Africa – The Next Stop in Venture Capital Fund Formation

Africa is shaping up to become the next fund formation hub. According to a study by Crunchbase, many venture capitals has now set up satellite offices across the continent run mainly by Africans. This signals the beginning of a strong involvement amongst the locals to make a mark in the global venture capital market.

The same study also took note of the rise of ventures that originated from the continent. This gives opportunities for the locals to hold executive positions at the top of the corporations and gain valuable experience. These are the rewards reaped from an entire year of analysis of the current state of investments in Africa and educating the people of its program through the continent’s tech highway.

From the same database where the study was hosted, it was found that Africa currently has about 50 promising venture capitals. The qualifications set as having generated investment for startups through fund formation at least 7 times but not more than 10. The fresher group, or those who have only recently reached 7 are on track on reaching 10 by the early part of next year. Half of all the ventures are situated in Africa and run by the locals. And majority of which originates from Nigeria and have been in existence for the last 2 years. Four of these nigerian companies opened just in the last year.

The study did not discriminate the companies according to the valuation of their investments. Thus, these companies vary widely in terms of size. Some can be as small as having seed investments offered as low as $25000 and as big as a million to $10 million.

Among the bunch, the largest round in 2018 went to TPG growth – a Kenya-based venture fund established in 2007 that specializes in middle-market buyouts and growth capital. Forming a fund of $47.5 million for Cellulant – an online payment company also based in Kenya.

Eclipsing TGP growth’s round was Jumo from South Africa – one of Africa’s leading manufacturers of automation technologies and industrial sensors. However, the venture responsible for its fund formation is Goldman Sachs – a fixture in the industry but does not have sufficient presence in Africa to be considered African.

The Nigerian venture capitals which had the most number of investments were EchoVC which is having a total of 20, and Ventures platform which had 23. Both companies have main headquarters located in Lagos.

Other notable funds in the bunch are Musha Ventures which has 36 investments, located in New York, specializing in micro venture capitals and angel funds, Ghana’s own Golden Palm Investments, having 17 investments, and is an impact investment firm which targets preliminary stage ventures and growth capital in Africa, and Singularity Investment, which has 18 investments, and is another Nigerian venture focused on opportunities in both North America as well as Africa.

A minority in the group, Safaricom’s Spark, is one of the few corporate backed ventures that made the list. Spark focuses on early-stage investment and its target market is Europe.The study also highlighted the growth of funds among ventures and consolidation.

MTN, the latest African accelerator, has betted on startups from Africa with Standard Bank adding $1 million more. MTN is a JSE-listed global company that provides cellular and internet, mobile banking, business solutions, and digital services. Interswitch, a firm owned by Fintech, specializes in acquisitions and ramped up its growth to further invest in startups. They mainly target companies engaged in digital payments and commerce.

Cellulant, through its top executive, Ken Njoroge, announced a shift in direction for his company. They are more likely going to join the acquisition market to earn a share in the booming African investment scene. Others are expected to follow suit.

With renewed vigor, at least three corporate venture arms, aims to gain a foothold. In the next year or two, these ventures, with unknown parent companies, will launch. They have to play catch up to join the fray however.

Another trend the study revealed is the greater amount in funds generated by Africans in senior positions who relocate to a foreign country. This could be implicative of a two possibilities. One, capital pours in from the foreign lands as optimism for the African market is greater elsewhere than locally. And two, the ventures themselves see more potential in growing their ventures from foreign entities who have more experience in venture capitals.

The rising investments in Africa, not surprisingly, brings about big names into the conversation. TLCom Capital, a venture capital forming funds for tech and tech companies, is joined by Omobola Johnson. Johnson is Nigeria’s former ICT chief. TPG Growth’s fund in Africa is managed by Yemi Lalude. They finished the year strong with an eye watering profit of $2 billion dollars.  And Tidjane Deme, a partner of French company partech was able form a fund worth $70 million dollars.

Africa’s investment market was adjudged to discriminate against foreign capital. Several articles, fueled by a recent twitter war, raised valid concerns regarding the interactions between locally sourced investments and foreign. This could severely limit growth and should be resolved if Africa wants to make a leap towards being the next big thing in investment.

It is no secret the emerging player, Nigeria is starting to overtake South Africa in the investment game. A possible explanation is the saturation of investments being pumped towards South Africa. This is a good thing, especially to emerging markets.

To accurately quantify the region’s budding venture capital market is a complex endeavor. Over the past decade, growth in african venture markets shows a microcosm of a global trend. Many countries in regions of the world are affected by the growth that’s mainly driven by  software advancements and innovations such as the blockchain. Though Africa’s growth is promising, it faces competition from all corners of the world. To be truly established as a venture capital hub. Policies, procedure, and enforcement has to be carried out by the African countries’ respective government institution to ensure safe passage of investments across accounts.

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