Venture Capital in Africa: Growth and Potential

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SEATTLE — Sub-Saharan Africa is experiencing a technology boom that has the potential to change the state of affairs on the continent. In Nairobi, Kenya, a highly entrepreneurial culture has led to the city being dubbed the “Silicon Savannah,” and a number of its tech startups are gaining traction in the world market.

Across Africa, the expansion of tech startups has boosted growth significantly and caught the eye of more and more venture capital and private equity firms. Organizations like Venture Capital for Africa, or VC4A, believe in the power of innovation and entrepreneurship to transform the continent into a powerful global financial player. According to VC4A, ventures can contribute up to two thirds of national income to African countries and promote economic stability and sustainability for a middle class.

As many as 200 innovation centers have emerged as hubs for the tech culture, teaching coding and hosting app competitions. Venture capital in Africa has provided opportunities for enterprising Africans to learn business techniques and success strategies, and much success comes when private equity and venture capital players provide guidance and resources to African startups.

The African Private Equity and Venture Capital Association, or AVCA, has noted private equity firms that invest in Africa continually outperform public markets in economic and commercial growth. The AVCA explained that the number of private equity exits, an indicator that an investment was a success, reached a nine-year high across the continent in 2015. The more the continent demonstrates its viability as a market, the more attractive it will become to investors.

According to Jake Bright, co-author of “The Next Africa: An Emerging Continent Becomes a Global Powerhouse,” in 2016 alone, $300 to $400 million was invested into African e-commerce startups. Additionally, Bright estimates that as much as $1 billion in investments will come into the region within the next two years.

However, this market is far from reaching its full potential. Despite the amount of capital flowing to the continent, access to funds remains a struggle for African innovators. In Kenya, 68 percent of entrepreneurs noted that finding financial resources was difficult, with 40 percent of them forced to self-finance their business. The problem for these startups is that they are small and medium-sized enterprises that are too large for microfinance, but too small to receive loans from banks.

The AVCA believes that the biggest current challenge is uncertainty in the macro-economic environment, particularly currency fluctuations. Other large challenges discussed by the AVCA included inflated company valuations and the lack of a developed intermediary landscape. Because of these issues, many investors remain cautious of stepping into the African marketplace.

Despite these issues, the startup scene in Africa remains a beacon of hope for the continent. If venture capital in Africa is able to create economic sustainability, a region that many Americans associate with poverty could morph into a business powerhouse and a major player in the global marketplace.

Adam Gonzalez

Photo: Flickr

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