The second quarter of this year saw a significant decrease in venture capital funding for businesses globally, with Africa being the sole exception. None of the other regions saw an increase in investment anywhere near as large as Africa did between January and June.
If African entrepreneurs continue to raise as much VC funding as they have so far this year, 2022 will set a new record. The African Venture Capital and Private Equity Association (AVCA), a collection of investors across the continent, predicts that $7 billion will be the tipping point. The $5.2 billion in sales from last year set a new high.
Over 440 separate sales totaling $3.5 billion were recorded in the first half of 2022, as detailed in a report. This sum represents only 1% of global VC funding within the same time frame, highlighting the fact that Africa continues to receive only the smallest scraps of the world’s startup funding generosity.
“the depth of opportunity as well as the promise the continent has to offer,” the research added, as the value of deals doubled between 2020 and 2021.
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Is There A Reason Why There Has Been An Increase In Funding For Startups in Africa?
Some have labeled the decline in venture capital financing seen around the world in the first half of this year as a “quiet crash.” The decline was 3% lower than the same period last year. While that was happening, Africa had a rise of 133 percent. Why?
AVCA acknowledges that African countries deserve credit for their work toward “allowing entrepreneurship and investment to grow,” which contributes to the general notion that Africa is a promising place for investment.
To lure IT companies, the government of Zanzibar, for instance, has established “Silicon Zanzibar” complete with tax breaks and streamlined work visa procedures. In an effort to make Zambia the “Estonia or Singapore of Africa,” as one participant put it in April, a similar low-tax project has been launched in the country. A plethora of new businesses, like Flutterwave, Chipper Cash, and Kuda Bank, are poised to capitalize on this opportunity.
Sub-Saharan Africa’s growth forecast for the second half of this year of 3.7% is higher than those of Latin America, Europe, and the world average (2.9%), which is said to be another factor luring VC to Africa despite global macroeconomic tailwinds. It is therefore not unexpected that at least 16 VC firms with an emphasis on Africa have closed their raise or completed a significant milestone along the way.
AVCA believes that the action of these funds will “guarantee the reasonable short-term health of the business” once they begin to deploy. The predicted VC deal volume of 900 by year’s end is 35% more than the 650 deals recorded in 2021.
Some of the unfolding realities could help temper that projection. The Big Deal, a publication that keeps tabs on fundraising in Africa, reports that venture capital funding for African businesses dropped by 53% year over year in the third quarter of this year.
It was the first quarter since the third quarter of 2021 that Africa did not bring in $1 billion. This marked the end of six consecutive quarters of strong year-on-year quarterly increases. Even yet, a burst of activity in the final quarter of this year could make up for the slowdown and still result in the record year predicted by the AVCA.
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