Over the years, the inflow of startup funding capital in Africa has been rapidly growing, as investors have started paying more attention to investment opportunities in Africa. African economies have shown great potential for growth, and this has made African startups a key portfolio ingredient for investors looking for investment opportunities. In addition to the return angle, African startups, more often than not, are solving real problems in various critical sectors ranging from access to finance, healthcare, education, etc. which makes them almost irresistible. This was evident as 2019 saw Africa’s annual Africa-focused startup funding cross the $1 billion mark (as per the data collected by Maxime Bayen), a milestone that a couple of years ago looked virtually impossible to achieve. For the Africa rising narrative supporter, this is just the kind of data point they would want to hear and read about. We delved deeper into the number to see how this funding was split in the different ecosystems looking at who the funding was allocated to i.e., local founders, expats, mixed founders (teams of local and expat founders), and corporate ventures. 

 A common phrase, ‘Numbers don’t lie,’ will inform this article, let us jump into the data that will guide our conclusions. In 2019, the amount of money raised by African startups surpassing the one million dollar mark was 1.3 billion dollars. Sector-wise, Fintech had the most significant allocation as it raised 594 million dollars, which represents approximately 47% of the total funding. 222 million dollars went into the Energy Sector, which represents about 17% of the total financing with the Transport and Logistics and Education Sectors following closely with 124 million dollars and 114 million dollars, respectively, accounting for 10% and 9% of the total raise.

From a country perspective, Nigeria was in pole position with a total raise of 661 million dollars, which was 52.7% of the total funds. Kenya was second with 140 million dollars, which accounted for 11%. South Africa and Egypt come in third and fourth with 113.04 million dollars and 100.48 million dollars, respectively, representing 9% and 8%.

Getting down to who received the cash gives deeper insights as to the development of different ecosystems. We believe the question of who received the money is a relevant one and one that should be consistently tracked, to put it differently; it is not enough that the cash raised keeps increasing, but it should also reach local founders.

Looking at Nigeria, the total number of companies that received more than one million dollars in funding was 22 out of 86 companies. Out of these companies, 5 (22%) of them were founded by expats, local founders were responsible for 12 (55%) of the companies, and 2 (9%) had a mix of both local and expat founders. Established and international corporates also put their skin in the game by setting up 3 (14%) of the startups. A similar picture applied to South Africa where the total number of companies that raised more than one million dollars were 25 and out of which, 4 (16%) were founded by expats, 14 (56%) by local founders while 7 (28%) had a mix of both local and expat founders. Nigeria’s and South Africa’s ecosystems seem to fair relatively well, considering local founders raised the most significant chunk of funding.

In Kenya, the Silicon Savanna, the numbers were quite different. Expat founders got the lion share of the funds raised with local founders getting a paltry 6% of the total. The startups that raised more than one million dollars raised a total of 140 million dollars. At face value, one may be quick to suggest that the Kenyan ecosystem is doing well, but is it? Should investors, fund managers, and entrepreneurs sit back and say ‘Hakuna Matata’? The companies in this fundraising category were 17, representing 19% of the total startups in Africa. Out of these companies, 11 (65%) were founded by expats. There was only 1 (6%) local founded startup, with 4 (24%) established by a mix of local and expat founders. Kenya also saw 1 (6%) startup founded by an international corporate, Safaricom.

Taking a look at the other countries that did not make it to the top three fundraisers, the narrative is almost similar. This category consists of 31 startups. Out of this, 14 (45%) were founded by expats, 10 (32%) by local founders, and 7 (23%) were founded by a mix of both local and expat founders. For countries such as Ghana and Uganda, only one startup in each country was locally founded out of a total of 8 and 6 companies, respectively; both of those startups are in the Agriculture Sector. The local founders had a mix of both foreign and local education as well as experience. Out of the 10 locally founded startups, 6 (60%) of the companies had founders who had a mix of both local and foreign education. Only 3 (30%) startups had founders with overseas experience. Expat founders are receiving most of the funding even in these other countries.

This is not news; in 2017 Village Capital  released research indicating that only 10% of the funding raised in East Africa goes to local founders. What is news is that two years later, nothing much has changed; if anything, the situation seems to be getting worse. Many conclusions can be made out of this statistic, as Viktoria Ventures, manager of Viktoria Business Angels Network, we believe that local angels need to be more active. We have been on a path to encourage angel investors, with a focus to local ones, to get more active in the ecosystem which we believe should help tilt the scales.

Most African ecosystems for angel ecosystems are in the build phase and the problem cannot be left to these early stage investors to resolve. We believe that there’s much more that needs to happen at the Series A, B and C levels, investors need to do more deep-sea fishing, in their deal sourcing. From what we see at the pre-seed and seed stage levels, local founders are doing an excellent job in solving problems that affect their communities; however, they need a helping hand. Lastly, as an ecosystem, Kenya, and indeed the other African countries need to take a look at themselves and ask why the situation is as it is. Local founders need to be more daring and think Africa, and they need to ask why they cannot compete with expat founders to raise just as much capital for their businesses.

Written by Adeliade Njoki and Stephen Gugu

To get the data analyzed in this article, click on this link.