African startups continue to shatter fundraising records, but those operating in English-speaking countries attract the majority of investment inflows. In the recent past though, there have been encouraging developments in the Francophone space.
Startups on the continent raised $4.8 billion in total funding in 2022, according to a report by Africa: The Big Deal. As expected, Nigeria led the pack with more than a hundred startups raising a combined $1.2 billion—including two $100 million+ mega deals—followed by Kenya, with $1.1 billion, Egypt at $820 million, and South Africa at $550 million.
Africa’s ‘big four’ countries
Although Egypt is not a predominantly English-speaking country, it has become a part of the “Big Four”, which are the four countries—Nigeria, Kenya, Egypt, and South Africa—topping fundraising charts each year. They accounted for 75% of the funding in 2022, although down from 82% in 2021.
The second big four in the report comprises one English-speaking country, Ghana, and three French speaking ones—Algeria, Tunisia, and Senegal. Startups in Ghana raised an astonishing total of $390 million in 2022 while Algeria, Tunisia, and Senegal attracted $151 million, $119 million, and $112 million respectively—a marked improvement over previous years.
Why Anglophone Africa dominates startup funding
The majority of experts agree that market size is a determining factor in why English-speaking countries dominate startup funding in Africa. Nigeria, Kenya, Egypt, and South Africa have a combined population of more than 430 million.
“That is huge and we can easily understand why investors prefer to look at those markets. The bigger the size of the population, the bigger the opportunities to sell more products and to have more clients,” says Francis Brou, an economics and development researcher at Bouake University in Côte d’Ivoire.
Matteo Rizzi, author of Fintech Revolution and Talents & Rebels is also of the same opinion.
“When you have a 200 million people market in a single country [Nigeria], with a single regulation, it’s actually way easier to find the right reason to invest in it,” he tells Quartz.
Language barriers and language preferences also come into play in terms of market visibility, some experts claim.
“Most African startup funders are from the US and UK. They are naturally inclined to work with people in the Anglophone sphere because they seem to understand those markets and cultures better. There are still very few investors from France involved in African startups. You wouldn’t put your money in a place you are not comfortable with. The way of doing things is different. The mentality is different and the regulations are different” says Brou.
The influence of language and culture cannot be underestimated regarding startup funding. Anglophone versus Francophone bonds remain strong on the continent even in business.
Mali-based insurtech, OKO, which develops affordable mobile-based crop insurance products to provide smallholder farmers with financial security, raised $500,000 last June to expand to neighboring Côte d’Ivoire after securing seed investment worth $1.2 million in April 2021. Much of those funds came from Francophone investors, according to Simon Schwall, co-founder and CEO.
“Our investors are from Francophone markets such as NewFund, based in Paris, France and from strategic investors who run businesses in Francophone Africa such as Touton. Also, some startups in Paris operate in Francophone Africa but raise funds at the headquarters level in France.” he says.
However, language barriers may not be the prime reason as to why startups in Francophone Africa are not attracting huge funding, according to Khaled Ben Jilani, a startup specialist at Tunisia-founded pan-African private equity and VC firm, AfricInvest. He argues that Francophone startups are late to the party as opposed to those from Anglophone countries.
“The French market [Francophone Africa] has only started to attract funding in the past two years and most startups there are still in the early stages, hence the lag in bigger rounds. However, there are quite interesting startups that are emerging in fintech, software, and edtech that could quickly help that part of the continent emerge and make it more attractive to both African and global investors.” he says.
US-based venture capital firm 500 Global is especially upbeat about the future of Francophone Africa startups.
“There has been some good news for startups in French-speaking Africa, which are gradually catching up. It all comes down to ecosystem maturity. Francophone markets are on their way to reaching the scale needed to attract greater capital from regional and global investors,” says Mareme Dieng, Africa Lead, at 500 Global.
North Africa startup deals
Tunisia-founded artificial intelligence startup, InstaDeep, made headlines in January 2023 when it was acquired by Nasdaq-listed German biotech company BioNTech SE in a $684 million deal.
The transaction sparked excitement across the Francophone startup community inspiring hope for founders.
“The exit of Instadeep should be a strong signal that even smaller countries can be the birthplace of very successful startups,” says Schwall.
In north Africa, total funding raised crossed the $1 billion mark for the first time, from $700 million in 2021 to $1.1 billion in 2022—a more than 57% year-on-year increase.
While Egypt dominated that figure with $820 million raised, Tunisia, Morocco, and Algeria accounted largely for the remainder—$280 million. Startups from the three countries collectively raised $82 million in 2021.
Côte d’Ivoire, which recorded close to no deals in 2021, raised $34 million in 2022, while, for the first time, Togo hit the multimillion-dollar mark with $10 million raised. Startups in Mali also had their most successful experience so far raising $6 million.
Senegal has been a consistent top performer. Following last year’s breathtaking $222 million fundraising, thanks largely to mobile phone-based money transfer and payments service App, Wave, which closed its Series A funding round at $200 million, the west African country saw another strong performance in 2022, with $112 million raised by startups.
In the predominantly French-speaking central Africa, startup funding is still low compared to other regions of the continent. However, investment inflows are still on an upward trajectory. Startups in Chad, Cameroon, Congo, and DRC raised $7 million in 2019, $11 million in 2020, $24 million in 2021, and $50 million in 2022.
One of the main impediments to fundraising is the absence of a regional expansion strategy in the original blueprint. Analysts say investors are more interested in projects with regional potential than local solutions.
“African startups often need to set themselves up for regional expansion early on. Building out from the beginning plans that leverage regional infrastructure is something we advise our portfolio companies on at the early stage,” says 500 Global’s Dieng.
This is one area where Francophone startups have an advantage over their Anglophone counterparts.
“It’s easier to move from one Francophone country to the other due to cultural and language similarities, as well as regulation and currency similarities,” says Rizzi.
“Slowly but surely, people are starting to understand that the 400-million people [strong] Francophone Africa market is a unique opportunity due to its almost unique currency and similarities in regulations,” he says.
Fourteen mostly French-speaking countries in sub-Saharan Africa share the CFA franc, which is regulated by two homogeneous monetary unions, UEMOA (West African Monetary and Economic Union) and CEMAC (Central African Economic and Monetary Community). Both unions represent 14% of Africa’s total population and 12% of its gross domestic product, according to the International Monetary Fund (IMF).
Although DRC, the most populous Francophone African country with 108 million people, uses its own currency—Congolese Franc—it shares language and cultural similarities with almost all the other countries in the central African sub region.
Great founders / great team
Who are the people behind the startups? What are their qualifications and experience? Funders are eager to know before writing a check. It is one of the many conditions to fulfill in order to raise funds for a project, according to insiders.
“Any startup needs a strong team; technical talent also helps. As an investor, 500 Global is looking for founders who understand the problems they are addressing and are prepared to adapt as local markets evolve,” says Dieng.
Jilani of AfricInvest points out that founders with a proven track record attract investors and inspire confidence.
“The quality of the team and their reputation is also an important factor. They must be able to generate revenue with important traction, have the ability to limit their cash burn, have sound unit economics, and must have spotted an opportunity in a deep market. We just need more African entrepreneurs to make bold moves and innovate in their own environment. There are so many sectors that can be transformed through innovation and where there is little competition, the opportunity is quite large.” he says.
The big four will likely dominate fundraising in the foreseeable future, but Francophone startups are making progress in closing the gap.