Bridging the Funding Gap for Africa’s Next Unicorns

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From Nigeria’s Interswitch, Andela and Flutterwave to Senegal-based mobile money provider Wave, Africa’s tech landscape has seen the emergence of multiple unicorns – private companies with a valuation of over $1 billion. – in recent years, supported by the increase in venture capital (VC) being poured into disruptive companies operating in the region.

Read more: Andela’s unicorn status increases buzz around the African startup scene

According to data from Partech, a US-based venture capital firm, Africa-focused companies collectively raised a record $5.2 billion in 681 funding rounds in 2021, an increase of 264. % from the $1.4 billion that venture capitalists gave in 2020.

With hundreds of innovative startups popping up on the region’s tech scene, investors who see the potential in the region’s tech ecosystem have joined forces to help support new unicorn-potential companies on the continent that have often difficulty in accessing national capital beyond the seed stage.

“At some point, all these [very successful] companies have had to look to Western investors, mostly from Silicon Valley, to come and boost their businesses because seed funding or start-up funding has dried up on the continent,” Ngetha Waithakageneral partner at Norrsken22said PYMNTS in a recent interview.

It is this gap that the Norrsken22 African Tech Growth Fund seeks to fill, Waithaka said, by launching a $200 million venture capital fund backed by more than 30 founders and CEOs of corporate unicorns like Flutterwave, DeliveryHero , Klarna and Skype.

“Now we want to be that pool of capital that can back our winners all the way,” Waithaka added, “and we also have a lot of experience [and insights] on the African continent. We have built very deep networks and know how to buy and sell businesses.

Launched by Klarna co-founder Niklas Adalberth and leading venture capitalist Hans Otterling’s Norrsken Foundation, the fund is also endorsed by people who have built great technology-based organizations and see the huge potential of the African technological ecosystem.

“[They] not only dedicate their time to mentoring African tech entrepreneurs, opening up their networks and talking about business models, but they also invest in the fund,” he said.

See also: Tech company founders launch venture capital fund for Africa’s next unicorns

FinTech is the most promising

In terms of sectors with the greatest unicorn potential, Waithaka pointed to FinTech as the main space to watch.

“The financial infrastructure that’s been put in place for businesses to get off the rails of payment organizations is actually working very well – there’s a lot of opportunity there. [FinTech] space,” he explained.

And with weak supply chain networks common across the region, market activation companies – “a big bucket of companies that almost grease the ability to trade on our continent” – who cut out middlemen and Improving the customer acquisition journey will be another key growth driver on the continent, he noted.

EdTech and MedTech are two other sectors that are growing in their own way and will also contribute to the burgeoning tech landscape.

When screening startups and investment opportunities, Waithaka said they look for companies that have already generated revenue and are past the early stage: “It has to be product-market fit – we have to see that it’s a viable idea if we’re going to put our capital into it.

With a continental market of over 50 countries, he added that they prioritize technology-intensive and light-weight business models that offer solutions that are not limited to one country and can easily expand beyond. borders, as well as to businesses that don’t need a lot. control to operate.

“There are some that are just obvious plug-in and play, and the problem is the same across the continent. These are the types of business models we are looking for,” Waithaka explained.

B2B and Neobanks

Predicting where Africa’s next tech unicorn will come from is no easy undertaking, but Waithaka opined that the business-to-business (B2B) e-commerce market is an increasingly interesting space to watch.

He said those B2B companies that strive to digitize outdated systems and support the delivery of goods and services to informal merchants, as well as providing some ability to fund their purchases, will ultimately transform the business landscape on the continent.

He referred to the case of an informal trader in Lagos who previously had to physically go to the market to buy flour and cooking oil for his food business. Today, several tech companies offer a platform for that business owner to purchase these goods and services on an app, in addition to offering financing that allows users to purchase more than they could afford. usually afford with money in the past.

Several success stories will also emerge from the neo-banking space, which Wathaika says is particularly ripe for a unicorn, due to the use of cash and the large number of underbanked and unbanked people on the continent. .

“I think it is possible to use smartphones to deliver these services affordably across the continent,” he said. “These are two spaces that I am very passionate about and we will spend a lot of time looking [at them].”

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