Japanese and American investors enter the African start-up scene
Start-ups in Africa experienced sustained growth in 2018. According to a study by the American venture capital firm (VC) Partech Ventures published in late March, start-ups across the continent attracted a total of 1, $ 16 billion in investments. in 2018, double the amount raised in 2017.
- “We did not expect to cross the symbolic billion dollar mark before 2020, it is going faster than expected,” said Cyril Collon, the study coordinator, who co-heads the African branch of Partech.
- In January, the Partech Africa II fund raised $ 143 million, targeting equity investments in around 30 digital start-ups.
“Nowhere else in the world is there such a wealth of ideas, carried by a generation that can, through innovation, tackle structural problems such as mobility, distribution and payment. », Says Collon. He estimates that there are more than 500 technology hubs on the continent today, compared to just a few dozen five years ago.
Out of the bubble
“The start-up ecosystem has been strongly structured over the past two years. Entrepreneurs have emerged from their bubble. They no longer ask for incoherent amounts, they are well supported, they know how to better prepare and pitch their business ideas and they have learned to deal effectively with investors ”, notes Karim Sy, founder of Jokkolabs based in Dakar, the first French – talking coworking space for start-ups.
African start-ups raised a total of $ 1.16 billion in 2018, double the amount raised in 2017
“The arrival of large specialized funds like Partech has played a positive educational role, both for entrepreneurs and for the financial sector. International donors and large private groups now have a much better knowledge of the world of innovation, ”adds Sy, a Franco-Malian who is also at the head of the Digital Africa initiative, an innovation support platform. in Africa supported by the French Development Agency.
And the reason for the increased investment is obvious. The first start-ups that sprung up five or ten years ago until recently attracted mainly venture capital funds, but they have now grown across the continent and beyond, attracting the attention of large foreign companies.
- Last year, US investment giant The Carlyle Group invested $ 40 million in Wakanow in Nigeria, an online travel agency launched in 2008.
- Revolution, based in Silicon Valley, has invested $ 50 million in Tala in Kenya, a mobile microcredit company founded in 2014.
Strong fundraising results
Young start-ups that have a fairly strong proof of concept but need fresh funds to grow are booming. One example is Nigeria-based trucking logistics startup Kobo360, which in 2018 raised $ 7.2 million from the International Finance Corporation and private funds in the United States and Nigeria. The Lagos-based start-up is now targeting an additional 15 to 20 million dollars by the end of April to finance its expansion in East Africa.
Francophone Africa is also showing promising signs of growth. In 2017, the Senegalese fintech start-up InTouch, present in seven African countries, received 8 million euros ($ 9 million) in a first funding round and plans to raise around $ 15 million by the end of 2019 to finance its expansion to 10 other African countries. countries, including South Africa and Nigeria.
More and more large foreign companies are eyeing Africa and this has also boosted investment. India’s Bharti Airtel, the French giants Total, Orange and the insurer Axa as well as the Japanese insurance holding company Mitsui Sumitomo are a few that have invested heavily in start-ups across the continent.
- “In the old days, big companies and start-ups had nothing in common. But the revolution in the telecoms and finance sector – with banking and mobile payment – has completely changed the situation, and has shown the need for the first to take an interest in the second, ”explains Amine Sebti, strategy consultant at PwC.
Japan takes action
According to Masa Sugano, Africa representative at the Japan Foreign Trade Organization (JETRO), major Japanese trading companies, known as “Sogo shoshaAre seeking to invest in start-ups that have reached an advanced stage of development, to the tune of approximately $ 20 million.
Recent investments by Japanese companies in Kenya include:
- Sumitomo Bank in the solar power company M-Kopa;
- Toyota Tsusho Corporation in technology start-up Sendy;
- Sompo Holdings in the digital exchange and payment platform BitPesa.
“For these Japanese groups, these investments are considered more attractive than those they could make at home. […] For the same amount, they would get only a tiny fraction of the capital and therefore very little influence on the company’s strategy, ”explains Sugano.
Nairobi and Lagos, major African technological hubs
Silicon Savannah, Kenya’s $ 1 billion tech hub, tops the Partech country ranking, having raised $ 348 million in 44 funding rounds in 2018, or nearly $ 100 million in funding. more than that of South Africa.
Nigeria ranks second in terms of fundraising per country, with $ 306 million raised in 2018, driven by a vibrant entrepreneurial spirit that prevails in Lagos, where entrepreneurs nonetheless face enormous challenges to start a business. “We don’t have the same 3G and 4G infrastructure and coverage as in Kenya, so it’s more difficult here. But despite these pitfalls, if a start-up succeeds in Nigeria, then it can go anywhere and attract investors. […]Says Ife Oyedele II, Kobo360 co-founder.
If a startup can be successful in Nigeria, it can be successful anywhere
While some analysts have argued that French-speaking Africa start-ups lag behind English-based ones, Collon says cultural and linguistic differences alone cannot explain the gap. “Senegal managed to raise $ 22 million in 2018, well ahead of Ghana and Uganda,” he notes. However, he acknowledges that several start-ups in French-speaking countries have been slow to appear and are still in the early stages of their development. “Their fundraising efforts run into the tens of thousands rather than millions of dollars,” he adds.
“The most advanced countries are clearly those with large populations, which allows them to develop rapidly, although this is not the only important factor,” adds Sebti of PwC. “They must also offer excellent 3G or 4G coverage with a high Internet penetration rate. Their performance in the digital economy also depends on their economic weight and the more or less open attitude of telecom operators and banks towards their respective regulators, ”he explains.
From this point of view, Rwanda is an example to follow. The East African country ranks 29th out of 190 in the World Bank’s latest Doing Business – it is possible to register a business there in a matter of hours. The Rwandan government is determined to make Kigali a regional tech hub, and despite a population of around 12 million, its start-ups managed to raise $ 19 million in 2018 – ahead of Ethiopia, with a population of 105 million inhabitants, which generated 11 million dollars in that same year.
Tech giants are waiting to pounce
Currently, the two main sectors at the top of the investor list are fintech, with a third of fundraising in 2018, and business services, which account for 29% of the total amount raised. “The possibility of offering financial services – payment, credit, insurance – to people with a smartphone who do not have a bank account continues to motivate many start-ups,” explains Collon.
But whatever their sector of activity, African start-ups have an interest in taking advantage of the leeway they have, away from the global giants of the digital industry. For now, the four behemoths of the tech industry known as GAFA – Google, Amazon, Facebook and Apple – are watching closely, and although they remain relatively inactive, their growing presence on the continent is inevitable.
“In a few years, they will seek either to buy out, or to join forces with mature start-ups, well established on the continent and with a well-developed technological and economic model,” says Collon.
“We know they will eventually become more aggressive and our best protection is to grow and provide world class service,” adds Kobo360’s Oyedele II. For him and other digital entrepreneurs, the possibility of becoming Africa’s first unicorn is no longer a pipe dream.
This article first appeared in Jeune Afrique