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How does the funding landscape look for the African tech ecosystem in 2021?

Forecasting the total deployment of capital, from Seed to Growth, in Africa is no easy task given the early-stage nature and substantial differences between regions. At the time of writing our previous report in April 2020, a few weeks after the start of the pandemic, there were a lot of uncertainties:

  • Will the investment momentum be put to a brutal halt or only a short delay?

  • Can the new context impact the type, size and structure of transactions?

  • Will the investors pour more capital into their portfolio or make new deals?

  • Will the early-stage sector African tech startups, which are largely underfunded and typically have less than 3 months cash on hand, survive the drought?

At the time, we predicted that – for the first time – that “the total of the 2020

investment in tech startups will drop to between $1.2 and $1.8 billion, compared

to over $2 in 2019”. Based on the deal momentum of $343m in the first three months of 2020 (source Maxime Bayen, Catalyst Fund) which factored a 27% YoY growth, we expect deal activity to fall sharply in Q2 and Q3 2020, primarily fueled by VCs doing refinancing deals on their portfolio. In spite of valuation metrics likely down by a 20 to 30% factor, new deals will be limited until the broad economy restarts.


Partech findings estimated the total equity value of deals to be US$1.4b – just under the midrange of our projections. As foreseen, large growth deals fell substantially, while average valuations were also under pressure in Q2 and Q3 particularly. The number of deals

however increased, as a large portion of startups focused on funding 18 months runway, often with the backing of their investors, and the risk appetite from some of the most active VCs (such as Echo VC, 500Startups, Y Combinator) actually translated into a rise of the Seed stage segment. Most remarkably, most VCs have adapted to the lack of face-to-face interaction to perform due diligence particularly on deals which have been initiated prior to the start of the pandemics.


Going into 2021, the situation remains marked by several inhibiting factors, such as: the great difficulty to travel into and across the continent; macro economic uncertainties; as well as a slower commitment of capital from LP to new GP Funds, and the increased difficulty to raise capital in the very early stage. On the upside, the “great digitalization” started by the pandemic is creating many opportunities in education, fintech, B2B solutions and eCommerce, and leapfrogging digital transformation issues across the corporate spectrum.


We foresee that the first two quarters of 2021 will be similar Q4 2020, with the mix of factors mentioned above. Vaccine campaigns will likely take longer than hoped to have a meaningful impact. However, this roll out – regardless of how long they will actually take - will eliminate

the major uncertainty about the end of the pandemic, which is only a question of time. As a result, we expect an extremely strong acceleration of deals from Seed to Series B as well as major growth deals, together with some IPOs (Nigeria’s Interswitch for example), that will propel deal activity to never seen before levels of activity.


As of April 2020, our forecast for 2021 was ranging from under $1.6 billion to over $3

billion, with the worst case scenario based on a prolonged and fragmented impact on

the African economies, and the best case scenario factoring a full recovery by Q1 2021. Based on the above observations, our views are now that 2021 will range between $2.25 and $2.8 billion.


We expect 2022 – all things being equal – to mark a very sharp acceleration with the African tech sector racking between $3.8 and $4.7 billion – such a momentum to continue in subsequent years, with the upper range being $6.8 billion in 2023, $8.8 billion in 2024 and to exceed $10 billion in 2025.


It is worth noting that new factors will come into play that will only fuel the growth of the sector. In particular:

  • A number of major initiatives from Europe (programs such as Enrich in Africa), UK (now having to establish specific programs to connect its own tech sectors and corporates to opportunities on the continent), US, Japan and China.

  • An increased allocation of capital from Corporates to their corporate VC activities and to acquisitions of African tech companies.

  • The intensification of investment by DFIs both via direct investment and increased allocation to VC firms. For example, The CDC Group is expanding its interests in the sector. CDC’s new venture capital strategy focuses on partnerships with VC funds across key technology hubs in Africa such as Sawari Ventures (Egyptian / North African fund); TLcom (Pan-African fund); Novastar Ventures (Pan-African fund). The increasing effect of successful exits and IPOs on angel investments and entrepreneurs led seed rounds to support new ventures. In 2021, the IPO of Interswitch is expected to take place.

  • A gradual increase in valuations, particularly in regions such as West and North Africa (in particular francophone Africa). The March 2021 $170m Series C round of Flutterwave at a $1 billion valuation, making it the 4th african Unicorn, or Jumia - Africa’s first Unicorn - reaching a $6 billion market cap in February 2021, clearly illustrating this.

  • The adoption in the next 3 years of regulatory reforms (startup acts and equivalent) to address the competitive shortfalls of many countries in the continent, such as South Africa, Kenya, Nigeria, Morocco, Tanzania. It is expected that after Tunisia and Senegal, Kenya will pass a startup act in 2021.


Read more: www.africarena.com/report2021


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