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Posted on March 05, 2018

Another record breaking year for African tech startups

Structural Electronics 2018-2028
The African tech scene has definitively turned another corner this year with increasing venture capital commitments to African start-ups towards a larger number of transactions, 128 in total, and a broader geographic distribution.
 
Africa is not just grabbing the world's attention: African entrepreneurs are leveraging tech & digital to tackle the continent's fundamental challenges, they are the leading innovators in key verticals, leapfrogging usages, and Venture Capital has become the core catalyst to these opportunities.
 
Findings:
 
124 African tech start-ups raised a total of US$ 560 Million in equity through 128 rounds
 
1) The VC funding raised by African tech start-ups in 2017 totalled US$ 560 Million, compared to US$ 366.8 Million in 2016, a +53% growth YoY.
  • This is a x14 growth multiple since 2012 in terms of amount invested.
  • If you exclude Off-grid deals, investment in digital start-ups in Africa have actually almost doubled, +90%, with US$ 440 Million in 2017 vs. US$ 231 Million in 2016.
 
2) The ongoing transformation of the VC tech space translates in the number of start-ups that were funded. In 2017, it has jumped to a total of 128 rounds (Seed+ to Growth stages) from 124 African tech start-ups, compared to 77 rounds last year from 74 start-ups; a +61% growth YoY in the number of VC-backed tech start-ups.
The Top 3 markets, South Africa, Kenya and Nigeria, absorbed 76% of the total funding, down from 81% in 2016
 
The geographic distribution remains predominantly focused on the top 3 markets with an investment landscape that smoothly continues to expand.
1) Regarding amounts raised, the leading trio is unchanged, however:
  • South Africa is taking the top spot with US$ 168 Million in funding (30% of total investment), showing a +74% growth YoY largely due to the Takelot deal.
  • Kenya is truly confirming its leading tech start-up nation role with US$ 147 Million(26% of total), showing a strong +58% growth YoY.
  • Nigeria has slowed down compared to its 2 challengers, with US$ 115 Million (20% of total), representing a +5% growth YoY.
 
2) South Africa is yet again #1 in number of start-ups getting funded with 42 deals (33% of total transaction), followed by Kenya with 25 deals (20% of total) and Nigeria with 17 deals (14% of total).
 
3) Egypt is seriously stepping up, ranked #4, both in terms of total investments and transactions, with notably a number of deals close to Nigeria, 14 vs.17 i.e. 12% of the total transactions.
 
4) Francophone African countries are confirming traction, now representing almost 14% of the total transactions (16 deals) and 10% of the total funding (US$ 55.5 Million) with 5 countries: Rwanda, Senegal, Morocco, Cameroun and Tunisia.
The Top 3 verticals remain Off-Grid Tech, Fintech & E/M/S-Commerce, attracting 61% of the total funding, down from 72% in 2016.
 
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Two sectors, Financial Inclusion and Online & Mobile Consumer Services, represent 87% of total funding thanks to the Top 3 verticals that remain Off-Grid Tech (#1), Fintech (#2) and E/M/S-Commerce (#3).
 
However, the sector distribution sees B2B & Tech Adoption showing a steep increase to 13% of total funding (compared to 3.3% in 2016) driven by the B2B/Enterprise vertical representing this year 18% of the total deals.
1) Financial Inclusion accounted this year for 45% of the total investment at US$ 253 Million, down from 56% in 2016 across 46 transactions.
 
  • Off-Grid Tech - US$120M (-10% YoY), 21% of total funding, 13 deals. As a good sign of market maturity, Off-Grid tech start-ups raised almost the same amount of equity in 2017 (US$ 134 Million in 2016) but additionally deeply leveraged debt financing for growth capital with (information outside the scope of this report) another US$ 117 Million raised in debt.
  • Fintech. - US$119M (+70% YoY), 21% of total funding, 29 deals.
  • InsurTech. - US$14M (+470% YoY), 2.5% of total funding, 4 deals.
 
2) Online & Mobile Consumer Services accounted for 42% at US$ 236 Million, stable compared to last year's 40,5% share, across 54 transactions. The 4 main sub-verticals this year are:
 
  • E/M/S-Commerce. - US$105M (+74% YoY), 19% of funding, 19 deals.
  • EdTech. - US$65M (+120% YoY), 12% of total funding, 5 deals.
  • Personal Services. - US$41M (+3000% YoY), 7% of total funding, 16 deals.
  • HealthTech. - US$21M (+125% YoY), 4% of total funding, 7 deals.
 
3) B2B & Tech Adoption accounted for 13% at US$ 71 Million, compared to 3,3% last year, across 20 transactions. This spectacular trend goes mainly to Enterprise Software start-ups.
 
Enterprise - US$60M (+800% YoY), 11% of total funding, 23 deals.
Connectivity - US$10M (+360% YoY), 2% of total funding, 3 deals.
Africa's Series A deal size reached US$ 4.5 Million in 2017
 
Fund managers are focusing more and more on tech start-ups. 2017 is the year where the private equity sector mindset is moving to a long-term strategy where access to growth/PE capital requirement to build game-changing African SMBs requires better structuring of early-stage equity funding in the first place.
 
1) Total funding going to Seed+ and Early Stage (Series A & Series B) has grown +86% YoY to reach US$ 371 Million in 2017.
 
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2) Seed+ round size was US$0.91M (vs. US$ 0.83m in 2016) with 73 transactions, +92% YoY in number of transactions.
 
3) Series A round size has reached US$4.5M in 2017 (vs. US$ 3.7m in 2016) with 33 transactions, +38% YoY in number of transactions.
 
4) Series B is stabilizing at US$10.5M (vs. US$ 11.1m in 2016) with 15 transactions, +114% YoY in number of transactions.
Methodology
 
Our methodology remains unchanged. We do track data limited to certain types of African deals and start-ups. As a recap:
 
1) The numbers only include deals higher than US$200K and voluntary exclude what we call megadeals i.e. above US$ 100 Million (this year the largest round accounted for was Takelot $69M Series D).
 
2) The numbers exclude any Grant, Debt and ICO deals.
 
3) The numbers englobe African start-ups that we define as the ones having their primary market in Africa (i.e. in terms of operation & revenues). It is independent of HQs location or country of incorporation.
 
4) For start-ups with a local presence in more than one African country, only one primary country of operation has been identified and that is where the investment is accounted for.
 
Africa is on!
 
Source: Africa Innovation Ecosystem Group (AIEG)
Learn more at the next leading event on the topic: Off Grid Energy Independence Europe 2019 External Link on 10 - 11 Apr 2019 at Estrel Convention Center, Berlin, Germany hosted by IDTechEx.