Investing through the crisis: how African startups still have places to go during COVID-19


The general consensus is that the amount of funding available to African tech startups will decrease dramatically as a result of the COVID-19 crisis, and startups have been advised to take lesser terms if it means they are able to raise.

A quick glance of the figures collated so far for Disrupt Africa’s annual African Tech Startups Funding Report suggests there is truth in this. While startups on the continent raised totals of more than US$100 million in funding in each of January and February, there was a sharp decline in investment as the crisis took hold, with less than US$30 million raised in each of March and April.

There have been some signs of recovery in the last few months, but those in the know suggest funding will be harder to come by as the economic impact of COVID-19 hits investors pockets and affects attitudes towards perceived risk. Regardless, some investors will remain active throughout the crisis, and startups to have avenues to go down if they need funding.

There is still money in the market

Regardless of the COVID-inspired slowdown, 2020 is still on course to beat last year’s record and become the best yet for investment into African tech startups, and more deals will be done over the course of the year. The simple fact of the matter is that plenty of investors have funds that need to be invested.

Zachariah George, chief investment officer at Startupbootcamp Africa, principal at Nedbank Venture Capital, and an active angel investor in African tech ventures, points out that most VC funds have eight-to-12 year fund lives, with the first five years usually their investment life cycle. 

“So any VC fund in Africa that was raised in 2017 or later – and there are plenty of them given that the African VC industry is only seven-to-eight years old at best,” he said. 

“Therefore the GPs of almost every VC fund in Africa is sitting with piles of cash that they have to deploy lest they face redemption calls from their LPs – which are mostly large development finance institutions (DFIs).” 

This means, George said, that total funding for African tech startups is still perfectly likely to rise, but that the number of startups receiving funding will very likely decrease. This is simply because many of them may not have survived the “cash crunch” over the last four or five months. 

“So you will see more funding per startups in 2020 and 2021 versus 2018 and 2019. This is already true for the first half of 2020 in Africa,” he said.

George personally, both as an angel investor and a VC fund manager, says he will continue investing, quoting Winston Churchill, who once famously said: “Never let a good crisis go to waste”. 

“I am actively looking for solid investment opportunities in the early to mid-stage technology startup sector across Africa. I have and continue to be a regular angel on several Zoom panels and webinars throughout the course of this pandemic,” he said. 

“Valuations have taken a 20-30 per cent haircut at least, but startups that have been able to repurpose their assets, cut costs effectively and raise bridge funding, including working capital, will end up getting a disproportionately higher size of the available VC pie in 2020 and 2021 across Africa.”

Appetites remain healthy

Maya Horgan-Famodu is founder of VC firm Ingressive Capital, which recently announced it had doubled the size of its investment fund to US$10 million. She agrees valuations have fallen, but says very little else has changed from an investor perspective because of COVID-19.

“It depends on if the startup has international exposure, cash in the bank, and runway. If not, they’d be in the same situation regardless of COVID-19 market influence or not. If they do, their valuations will likely be affected given increased risk, impacted TAMs or core metrics and uncertainty of strategy or product market fit post-COVID,” she said. 

“Elsewise, things are still moving. We’re fair investors and always make sure to reach reasonable terms that the founders and associated members, our team and our investor base all find comfortable. Fortunately, we’re using SAFEs, an industry-standard document, so the only thing we discuss is valuation which is pretty objective given companies’ traction, TAM, growth potential, team – it’s the same whether we’re the only investor in the round or competing for the last bit of it.”

Ian Lessem is managing partner of South Africa’s HAVAÍC, which invests in early-stage, high-growth tech businesses. Having made two investments so far during this crisis, with a further three lined up, HAVAÍC certainly intends to remain active, and Lessem said COVID-19 has acted as a catalyst for accelerating the adoption of technologies, both in people’s homes and in their businesses. 

“While many look to the likes of Netflix, Amazon and Zoom as examples of this, locally there are many examples of technology-driven businesses solving real world problems that are well placed to not only survive during the crisis, but thrive thereafter,” he said.

HAVAÍC’s thesis is to invest in these “real world” solutions; solutions that help improve lives or work efficiencies both locally and internationally. 

“These are not “nice to haves”, these are “must haves”. In sectors such as fintech, health-tech and safe-tech, for instance, where we have world leading skills and solutions, not only in our investment portfolio, but in general, local businesses who provide technology-driven real world solutions are best placed in this time and thus have the potential to be great investments,” said Lessem.

“Further to this, with a rebalancing in global equity markets, unprecedented volatility, and investor sentiment shifting as a result of what was once deemed to be a “safe bet” proving to be in fact a riskier bet than the potential returns catered for, investors are not only spoilt for choice, but are now more than ever before realising the need to consider investing in asset classes that were once perceived as “risky”, such as venture capital, but in actual fact on a risk adjusted basis when compared to other traditional investments are in fact the “smart” bet.”

This shift in investor sentiment, coupled with the global acceptance that tech-led solutions solving real world problems is the future, makes investing in local African solutions that tick these boxes more topical and appealing than ever before, Lessem said.

Fair share of challenges to overcome

For all that there is still funding available, and investor need or appetite to disburse it, challenges remain, and COVID-19 has thrown up a number of new ones. One of those is the “new normal” of physical distancing.

“Given that a material aspect when making an early-stage investment decision requires a strong view and nurtured relationship with founders and entrepreneurs, this low-touch world we are living in does make building these relationships in this time that much more challenging,” Lessem said.

HAVAÍC believes it has overcome these challenges by adhering to the principles of local partnering, conducting due diligence not only on founders but people in their immediate and even extended network, and most importantly not rushing. Horgan-Famodu also feels that Ingressive has found a way to work in these trying times.

“We actually closed our largest investment to date a few months into COVID, without meeting the founding team in-person. We’ve found we can solve for this “trust” and “gut feeling” that makes meeting in-person so important by spending more time assessing product and code, doing more in-depth customer reviews, doing more reference checks and spending time engaging their initial investor base, among other COVID-hacks,” she said. 

“It’s actually much more objective and tangible to use “facts” and our added “diligence checklist” than this nebulous gut feeling investing, and allows more team members to analyse simultaneously by making our strategy more into a science than an art, so it’s something we’re quite glad about and excited to have implemented.”

George, however, highlights further challenges, such as a lack of comparable data in the African VC space from a similar downturn or recession period. 

“The last global downturn was in 2008/09 but there was no VC market in Africa then. So investors are literally having to second-guess what a rebound would look like from a timing, quantum and acceleration standpoint,” he said.

“Founders that haven’t experienced a recession ever before have very little idea on how to project their sales and margins over the next two-to-three years. And the “your guess is as good as mine” analogy is more prevalent now than ever before.”

Though some are still investing, others are not, meaning it is more difficult to find co-investors on deals.

“Many VCs have radically different approaches to investing during a crisis. Corporate VC, which is becoming an increasingly vital component of the venture ecosystem in Africa, has come down to either a slow trickle or, in certain corporates, a grinding halt,” George said. 

“Many banks, insurers, telcos, technology firms and retailers have cut spending on innovative VC-type investments in order to shore up their balance sheets and preserve capital.”

Yet for all these issues, there is still plenty of optimism about the space, even as it faces a COVID-inspired “cash crunch”.

“We remain more convinced than ever before that investing in local African technology-driven real world businesses delivering solutions that have the potential to impact and scale globally is the smart investment,” Lessem said. 

“While the current crisis has many challenges, the opportunities at hand far outweigh these challenges, and investors are starting to “wake-up” to these truths.”


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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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