Venture capital for African startups to hit $7 billion in 2022

In almost all regions, startups raised considerably less venture capital in the second quarter of this year than in the same period in 2021, with Africa being the only exception. Between January and June, no other region even came close to matching the continent’s funding growth.

If the half-year growth rate persists through December, 2022 will be a new record year for the amount of venture capital investment raised by African startups. The magic figure will be $7 billion, according to the African Venture Capital and Private Equity Association (AVCA), a group of investors from the continent. Last year was a record $5.2 billion.

The AVCA report counted deals for the first six months of 2022, showing that 300 unique companies raised $3.5 billion in more than 440 deals. That dollar figure is just 1% of global venture capital funding in the period, a reminder that Africa still receives the tiniest share of the global startup funding bounty. At the same time, the deal’s doubling in value during 2021 showed “the depth of opportunity, as well as the potential that the continent has to offer,” the report said.

What has driven African venture capital funding?

Globally, venture capital funding fell by 3% in the first half of this year compared to last year, with the biggest drops coming in the second quarter, producing what some have seen as a “silent shock.Meanwhile, that of Africa increased by 133%. Why?

In addition to the perception that investment opportunities abound in Africa, African governments can take credit for efforts to “enable entrepreneurship and investment to flourish,” the AVCA says.

An example of such efforts is Zanzibar, where the government is the creation of ‘Silicon Zanzibar’ with tax incentives and easier work visa requirements to attract tech companies. A similar low-tax initiative is underway in Zambia, with the aim of making it the “Estonia or Singapore from Africa” as described by one of those involved in April. Flutterwave, Chipper Cash, and Kuda Bank are among dozens of startups looking to enter and take advantage

The other ingredient that supposedly attracts venture capital to Africa against the odds of global macroeconomic tailwinds is that the 3.7% growth forecast for sub-Saharan Africa for the second half of this year exceeds the figures for Latin America, Europe and the world average (2.9%). Taken together, it would not be surprising if at least 16 Africa-focused venture capital funds have closed their increase or have reached a milestone along the process.

When these funds begin to roll out, the AVCA hopes their activity will “ensure the moderate short-term health of the industry.” The group expects the volume of venture capital deals to reach 900 by the end of the year, more than a third more than the 650 deals in 2021.

It may be helpful to temper that projection with some developing reality. In the third quarter of this year, venture capital funding for African startups reduced by 53% compared to last year, according to The Big Deal, a newsletter that tracks fundraising in Africa. It ended six quarters of positive quarterly growth year over year and was the first quarter since the third quarter of 2021 in which Africa did not raise $1 billion. That said, the increase in activity in the last three months of this year may still make up for the drop, producing the record year’s AVCA projects.

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