Investments in African firms across different sectors doubled in 2021 as global investors sought to tap into the growing opportunities on the continent.
According to the latest Africa Investment Report by Briter Bridges, 500 African startups raised a combined $5 billion, reflecting a surge of investor confidence in the continent’s market despite the Covid-19 pandemic.
Rwandan based firms also featured among the top recipients of investments, underlining the country’s goals to increase the ability of local firms, especially startups to mobilise capital.
Rwandan based firms that hauled in more capital include Ampersand, which is involved in electric motorcycles, and Zipline –which is involved in delivery of medical supplies using drones.
Other firms which have presence in Rwanda and received top funding include Zola Electric which is involved in renewable energy, Chipper Cash which is debuting the fintech sector, Andela among others.
Zipline raised $250 million for operation expansion, making the firm one of the few companies to cross the $100 million investment mark.
Ampersand mobilised about $13 million from two rounds of investment to facilitate its expansion beyond Rwanda.
Financial technology had the largest preference among investors, capturing about 10 per cent of total investments into the continent.
This, analysts say, could be evidence of the growing opportunity as fin-tech is expected to drive financial inclusion, access to capital among other factors.
Other sectors with healthy investor response included logistics, clean energy, innovative healthcare, agriculture and e-commerce.
Speaking in a televised interview, Joshua Haru Murima, the Head of Investor relations at Briter Bridges said that a common characteristic of firms that were able to mobilise large volumes of investment was their ability to scale beyond a single market or region.
Investment was also influenced by factors such as ability to grow fast, proven track record and experience in respective operations.
For fintech, he said that there has been an increase in interest by investors especially in payments due to the impact on other sectors as well as demand for financial services on the continent.
With regard to the source of capital or investment, a majority of funds are from outside the continent from the United States and the United Kingdom.
Asian corporations such as Toyota, Tencent among others were also seen to have growing interest in the African market.
African markets that attracted the largest investments were those that had a vibrant and early stage incubation systems as well as early stage investment framework which leads start-ups to be attractive for high growth.
With the latest debut of Norrsken into the Rwandan ecosystem as an incubator, sector enthusiasts say it could lead to emergence of quality and scalable start-ups.
Stéphan-Éloïse Gras, Executive Director of Digital Africa, which has been involved in supporting emerging start-ups across the continent recently told The New Times that African start-ups stand a higher chance of investment when they have product market fit responding to the needs, demands and context of the market.
She also challenged the local individuals and corporations with disposable income to consider debuting as investors or venture capitalists as it has proven to be viable, with returns as well as with multiple impact in an economy.
Josh Whale, the Founder and Chief Executive of Ampersand told The New Times said that raising investment and funds remains a somewhat complex process without a definite formula.
“I think it depends a lot on the type of product and business. For software it's more straightforward. For complex hardware or products that require a lot of research and development or capital investment before reaching market it's not so simple,” he said.
He said that it is common to come across instances where investors look at the investment in tech start-ups in a traditional view focusing way too much on monthly revenues rather than the technology itself.
“With that, you find a tech company with a ground-breaking solution being valued the same way a tyre importer or a bakery would be valued. This focus on revenues also heavily favours business models with a lot of pass-through costs (like food deliveries, ride-hailing) where the startup only captures slim or no margins but still books the overall amount as revenue,”
He added that the typical funding cycle in East Africa is also much slower going for over 6 months in best-case scenarios and up to 18 months for grants which makes it tough to be an entrepreneur.
How fundraising works:
“The usual pattern is that a startup raises some initial angel funding, or a small grant. Somewhere between $10,000-100,000. Then the startup raises a 'seed round' which tends to be between $250,000-700,000. This is often at the stage where the company has a strong prototype and business plan, the basic economics look good, and a good team, but few or no sales,”
“The problem is then that for the next stage, the typical VCs that fund startups in East Africa will expect the startup that has used that previous seed funding to have monthly revenue of as much as $100,000,” he said,adding “That's possible for an app or a ride-hailing business where most of that revenue is just pass-through costs. But to develop something as complex as an electric vehicle battery, it's just not realistic as most funds go to research and development before making their first sales.”
Despite the progress and development, gender inequality and disparities persist with all female founder teams raising only 3.2 per cent of values between 2013 and 2020.
cmwai@newtimesrwanda.com
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