Investments in African companies across different sectors doubled in 2021 as global investors seek to tap into growing opportunities on the continent.
According to Briter Bridges’ latest Africa Investment Report, 500 African startups have raised a total of $5 billion, reflecting an increase in investor confidence in the continent’s market despite the Covid-19 pandemic.
Rwanda-based companies were also among the top recipients of investment, underscoring the country’s goals to increase the ability of local businesses, especially startups, to raise capital.
Rwanda-based companies that have moved more capital include Ampersand, which is involved in electric motorcycles, and Zipline – which is involved in delivering medical supplies using drones.
Other companies present in Rwanda that have received the best funding include Zola Electric which is involved in renewable energy, Chipper Cash which is making its debut in the fintech sector, Andela among others.
Zipline raised $250 million for the expansion of its operations, making the company one of the few companies to cross the $100 million investment mark.
Ampersand has mobilized approximately $13 million from two rounds of investment to facilitate its expansion beyond Rwanda.
Fintech had the highest preference among investors, capturing around 10% of total investment on the continent.
Analysts say this could be proof of the growing opportunity as fintech is expected to foster financial inclusion, access to capital, among other factors.
Other sectors that have garnered positive investor response include logistics, clean energy, innovative healthcare, agriculture and e-commerce.
Speaking in a TV interview, Joshua Haru Murima, Head of Investor Relations at Briter Bridges, said a common characteristic of companies able to mobilize large volumes of investment is their ability to scale beyond a single market or a single region.
The investment was also influenced by factors such as the ability to grow rapidly, proven track record and experience in the respective operations.
For fintech, he said there has been an increase in investor interest, particularly in payments due to the impact on other sectors as well as the demand for financial services on the continent.
Regarding the source of capital or investment, the majority of funds come from outside the continent, from the United States and the United Kingdom.
Asian companies such as Toyota, Tencent, among others, also seem to be increasingly interested in the African market.
The African markets that attracted the greatest investment were those that had dynamic and early stage incubation systems as well as an early stage investment framework that makes start-ups attractive for high growth.
With Norrsken’s latest debut in the Rwandan ecosystem as an incubator, industry enthusiasts say it could lead to the emergence of quality and scalable start-ups.
Stephan-Éloïse Gras, executive director of Digital Africa, who has been involved in supporting emerging start-ups across the continent, recently told The New Times that African start-ups are more likely to invest when they have a product market adapted to the needs. , market requirements and context.
She also challenged local individuals and businesses with disposable income to consider getting their start as investors or venture capitalists, as it has proven viable, with returns as well as with a multiple impact in an economy.
Josh Whale, the founder and chief executive of Ampersand, told The New Times that raising investments and funds remains a somewhat complex process with no set formula.
“I think it depends a lot on the type of product and business. For software, it’s simpler. For hardware or complex products that require a lot of research and development or capital investment before reaching the market, it’s not that simple,” he said.
He said it’s common to come across cases where investors look at investing in tech start-ups from a traditional perspective by focusing too much on monthly revenue rather than the technology itself.
“With this, you find a technology company with a breakthrough solution valued the same way a tire importer or bakery would be valued. This focus on revenue also strongly favors business models with many passed-on costs (such as food deliveries, carpooling) where the startup only captures slim or zero margins, but still counts the overall amount as revenue”,
He added that the typical funding cycle in East Africa is also much slower for over 6 months in the best case and up to 18 months for grants, which makes it difficult to be an entrepreneur.
How fundraising works:
“The usual model is for a startup to raise initial angel funding, or a small grant. Somewhere between $10,000 and $100,000. Then the startup raises a ’round’ which tends to be between $250,000 and $700,000. This is often at the stage where the company has a solid prototype and business plan, the basic economics look good, and a good team, but little or no sales,”
“The problem then is that for the next stage, typical VCs funding startups in East Africa will expect the startup that used that previous seed funding to have monthly revenue,” he said. he said, adding “It’s possible for an app or a ride – a successful business where most of that revenue is just pass-through costs. But developing something as complex as an electric vehicle battery, it’s not It’s just not realistic because most funds go to research and development before they make their first sales.
Despite progress and development, gender inequalities and disparities persist, with all female founding teams garnering just 3.2% of values between 2013 and 2020.