The total capital invested in African startups more than doubled to US$26.9 million in 2014 compared to US$12 million in 2013, with the average amount invested per venture increasing to US$200,000 from US$130,000 last year.
This is according to VC4Africa’s Venture Finance for Africa Report, which found 44 per cent of registered ventures are successful in securing external capital investment.
South Africa was the recipient of the largest investments, while the most investments were made in Nigeria. Kenya secured the largest total amount of external capital.
“The entrepreneurial base on the African continent is growing over time. More importantly the quality of the ventures is improving,” the report said.
“The emergence of local investors is a key change and contributor to the ecosystem. We recognise three key trends that have considerable influence on the African startup funding landscape: a growing interest from African diaspora to invest in startups in their country of origin, the increasing number of business professionals turning angel investor locally and a growing appetite for cross-border investing across Africa generally.”
With over 70 per cent of all ventures generating revenue, the report said it is clear the African market is full of opportunities.
“Looking at the distribution of revenue generation per year, the majority of ventures are making less than US$10,000 in their first year of business,” it said. “On the other hand, the positively changing distribution of revenue generation over time indicates their increasing market potential. Moreover, almost one-third of the ventures turned profitable or at least reached their point of break-even.”
The report found that startups participating in sector events or joining an incubator or accelerator programme secure on average 23 per cent more investment than those that do not, while startups partnering with a multinational company secure 150 per cent more capital on average.
“The importance of participating in an acceleration programme, or being selected for a pitch event, results in an increased amount of capital raised,” it said.
“Ventures participating in acceleration programmes or events secure higher median and average amounts of capital compared to ventures that do not.”
In terms of team size, average number of people working for a startup increased 54 per cent in 2014 to 5.7, with the report saying the same ventures expect to quadruple their team size by the end of 2015.
“The data shows that new jobs are being created in almost all African countries. Agribusiness, health services and education related ventures are the most significant job creators,” it said.
The report recommended entrepreneurs focus on the quality of their management and team to attract investors.
“This point was identified as the most important factor for investors deciding in which ventures to invest. Team was followed by financial performance and market size,” it said.
“On a country level the economic growth, combined with investment protection and political stability, are seen as the most important factors for investors. At the same time, affinity with the market is seen as less important when compared on average. This could indicate an increasing opportunity for cross-border investing and appetite for syndication.”