 million, 94 percent of which was venture capital at $9 million across 35 rounds.

This was an 8 percent increase in total funding raised in the year 2020 versus 2019 at $8.9 million. The Financial Services sector attracted the most amount of funding valued at $8.6 million across 12 rounds with Tugende in the lead accounting for $6.3 million of this total.

Despite this huge drop in the amount of funding and the tough fundraising and business environment, entrepreneurs and businesses with strong value propositions that are reacting to and solving Africa’s challenges continue to attract funding.

 “As a response to the effects of Covid-19, we witnessed the emergence of many start-ups initiatives from several governments and varying parastatals, and impact investors, among others that set up funds to support many small businesses,” the report reads in part.

Based on Crunchbase data, the venture funding raised by African start-ups still represents less than 1 percent of global venture funding.

Tracking investments through the lens of gender, the report shows the percentage of funding raised by start-ups with at least one woman on the founding team over the past four years has steadily ranged between 12 percent and 20 percent of the total capital raised that year.

The year with the highest per cent of funding to start-ups with at least one woman on the founding team was 2019 with 20 percent of the total funding.

In 2020, $105.2 million was raised across 122 deals by start-ups founded by women, making up 14 percent of the total funding that year.

Gloria Amayo, the Head of Content, Research, and Partnerships at Digest Africa said the emergence of several funds and investors that supported women-start-ups during the pandemic helped many women-led companies gain footing in an ecosystem dominated by male-led start-ups.

“They too are pushing products and services that are meeting the needs of the public.  Pearl Brains, Clinic Pesa, M-Scan to mention a few are some of the women-led start-ups that raised Grants and Seed rounds ranging from $2500 to $30,000,” she said.

Venture funding by region

The West African region continues to lead, having received most of the funding with $236.8 million raised across 155 rounds. This made up 37 percent of the total venture funding raised on the continent.

Amongst West African countries, Nigeria received the highest investment of capital at $159.9 million across 121 rounds with the financial services industry attracting most of this funding at $57.6 million across 25 deals.  

Despite the COVID-19 slump, Rwanda has shown growth in disclosed venture funding relative to 2019.

Rwanda reported a 749 percent increase to $3.1 million in 2021 compared to $365,000 in 2019

Future prospects

Amayo said 2021 has already registered a significant funding increase with the first half of 2021 registering a total of $107.2M raised from Ugandan start-ups.

 $100 million of this total is attributed to popular financial services platform Chipper Cash. This is more than 1000 percent more funding raised by Ugandan start-ups compared to 2020.

“Many other start-ups have forged a way around the impact of the pandemic, be it through diversifying their business, pivoting completely, including cashless modes of the payment sales process or after-sale services to serve customers and still meet their profit targets,” Amayo said.