Nigeria leads Egypt, South Africa, others in venture capital

Africa’s largest economy attracted the continent’s highest number of venture capital investments worth $6.5 billion in 2022, a new report from Africa Private Equity and Venture Capital Association (AVCA) has shown.

According to the pan-African industry body, which promotes and enables private investment in Africa, Nigeria outperformed four other countries that made the top list to account for 22 percent of the 853 investment deals worth about $6.5 billion on the continent.

“Africa’s largest economy and most populous country maintained its status as the most funded country in 2022, while Egypt (15 percent) rose in rank to second place, eclipsing South Africa, which drew 14 percent of Africa’s VC deal volume last year,” AVCA’s report said.

The report showed financials, information technology and consumer discretionary were the three most active sectors by volume for the third year running in 2022, with these three sectors collectively accounting for just under two-thirds of the total number of VC deals struck on the continent last year.

“Not only are African entrepreneurs bringing new goods and services to market, but the innovative use of technology is also modernising the distribution and accessibility of these entities beyond the upper-middle class to Africa’s growing cohort of young, urban and connected workforce,” it said.

The report said Africa’s venture ecosystem was relatively stable in 2022 and only registered a very slight decrease (1 percent) in the total amount raised by African startups compared to 2021, when $5.2 billion was raised from 722 unique companies.

“However, Africa’s venture ecosystem held on to 2021’s funding high, proving its ability to shoulder shock and weather unpredictability; first through the Covid-19 pandemic and now through the general decline in the global economy,” it said.

The AVCA said African startups raised $1.3 billion of venture debt last year, through a variety of instruments including mezzanine financing, direct lending, and convertible loan notes, among others.

“In a recurring trend, the seed stage assumed the largest proportion venture capital deal activity in Africa, accounting for close to half of the venture deal flow to startups on the continent last year,” it said.

According to the report, 131 early-stage venture capital deals took place in Africa in 2022, demonstrating a 25 percent increase from the year before when 105 early-stage deals were concluded on the continent.

It also showed that investors put $1.1 billion to work across 16 late-stage deals in 2022, a 6 percent drop by volume and a 51 percent drop in value.

“Nevertheless, even with this slowdown in late-stage funding, a number of high-profile late-stage deals took place last year, including the $260 million Series D in off-grid solar energy provider Sun King and Flutterwave’s $250 million Series D round in February 2022. Another standout is the $91 million Series C round in South African chat commerce provider Clickatell,” the report said.

It said this growing sample also illustrates how startups have concurrently been raising larger seed funding rounds.

“The continued prominence of seed-stage deals in Africa’s venture capital landscape lies partially in the surge in entrepreneurial activity being seen across the continent,” the AVCA said.

The report said global investments in venture capital reached $445 billion in 2022, a 32 percent decrease after a record year of growth for this asset class in 2021.

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“The global venture capital fell prey to persistent market instability, which was aggravated by geopolitical crises, supply chain disruptions, and unprecedented inflationary pressures, which led to an increase in interest rates,” the AVCA said.

“These factors had a compound negative effect on venture capital deal flow. Both globally and in Africa, the fall in investments noticeably takes effect in the second half of the year.”

The report said two-thirds (67 percent) of venture deal value in Africa for 2022 could be attributed to deals that occurred in the first half of the year.

It said the thousands of job losses that swept through the global tech industry also trickled into Africa in 2022.

“Although industry layoffs were in part due to market instability and declining revenue resulting from falling consumer demand, a large number were also due to necessary streamlining of workforce after inflated hiring during the COVID-19 pandemic to cope with heightened demand,” the AVCA said.