2022: Venture capital in Africa

How would you describe Africa’s 2022 from a venture capital lens?

I don’t think you can. This year, venture land defied simplification. You can only narrate and follow the story through its strange arc. The climax, exposition, rising action, resolution, and what I believe is a dramatic setup for the next chapter—or book, in this case. It has the effect of amplifying our fears the same way skilled screenwriters for streamed movie series refuse to terminate the current episode without inserting the requisite amount of hypertension. We usually take the bait and binge-watch entire series overnight. For startups operating in real life, there is no such option, so we resort to strapping the venture seatbelts tightly.

For me, 2022 in African tech has been a most defining year. Wearing my journalist and analyst lens at the same time, one thing is clear, Africa has shed the aid garment around which innovation has been delivered since 1986. That was the year the first mobile phone network, Telecel, went live in Mobutu’s Zaire. The shedding is not happening everywhere and is not equal. But the one great achievement of venture capital on the continent has been how it has redefined digital innovation in Africa from aid-subsidised activity—suitable for clean photos in yearly non-profit reports and patronising media—to a business sector worthy of the trappings of wealth creation. At the just concluded US-Africa Leaders Summit, Washington D.C announced the rollout of a Digital Transformation with Africa (DTA) initiative, a nod to the continent’s growing digital economy alongside a slew of projects totalling $15 billion in new commitments. As I watched, mPharma’s CEO, Gregory Rockson announce his company’s plan to invest $40 million to expand its venture-backed business in Nigeria at the business side event, it was clear we had come a long way.

This is in no small part due to the efforts and increase in private “angel” investors. After investing personal funds into African tech companies between 2014 and 2017, Walter Baddoo and Peter Orth founded 4DX Ventures. The firm has led early-stage investments into companies like Okra and Autocheck, highlighting how the crucial relationship between Africa’s angel investors and institutional capital is evolving.

Of course, more “development money” has flowed into the African startup ecosystem than ever before. And the unique set of challenges it creates is far from addressed. But then we have gone from celebrating M-Pesa, the Kenyan mobile payment platform, to worrying about exit opportunities for growing investments in digital payments, agricultural technology, online shopping, and learning.

When Maurizio Caio, founding partner TLcom Capital began raising money to invest in Africa in 2015, he was rebuffed at first, The Economist reported later. “There is an Africa risk and a VC risk… Don’t combine the two.” He was told to choose between Africa or venture capital, implying that there was no case to pursue a venture capital-backed model in Africa. Two years later, Caio’s firm completed its first raise for a dedicated Africa fund. The Technology and Innovation for Developing Economies (TIDE) Africa Fund raised $40 million in commitments. By February 2020, the TIDE Africa Fund had secured an additional $31 million. This year, TLcom began raising $150 million for a second TIDE Africa Fund, with $70 million in commitments already secured by January. 

Less than two years after closing its first fund at $71 million, TLcom Capital had raised almost the equivalent of what was possible in two tranches spread over five years when it first set its sights on Africa. In my book, that is significant progress.

TLcom is just one fund manager. This year, we witnessed the entry into and birth of multiple VC firms in Africa. Despite the slowdown in venture capital markets and difficulty getting limited partners (LP) to back VC firms, Africans are setting up local VC firms and raising capital to back commercial innovation from the continent. According to The Big Deal, local investors were involved in 58% of investments over $1 million from January to September as lead or co-leads. In 2019, only 36% of investments could meet this criterion.

Local LPs are joining the fray. This December, Ventures Platform, one of the continent’s leading local fund managers, closed an oversubscribed $46 million fund. Much of this capital came from local investors, including the Nigeria Sovereign Investment Authority (NSIA), UAC Nigeria, one of Nigeria’s oldest companies, Gbenga Oyebode, chairman of a large law firm in Nigeria, and Shola Akinlade, CEO of Paystack. Similarly, FBNQuest Funds Ltd, one of Nigeria’s oldest fund managers put up money in the first close of LoftyInc Capital Management’s (LCM) Afropreneur Fund 3.

Some governments in Africa are simplifying rules which may allow pension funds to invest more in African venture funds.

Newer ways of investing are also gaining traction. Earlier this year, I had a series of interesting conversations with Ndubuisi Kejeh, founding partner of Mustard, a venture design agency with £4m to invest and build “narrative-led technology ventures”. I never got around to writing a full profile of Mustard, but I found Kejeh’s model a novel and intriguing approach, one that confirms my belief that like personable babies who find themselves quite early in their human journey, African venture capital is finding its character even as it masters baby steps.

You find this dynamism present in a newfound embrace of venture debt, a tricky alternative to plain old equity venture capital. As the slowdown in new investment bit deeper, the high-burn-high-growth narrative transformed into harsh lectures on prudence and commonsense. This swing of the balance of power created a scalding vulture market with desperate founders seeing venture funding being offered terms that would make a vulture vomit, in a manner of speaking.

Africa’s venture capital market did not escape. VC firms have had to mark down investments and startups have shuttered or were forced to trim staff numbers to stay afloat. But the continent has also taken the hit well. Fund managers like London-based TLG Capital and Botswana’s Norsad Capital,  an impact investor and private credit provider are teaming up to provide up to $400 million in structured credit financing. Separately TLG Capital is working with Nigeria’s Future Africa to create a $25 million fund venture debt programme for startups Future Africa has already invested in.

Some of the venture capital enthusiasm found its way into the media space. The parent company of this publication received a $2.3 million investment, and Stears, the Nigerian intelligence and media company, raised $3.3 million. Both investments were a first in the scale and a testimony to the significance of digital innovation in the African story. But it also represented a global trend, the startupification of media. Bringing digital tech news, even closer to the (capital) engine of technology companies, the venture capital model.

This dynamism was not without its downsides. Founders, venture capitalists and journalists had a more-than-fair share of run-ins. As new funding stories declined and journalists opted for more granular takes on the ecosystem, the tiffs became more frequent. This. All of this, and the hidden nuance, gossip, painful failures, mal-governance and mismanagement. Plus the shining examples of progress and true inspiration. Alongside a heavy dose freudenfreude and minor schadenfreude, as evidenced in the social media takes that followed stories like Kune’s implosion; is the incredible story of 2022. An African Venture Capital Wrapped told in the narrative form, if you will.

Now it’s your turn. Share this with your ecosystem buddies and tell me. What is your story of venture capital in Africa this year?