Plagued by political challenges, sluggish growth, and reduced access to funding, 2023 was an incredibly challenging year for Africa’s venture capital (VC) ecosystem, as startups grappled with investor withdrawal from the market. However, through collaboration and perseverance, local VCs demonstrated that co-investment with aligned investors and joint efforts with portfolio companies can lead to successful exits.

This is according to SAVCA CEO, Tshepiso Kobile, who last week welcomed over 200 delegates, including key industry experts, investors, fund managers, and regulators, to the SAVCA VC Conference 2024. Under the theme “Synergy with Collaboration”, discussions centred on the evolving funding landscape and highlighted the growing potential for collaboration – not only in pursuing returns but also in better supporting investee businesses.

Africa is ripe for VC opportunity

In a panel discussion on the African VC investment landscape, Natalie Kolbe, Managing Partner at Norrsken22, noted that while the last decade has seen capital flow into Africa increase tenfold, there is still vast room for growth. “We’ve seen capital into Africa grow from $400-500 million 10 years ago to over $5 billion now, and we should all be excited about that. But to put this into perspective, the capital that goes into the entire African continent, with over 1.3 billion people, is still less than the capital that goes into Sweden – a single European country with just 10 million people. This shows that the opportunity for growth in the African VC sector remains huge.”

Looking at where capital is being invested, Daryn Munnik, Investment Associate at Launch Africa, said that while 85% of all tech seed funding still goes to the “big four” – South Africa, Nigeria, Kenya, and Egypt – other African countries are starting to generate interest. “Ghana is one country that we’re starting to see more applications from. In North Africa, Morocco and Tunisia are showing growth, while in East and Southern Africa, Uganda, Tanzania, and Zambia are contributing more applicants. It's also interesting to note the strong political support for Rwanda's startup ecosystem, despite it being a relatively small market.”

In terms of funding, Munnik said that African companies are generally asking for far less at a lower valuation, but with high revenue potential. “In our pipeline, we’re seeing pre-series A requests in Africa around $5 million, whereas globally, we’re seeing applications closer to $10 million. While the valuations for these companies are typically low, the revenue can sometimes be relatively high, resulting in lower entry multiples.”

Emerging trends driving regional VC growth

Shifting the conversation to internationalisation strategies, Kolbe notes that certain country-specific trends have developed. “Kenyan and Nigerian businesses tend to want to grow regionally – so they expand across Africa – while Egyptian companies tend to go into the Middle East, and South African companies are generally looking to grow beyond African borders to the US, UK and EU.”

For African companies looking to grow internationally or move offshore, Kiara Suttner, Partner at HAVAÍC, advises founders to first establish a strong presence in their home market. “Focus on markets you understand from a cultural, linguistic, and legal perspective – which is why South African companies often target the US, UK, and Europe. But beware that international expansion will invariably take more time and financial resources than anticipated.” 

A glimpse into the LP mindset

From a Limited Partner’s (LP) perspective, panellist Paula Mokwena, CEO of Fireball Capital, says that greater collaboration between African and international VCs is key to showcasing local businesses on a global stage. “While we appreciate the need to reduce reliance on global capital, it’s still important to increase investor confidence and continue attracting international capital into the market in order to propel local startups onto the global stage.”

To ensure Africa’s growth trajectory continues, Heleen Goussard, Executive Director of Alternative Investments at RisCura, said that the VC industry needs to better articulate the impact and exit opportunities of funds. “VC funds are, by nature, impact funds. We need to get better at understanding and quantifying what our impact is, as LPs are data-driven and require this data to invest. The biggest issue is that we are only recently starting to see exits and liquidity coming out of funds, which is often a requirement for LPs to allocate capital.”

Expanding on the availability of capital, Heleen observed that VCs across the world has seen access to large markets, which we lack, so there is a need to grow quicker. Many institutions currently have capital. This, coupled with the roll-out of more formalised manager development programmes and institutional investors becoming more aware of impact, position VC well for this growth.  

The holy grail of exits, but not without impact

Echoing Goussard’s sentiment, Kolbe said it’s important to remember that Africa’s VC industry is still young. “We’re only about a decade old, and most funds have not even raised their second round yet, so the exits will come.”

One firm that has seen some exits, however, is HAVAÍC. When asked whether there was a “secret sauce” for these exits, Suttner said that founder involvement and shareholder alignment are key. “In terms of lesson learnt, there is a time to push founders and there is a time to let them run their companies. A strong and aligned shareholder group is also critical, not only at the exit level but also at a portfolio management level.”

While noting the importance of exits, panellist Gladwyn Leeuw, CEO of E Squared Investments, emphasised that impact remains a key priority. “What’s similarly important for us is transforming the economy and shaping the future of Africa through entrepreneurship. We’re interested in funds with the capability to not just invest but also create an uptick in economic value, a commitment to responsible entrepreneurship, effective risk management, and the ability to deliver both social and commercial returns.”

In line with the call from LPs for more Exit stories, the VC Conference was wrapped up with a journey into the remarkable story of Knife Capital’s successful exit of its Quicket investment to Ticketmaster. This was one of a few exits realised by VCs, which were valued at R91m in 2023.