Africa’s venture capital market was valued at US$6.5 billion across 853 deals, including US$1.3 billion of venture debt in the last one year, the African Private Capital Association (AVCA) 2022 Venture Capital in Africa report, has shown.
It indicated that that private capital inflows continue to propel growth and inclusion across the continent.
The new report is a comprehensive overview of Africa’s innovation ecosystem, providing critical insights into the sub-regions, countries, and sectors that have cemented Africa’s rising position as a region for venture capital globally and the increasing importance of early-stage investment on the continent.
Deal volume in Africa experienced an industry record, highlighting a near-decade of continuous growth and a compound annual growth rate (CAGR) of 31 per cent between 2014 and 2022. Contributing to this growth is the increased participation of start-ups raising capital for the first time, accounting for 37 per cent of deal volume.
A reduction in big-ticket investments aligns with the global trend of fewer late-stage deals influenced by challenging macroeconomic conditions. However, younger companies in Africa attracted the majority of venture funding across the continent, a testament to accelerated levels of ambition, entrepreneurship, and pioneering enterprise.
Innovation was rewarded with venture funding, as seed-stage funding accounted for the majority of the continent’s VC deal while also demonstrating the highest year-on-year growth. The volume of early-stage (Series A and B) investment deals grew by 25 per cent between 2021 and last year, increasing median deal value to US$10 million, the highest globally – surpassing North America and Asia and closing the gap with Europe, and signifies Africa’s rapid growth trajectory.
With over three-quarters of Africa’s funding originating from foreign investors, primarily composed of fund managers and investment firms based overseas, AVCA’s research indicates sustained investor confidence in the region.
The repeated investment in businesses was equally encouraging, highlighting investors’ long-term commitment to companies and their onward growth. The report details how eight per cent of early-stage investments were made in the same company more than once last year, while 409 unique companies received additional venture capital following investments in previous years.
Continued investments contribute to the sustainability of these companies, the employment they generate, and the increasing impact they deliver, catalysing more robust commercial and social ecosystems.
A combination of early-stage investment and 15 super-sized deals valued at $100 million or more represents a growing maturity across the African Venture Capital industry. Maintenance of value amid tighter global Venture Capital activity is another indicator of this evolution, supporting positive investor sentiment across the continent.
This has also translated into an impetus to break barriers. Despite room for more growth, over a quarter of start-ups that received venture financing were either female-founded or included at least one female in the founding cohort.
Chief Executive Officer, AVCA, Abi Mustapha-Maduakor, said: “Resistance against rippling effects of COVID-19 and global economic headwinds is a reminder of the high-quality investment opportunities on the continent. Despite lower participation by impact investors last year, as experienced globally, the impact continues to be achieved in Africa through a more connected marketplace that drives tech-enabled solutions from healthcare to education.
“Intuitive entrepreneurs and efficient capital allocation are transforming lives as a maturing VC industry continues to create longevity and opportunities for African industries and societies to reshape the future,” he added.
In the wake of the pandemic and the resulting capital injection, central banks responded to looser monetary policy. Interest rates climbed through the year, seeking to rein in rampant inflation against wider economic and geo-political instability.The preceding shook the global venture funding landscape, which shrunk by 32 per cent from the $681 million invested in 2021.
The slowdown in the tech sector, historically the largest driver of venture capital activity, contributed to a wider decline. North America and Asia are two key markets for investment in tech, which, despite attracting the most capital, also accounted for 73 per cent of the global Venture Capital industry’s funding deficit. Africa’s closest socio-economic comparator, Latin America, saw funding reduced by more than half.
Despite more cautious capital deployment around the globe, capital commitments in Africa remained strong. By comparison, Africa’s 21 per cent year-on-year growth in deal volume was three times that recorded in Asia (seven per cent), the only other region to record positive year-on-year growth in deal volume.