African start-ups are securing more investment—but there’s still room for growth

African tech founders are mostly riding solo.
African tech founders are mostly riding solo.
Image: Reuters/Akintunde Akinleye
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Data from VC4Africa’s new Venture Finance in Africa 2016 report shows that venture capital funding and angel investments secured by the 462 African ventures tracked has more than doubled from $27 million last year to $73 million. But despite the uptick in funding secured, venture capital funding and angel investments still account for just 12% of funding available to start-ups as founders are still largely dependent on their own funds—bootstrapping,  and, to a lesser degree, grants.

The trend might be explained by the fact only a handful of investors operating on the continent have made profitable exits so far. Although some of those that have taken a risk have benefited hugely. However, given that most ecosystems and tech start-ups themselves are still at an early stage, investors are likely to make long bets rather than seek short-term positions to make a quick buck. While founders constantly seek investors’ cash to fast-track growth, knowing how and where to look is quite another thing. VC4Africa’s report shows ventures and start-ups that go through an incubator or accelerator, and regularly partake in tech-related events and competitions are twice more effective to close investment rounds.

Tom Jackson, co-founder of Disrupt Africa, says the relative lack of investment is also down to investor reticence. “For many investors Africa is still deemed risky,” he says. “This perception is slowly changing, but it will take time to completely reverse.”

Investment or not, African tech ventures are showing a growing potential to solve the continent’s unemployment problems as jobs created through the ventures monitored has grown twenty-fold since 2009.

While in the past ventures may have tended to focus more on e-commerce type businesses, there is a growing diversity to the sectors in which these ventures operate. Information Communication and Technology remains the dominant sector with 40% of the ventures but other sectors, agriculture (21%), financial services (9%) and education (11%) are also sectors in which ventures increasingly operate.