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Scramble for African Startups by Venture Capitalists: Yay or Nay?

By Damilola Faustino

Like the scramble for Africa that saw European powers invading, occupying and colonizing African territories without their consent, venture capitalists seem to be re-enacting the same scenario today as they scramble for viable and scalable African startups to invest, acquire or fund.

Nearly, every month, Innovation-village reports that a venture capitalist with endless cash has invested millions of dollars in an African startup in some parts of Africa although they are more focused on Kenya, South Africa, Nigeria and Egypt. – Favourite destination

This year…2018

January

Nigerian Startup Rensource Energy, a distributed energy provider, raised $3.5 million in bridge financing to expand its power-as-a-service renewable energy business.

March

Nigerian based data analytics firm, Terragon Group led by founder and CEO, Elo Umeh, received a $5million investment from African venture capital firm, TLcom Capital.

April

MFS Africa, a leading Pan-African FinTech company, secured a $4.5 million Series B funding round led by LUN Partners Group, a China-based global investment management group.

TradeDepot has received $3 million in series A funding from Partech, an investment platform for tech and digital companies. It’s the global investment firm’s first commitment from its €100 million Africa fund launched earlier this year.

Kenya based startup, Africa’s Talking has raised a new $8.6 million funding led by IFC Venture Capital, with participation from Orange Digital Ventures and Social Capital.

Kenya’s mSurvey, the mobile-first consumer feedback platform for businesses and consumers in Africa, received $3.5 million investment.

South African Edtech startup SkillUp Tutors secured an undisclosed Series A funding from Knife Capital. 

May

Piggybank.ng raised $1.1 million in seed funding led by LeadPath Nigeria

May Lidya raised $6.9 million in a Series A investment round led by Omidyar Network. Nigerian Startup 

Thanks to technology, these solutions are being developed by either brilliant homegrown talents who have braved the unfriendly African environment to find solutions to African problems or by Africans groomed in foreign lands who are returning home to solve African problems.

Clearly, these solutions are attracting a huge interest from venture capitalists considering the millions of dollars raised so far. Of course, predictions

To give more insight, let’s look at how much venture capitalists and angel investors invested in African startups in 2017… 

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Partech Ventures’ latest annual funding report shows that venture capital funding in 2017 reached $560 million, recording 53% year on year growth. The scale of growth in funding is seen in the number of investment rounds participated in by startups: in 2017, 124 startups participated in 128 funding rounds compared to 77 rounds in 2016. Partech’s reports include startups that have a primary market in Africa whether or not they are headquartered or incorporated on the continent.  The Top 3 markets, South Africa, Kenya and Nigeria, absorbed 76% of the total funding, down from 81% in 2016.

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According to the report, Fintech continues to lead the way in Africa’s booming funding scene, Cleantech follows next

Some Venture Capitalists that have invested in African startups

*Knife Capital                                   *Village Capital

*LeadPath                                          *Ventures Platform

*500 Startups                                    *Omidyar Network

*Algebra Venture                             *Kalon Venture Partners

*Angel Investment Network       *TLcom Capital

*YCombinator                                  *EchoVC

*IFC Capital                                     *Partech Ventures

*Investment AB Kinnevik

The Scramble for African startups-Good or Bad?

Funding or capital is a major problem encountered by every startup in Africa and other parts of the world.

Indeed, only a handful of startups can scale or attain a level of growth without the much-needed funds. This is why when startups have products that can scale and have groomed it to a certain level, they will definitely be unable to resist the juicy carrot dangled at them by these venture capitalists. No thanks to the lack of support by the government and banks.

So, since, the venture capitalists have the funds and the startups need the funds, they have no choice than to parley with them and come to an agreement on the structure and vision of the startup considering the new funds.

As such, no one can categorically say that venture capital funds are not good. They have contributed millions of $ to the African economy, created jobs and accelerated expansion.

A very good example of this is Jumia, which pride itself as Africa’s Alibaba and is now worth $1 billion. It was founded by Tunde Kehinde and Raphael Afaedor in 2012. They had a $50 million wall chest from foreign VCs to build the startup. They later resigned from Jumia and today, Jumia is Africa’s number one eCommerce platform.

Five Questions An Entrepreneur Must Ask Before Accepting An Investment

  1. Why are you interested in investing in this company specifically?
  2. What do you know about the market that the company is operating in?
  3. Who do you know that could help this company?
  4. How will you help raise follow-on funding at the next round and or additional capital for the current round?
  5. What is your track record as an investor both in this space and overall?

The scramble for African startups by VCs will continue as long as viable and innovative solutions are being developed to solve Africa’s problems. The only admonition for startups is to be thorough and exhaustive before accepting any venture fund. You do not just accept money hook, line and sinker.

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Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan.