Everyone agrees African startup funding is soaring but no one can agree by how much

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How much did African startups raise in 2019? It depends on who you ask.

As African technology ecosystems have blossomed over the past decade, increased interest from investors has seen them snag millions of dollars in funding. Every year, annual funding reports offer insight into the state of play with regard to investment in the ecosystem but, in search of the same findings, these reports often reach different conclusions.

So far, three reports focused on African startups have shown differing funding totals for last year. Partech Ventures, WeeTracker and Briter Bridges all report funding totals of over $1 billion.

The big trends are broadly all the same: Nigeria and Kenya’s dominance, fintech’s continued rise and the arrival of the Chinese are key themes for the African aggregate market.

However, the differences in funding totals lies in a variance of methodology used by the research teams. For instance, Partech Africa includes publicly undisclosed deals in its reports while WeeTracker only covers undisclosed rounds in terms of the number of deals rather than their value.

“A great deal of the total funding value depends on how you define a startup in the report. [It] also hinges on what we include in the data,” says Nayantara Jha, co-founder of WeeTracker. “If the definitions  vary, the numbers will always vary,” she tells Quartz.

One way to ensure more clarity in funding analysis lies in developing a culture where investment disclosures become more transparent, says Tidjane Dème, general partner at Partech Africa, a pan-African venture fund. “Our ecosystems may really need a lot more seed funds but investors need data to understand where the market is—and that data can be hard to come by,” he tells Quartz. ” Ultimately, the whole market benefits from more transparency.”

State of play

While methodologies vary, most Africa-focused funding reports often have similar themes. For instance, the findings of Partech Africa, WeeTracker and Briter Bridges all suggest that African tech ecosystems have crossed the billion-dollar threshold in annual funding. And the top investment destinations in all the reports are also similar with Nigeria, Kenya, Egypt and South Africa dominating the top five.

While investor appetite is expected to hold and possibly increase, Maxime Bayen, a venture fund analyst who supplied data to the Briter Bridges report, expects more activity outside the currently dominant investment destinations. “Ecosystems like Ghana, Tanzania, Uganda in Anglophone Africa and like Senegal, Cote d’Ivoire or Cameroon in Francophone Africa should produce increasingly successful start-ups emerging on the regional scene,” he explains. “I’d say those new markets are a few years behind Nigeria and Kenya, so their ecosystems are now reaching the maturity where Kenya and Nigeria were four or five years ago.”

It’s a prediction that could come to fruition thanks to another key trend: there’s now “a larger and stable pool of investors focused on Africa” with more investors doing multiple deals consistently in contrast with three years ago, Dème says. “The first time we published our report, we counted 220 individual investors who had participated in rounds in Africa but only 12 had done more than one deal. Back then, it was a diverse pool of investors with most of them just testing the waters in Africa,” he says.

As existing investors are betting on African startups more consistently, newer players are also entering the fray: last year, more than twenty Africa-focused funds set up shop.

Sector wise, fintech remains the driving force for startup funding on the continent, receiving the largest share of funding. African fintech companies building financial services products and, in many cases, infrastructure, are proving a big draw for investors from Silicon Valley venture capital firms to international finance institutions and global payments giants.

Another big trend which drove the big jumps in 2019 was the arrival and huge impact of Chinese investors in Africa’s tech space with around $400 million invested in the second half of the year alone. There’s now speculation up to $1 billion could be invested by Chinese venture capital firms and other China-focused investors in 2020 looking to catch up with Silicon Valley’ influence.

Exit signs

Crossing the billion-dollar landmark in annual funding comes with additional expectations for startups on the continent. As Partech Africa’s report notes, the focus on local ecosystems and companies will begin to shift “towards an analysis of value creation and outcomes for investors” as investment sums increase.

Last April, Jumia, the largest e-commerce operator across the continent, launched an IPO on the New York Stock Exchange. Interswitch, Africa’s first fintech unicorn, is also expected to go public this year.  Yet, so far, high profile, publicized exits remain the exception rather than the norm. “Statistically, IPOs are still a fluke because it doesn’t happen so often,” Deme says. “It’s the thing that everyone dreams of but we should put it aside for the moment.”

With blockbuster IPOs likely to remain infrequent at best, industry watchers expect mergers to become more common as companies look to consolidate resources in pursuit of scale. But most founders will have to offer investors returns simply by building companies that become profitable or grow large enough to be acquired. The good news, Deme claims, is that startups on the continent still offer the promise of significant enough upside to attract funding to power growth.

Ultimately though, as the ecosystems, markets and companies continue to mature, the next decade will see more scrutiny of that promise. ”The next few years will be a test of whether there is liquidity in buying and selling [African] startups,” he says. “This is the next phase for the ecosystem to prove to be really out of the woods.”

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