As we settle into 2022, the numbers for African tech fundraising have crystallized. Last week, Partech Africa published a report on the total startup funding raised in Africa, which is $6 billion.
This record was almost 4 times the amount raised in 2020, a year in which fundraising for the ecosystem declined for the first time in nearly a decade due to the COVID-19 pandemic.
Fundraising in the tech ecosystem in Africa is growing rapidly, faster than global and regional venture capital (VC) investments. Last year’s growth has put African technology ahead of even Latin America (LATAM) and the rest of the world. According to the report, African tech funding is growing 3 times faster than global venture capital investment, which reached $643 billion in 2021 with an annual growth rate of 92%.
In absolute terms, the total amount raised by African startups remains small compared to the triple-digit billion dollar figures in other regions or globally. And despite the accelerated growth in fundraising, many Nigerian companies (especially those outside of technology) are still struggling to raise capital at scale. It’s no wonder that the FATE Foundation’s 2021 State of Entrepreneurship Survey highlighted limited access to finance as a significant issue for Nigerian entrepreneurs.
As detailed by Partech, VC funding helps tech startups grow. That’s because growth costs money, and as famous Y Combinator founder Paul Graham argues, “The one essential thing [for startups] With this in mind, it seems obvious that the need for financing, especially in growing markets like Nigeria, will not be met any time soon. After all, you need capital to attract and retain talent (see last weekend’s Twitter debate or our article on the subject), create new products, find product-market fit and defend your business against competition.
In a nutshell, there are still funding gaps in the ecosystem. Also, not all startups are happy with typical venture capital fundraising requirements, which can cost up to 20% to 25% ownership each round. If founders continue to raise institutional funds throughout their company’s lifecycle, they can lose up to 90% of their companies by Series D.
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