The age of African VC has arrived

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There are inherent dangers in African startup ecosystems aping Silicon Valley. The name has been co-opted, from “Silicon Savannah” to “Silicon Cape” to “Silicon Island”, but there is a realisation that African countries must – and will – go its own way as they look to establish themselves as tech hubs.

One aspect of the Silicon Valley model Africa must replicate, however, is the access to funding American startups are blessed with. Follow the US tech press, and it is a more-than-daily occurrence that a startup barely out of nappies has received a funding round of US$5 million. The funding obtained by the likes of Uber is extraordinary. And the flow of money shows no sign of slowing down.

According to the quarterly “MoneyTree Report” from PwC and the National Venture Capital Association (NVCA), in 2014 venture capitalists invested US$48.3 billion into US startups, the biggest level of investment since the dot-com bubble burst in 2001. CBInsights, meanwhile, reports in its 2014 US Venture Capital Year in Review US$47.3 billion was invested across 3,617 deals. Investment was up 62 per cent year-on-year from 2013, while seed funding has increased for four straight quarters.

So you could forgive African startups for casting envious glances at their US counterparts. For too long the complaint of small African businesses has been lack of available money, which has left a number of innovative solutions stillborn. Moreover, with VC funds come capable investors, able to provide mentorship and guidance to small businesses as well as providing the necessary cash.

But the money is coming. VC4Africa’s Venture Finance for Africa Report, released at the end of last year, said total capital investment in African startups more than doubled to US$26.9 million in 2014. This might not sound outrageous, but it is only a drop in the ocean, as the figures only apply to those startups listed on the VC4Africa platform. The true figure, taking into account some sizeable funding rounds, is probably around US$500 million or perhaps higher, considering the amounts taken home by the likes of Takealot, Jumia and Konga.

And 2015 should be an even better year. It has started positively enough, with Tanzania’s Ubongo receiving US$75,000 from learning firm Pearson, GPS navigation and wireless device company Garmin acquiring South Africa’s iKubu, and Orange investing in cash-to-goods money transfer startup Afrimarket. Two big ones were announced yesterday, with M-KOPA solar securing US$12.45 million and Parcelninja US$1.7 million. There will be plenty more to come.

Mobile operators will play a part in this, notably increasing the amount of money available to African startups. Millicom has launched its US$10 million Millicom Foundation, aimed at supporting digital innovators in Africa and Latin America. Kenyan operator Safaricom has launched a US$1 million investment fund aimed at supporting mobile ICT startups. Airtel Nigeria, through its ‘Catapult-a-Startup’ initiative, and Orange, with its early-stage investment programme named Orange Digital Ventures earmarking EUR20 million (US$22.4 million) for allocation in its first year, have also joined the party.

It isn’t only operators who are boosting African startups’ access to finance, however. Other large scale initiatives are underway. The Tony Elumelu Foundation has launched a US$100 million entrepreneurship programme, aiming to create 10,000 businesses spanning the African continent. The tiphub startup accelerator programme and software development firm Coders4Africa have launched a Prototyping Fund, which offers entrepreneurs up to US$25,000 is grant funding to build a software prototype.

Existing VC firms are expanding their reach – Silvertree Capital is planning to make investments in Nairobi this year –  while new VC funds are spring up. South African startup accelerator programme Sw7 is hoping to raise a fund in the second half of next year in order to invest in companies. Meanwhile, Europe’s largest accelerator Startupbootcamp is fundraising in order to launch programmes in the South African cities of Johannesburg and Cape Town.

How things have changed. Suddenly African entrepreneurs are in vogue, being approached by investors scouring the continent for opportunities. Private equity funds in the US and Europe see Africa is a priority, notably Helios Investment Partners. The African Business Angels Network (ABAN) has brought together a number of disparate groups – such as the Lagos Angels Network (LAN), Cameroon Angel Network (CAN), Cairo Angels and the Ghana Angel Network (GAIN) – to better plan investments.

The idea that Africa is a risky place to invest still remains, but gradually success stories such as Jumia, Konga and ApexPeak are helping to dispel these feelings. And the host of accelerator programmes and incubators on the continent, with more than ever expected to open their doors this year, is giving investors confidence the entrepreneurs they invest in have the nouse and acumen to make their investments grow. The age of African VC has arrived.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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