African Tech Start-ups are continuing to attract significant amounts of funding from reputable international Venture Capitalists (VC’s) and Institutional Investors. 

Predominantly, the investments have concentrated on the following sectors – Agri-tech, E-commerce, FinTech and Logistics. In relation to country-specific investment inflows, Kenya has assumed its position as the leading investment destination. For instance, between 2015 and 2020, investments in the country increased to Sh26 billion – from Sh20.8 billion ($191.4 million), representing 27.3% of the continent’s total investment.

Nigeria came second with Sh16.3 billion followed by South Africa (Sh15.5 billion), Egypt (Sh15.4 billion), Ghana (Sh2.2 billion) and Morocco at Sh1.1 billion.

“This is the largest amount of funding ever achieved by a single country. The record was previously also held by Kenya, when in 2019 the country’s start-ups netted Sh16.2 billion ($149.2 million),” Disrupt Africa Tech Startups 2020 Funding report shows.

The growth was driven by an increase in the number of start-ups that raised funding, which rose to 59 from 45, representing a 31.1%  increase.

The Kenyan Success Story

Out of these, Agri-tech company Twiga Foods and conservation venture Komaza recorded standout investment rounds, bagging Sh3.2 billion ($29.4 million) and Sh3.1 billion ($28 million), respectively.

Others include logistics start-up Sendy at Sh2.2 billion ($20 million), retail-tech solution Sokowatch raised Sh1.5 billion ($14 million), energy ventures SunCulture (Sh1.5 billion ($14 million), Angaza (Sh1.46 billion ($13.5 million), and Solarise Sh1.1 billion ($1 million).

“This is only the fourth highest tally in terms of number of funded companies – with Nigeria, Egypt and South Africa all boasting more funded start-ups, albeit to a (substantially) lesser cash total,” the report notes.

Since it was started in 2014, Twiga Foods has grown into one of Kenya’s most successful start-ups. The company was founded by former Coca-Cola employee Peter Njonjo and Grant Brooke. The duo’s stewardship has seen the company  secure substantial amounts of funding from international organisations, amongst other investors.

For instance, last year (2020), it secured a Sh3.2 billion ($30 million) from the International Finance Corporation (IFC) to support small and medium enterprises, as well as for expansion to East and West Africa. It runs a mobile phone-based platform that sells bananas and other fresh produce from small-scale farmers to local vendors and markets.

Similarly, in 2020, Logistics firm Sendy, which operates an app linking delivery drivers with customers, raised Sh2 billion in funding aimed at expansion – from a group of institutional investors, including Japanese conglomerate Toyota Tsusho Corporation (TTC).

Whereas only six funded ventures bagged over Sh1.1 billion ($1 million) dollar-plus rounds in 2015, this increased to 22 last year (2020).

‘The number of start-ups raising over a million dollars has been on the rise for years in Kenya; and the size of these rounds is also fanning out – whereas in the early years even the highest rounds were in the Sh1.1-2.2 billion ($1-2 million) range, today large tickets span from Sh1.1 billion ($1 million) to Sh3.3 billion ($30 million), evidencing the increasing availability of growth funding,” the report stated.

Investment Trajectory

Top investors in Africa include Future Africa, Orange Ventures, Musha Ventures, amongst others.

While markets such as Nigeria and South Africa are FinTech dominated, Kenya is dominated by diverse firms in Energy and Agri-tech.

The energy sector contributed Sh4.5 billion (21.4%) of Kenya’s total investee companies and Agri-tech Sh3.9 billion (18.7 % of the total).

“The remaining funds were split between the Logistics space Sh2.97 billion (14.3%), E-commerce Sh2.6 billion (12.4%), and FinTech Sh1.8 billion (8.5%),” the report added.

Overall, the number of funded start-ups by sector are distributed into FinTech (24.9%), E-commerce & Retail tech (13.9%), E-health (10.3%) and Logistics (7.3 %).

The least funded comprise Marketing (1.5 %), Prop-tech (2.5%), Artificial Intelligence (AI) & Internet of Things (IoT) (2.5%).

Pioneering Deals in Kenya and Challenges

“Looking at funding figures for 2019, it seemed like FinTech – long Africa’s most attractive destination for tech start-up funding – might be losing some of its allure. Though the number of funded ventures continued to rise, total investment had declined by almost 20% from 2018,” the report further explicates.

Despite the growth, budding entrepreneurs find it difficult to secure seed, as well as other forms of early-stage funding in the country.

This is because major rounds raised in the country go to companies with ex-pat founders or CEOs. For example, out of the six stand-out deals, all went to companies with ex-pat founders.

“The country certainly lacks the thriving local angel community apparent in Nigeria, for example. So, while Kenya has the innovation and on-the-ground activity to keep producing success stories year by year, more needs to be done to promote local investment into local companies at all stages of the start-up life cycle,” the report further adds.

Further exacerbating this challenge, the economic impact caused by the Covid-19 pandemic is already being felt amid fundraising delays, as well as investment plans.

“Corporate budgets are in flux, development institutions may prioritise aid over investment, and signing up LPs to your latest African fund given the risks that are inherent with relatively early-stage investments in emerging market businesses, may yet prove much more challenging in 2021. It is this that could yet have a negative impact on investment, and start-ups must await nervously developments for 2021,” the report avers.

Source: ASV, Business Daily Africa & Disrupt Africa.