By Nicholas Anakwue

Africa’s dynamic tech ecosystem in 2021: Growth, opportunities and prospects

2021 carried a lot of promise and progress for startups globally, with over venture funding totaling more than 10x of what it had been a decade earlier, at over $643 billion in total (Crunchbase, 2022).

A whopping bulk of over 586 new unicorns were spawned during the year, in what has proven to be a phenomenal year for startup growth globally.

Africa was not left out of this massive success, with startups raising a total of $4.3 billion in investments last year, a record 2.5x of investments raised in 2020, according to Max Cuvellier and Maxime Bayen. Presently, about six African startups tout the coveted billion-dollar unicorn status, with many more soonicorns in the offing (Startup Lagos, 2021).

Africa’s diverse sectors and emerging economies hold huge promise for investors globally, especially with the increasing penetration of digital technologies, and the disruption that they bring to Africa’s large markets. This tantalizing promise of growth and success is what is attracting in droves the interest of the global community to African startups. 

Even more, with the success of startups like Paystack in achieving Nigeria’s biggest startup exit, and other massive raises by top-performing African startups, investors all over the world are greatly aware of the viable opportunity for returns that the African market holds.

Still, in spite of this flurry of activity in the VC-Startup scene, there are still significant challenges.

Localizing investments even more

Firstly, there is still much lethargy on the side of African and Africa-based investors. Only a meager 20% of venture investment in African startups comes from Africa-based investors.

Furthermore, according to Maxime Bayen and Max Cuvellier, about 7 of 10 investors involved in deals in Africa [of above $100,000 as of 2021] so far are headquartered outside of the continent. The bulk of investment in Africa has come in from outside the shores of the country.

Charity, it is said, begins at home.

Increasing local VC participation in the startup ecosystem in Africa would be of great benefit to the growth and expansion of the startups. By focusing on tech initiatives at home, local VCs will be offering these startups the opportunity to grow even more, as they are better in tune with the African context. The involvement of local VCs will also help to reduce the white-privilege biases that [some pundits argue] are closing out opportunities to local founders within the ecosystem (Startup Lagos, 2021).

From growth to exits

Asides from this, a number of successful African startups choose to exit and launch IPOs in major markets outside of Africa. In 2020, US firm Stripe acquired Nigeria’s Paystack in a much-talked $200 million acquisition agreement, with Flutterwave considering New York as a potential IPO destination.

Even with the Johannesburg Stock Exchange enjoying the status of having the most African companies listed, the London Stock Exchange sits second on this list. In 2021 also, while there had been a surge in initial public offerings (IPOs), very little of this spike was recorded within Africa.

A number of commentators aver that, given the critical necessity of valuations, many startups are keen on very favorable markets, while hinting at the instability of Africa’s market environment.

And the hammer strikes repeatedly

Furthermore, other challenges exist with regard to the development of Africa’s nascent startup ecosystem in the fierce regulatory ambiance across countries on the continent.

To better stimulate the growth of the ecosystem, at this Cambrian moment, governments across Africa are looking at providing startups with greater regulatory clarity, better access to finance, and an enabling environment to scale and grow.

In spite of these developments with the startup ecosystem in Africa, there have been increased bottlenecks with regards to legislation that have hindered startups from raising funds, such as the limitations on crowdfunding by the Securities and Exchange Commission (SEC), as well as other red-tape challenges.

Many countries across the continent have also introduced mobile money taxes that have consequences for the proliferation of mobile money solutions within these countries. These stringent policies also drill down to other technology solutions and interventions. Sometimes, legislation needs to enable a favorable ambiance for technological transformation.

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It is argued that the successes of the Silicon Valley model came majorly from the support of legislation to the ecosystem in the United States. These legal support frameworks that helped to buoy up the growth of web 2.0, and the startups that sprung from that renaissance, include the Internet Tax Freedom Act, the Digital Millennium Copyright Act (DMCA), the Anticybersquatting Consumer Protection Act (ACPA), etc.

At the heels of this new impetus for the African startup ecosystem is the growing concern around startup bills that would help provide a framework for innovative entrepreneurship to grow and for easy sustenance of the ecosystem.

The startup bill is expected to cover areas of regulatory policy, fiscal and monetary frameworks for the sustenance of startups, and greater ease of doing business. In 2018, Tunisia took the lead in passing its Startup Law, as the first African country to enact legislation on startups, which has helped the country to better position its startup growth. 

While there is the agreed need for legislation to support the startup community and its growth across Africa, the questions that emerge are as to what model the legislation should adopt to really strike home.

Also, there are questions around the level of government intervention in the startup ecosystem, as well as how the startups can be best regulated in a volatile, uncertain, complex, and ambiguous environment.

Dispelling equity gaps

However, in spite of this spike in investment, there are still several gaps and biases that cut off a number of African startups from assessing these investment opportunities.

While some have pointed to the disparity in funding directed at female-led startups, others have cited the issue with locally-run startups missing out on funding on the continent. These gaps reveal challenges for startups on the continent accessing funding and getting the right push for growth, even amidst the investment surge, on the continent.

Furthermore, just about half of the countries that make up Africa (numbering 26) have had VC activity in $1 million+ deals on the continent, with the other 28 countries recording no single VC activity in the past 3 years (Africa: The Big Deal, 2021). This implies that only half of the continent is actively drawing in the vast amounts of investment recorded over the years. Aside from this, there is the challenge that startups face with regard to the disparity in funding for early-stage startups. Since a significant number of African startups are still at the seed or early stages of growth, there is often the challenge of getting enough funds to scale and grow. Startups at this level of growth, are most prone to floundering, without making it to prominence.

To the new year and beyond

As Africa welcomes this new year 2022 with even greater opportunities beckoning, and much progress on the ecosystem anticipated, salient questions for reflection are: How do we make the tech ecosystem more favorable for all stakeholders, more inclusive? How can we co-champion the growth of our tech ecosystem? How can evident gaps be bridged? In what ways can conscious steps be taken to ensure investment into the continent is equitably distributed?

Anakwue is a startup enthusiast, researcher, writes from Lagos, Nigeria.

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