NXTGEN

Africa Remains A New Frontier

While other regions struggled during the VC winter of 2022-23, Africa has survived the last three years despite a considerable pull-back in 2023. This is Part 3 of our analysis.

We have used KPMG Venture Pulse and Crunchbase data to examine the performance of Global regions, including the US and LatAm, for VC investing in 2023. We now turn our eyes upon Africa and use local data providers like Partech and Africa: The Big Deal to see the trends, as KPMG and Crunchbase do not keep detailed records on deals in Africa.

The foundation has been laid

Despite a challenging 2023 for VC investing, with a decline of 32% (including debt), Africa has been on a long-term growth journey as its VC ecosystem matures, and 2023 was still substantially higher than 2020. This is primarily due to a low base effect, where VC investing in Africa was so nascent before 2018 that the investing infrastructure and capacity put in place would inevitably lead to structurally higher levels of investment.

Africa performs best over 3 years

This thesis holds water when comparing Africa’s performance in equity-only funding over the last two years to other major regions (note that when debt is added in the chart above, Africa’s decline in 2023 was less dramatic). While Africa’s decline in 2023 of 57% was equal to LatAm’s as the worst-performing region, the performance in 2021 and 2022 was significantly better than the other regions. From a three-year perspective, Africa has done substantially better than any other region. 

Deal Stages Now Attract Even Amounts

A rational explanation for the sharp decline in 2023 can be found in view of the fact that the Growth deal stage was the hardest hit. These deals are more considerable because they are usually at the more mature end of the VC life cycle. As evidenced in the chart below, the mega-deals in the Growth stage drove the overall performance in 2021. However, with merger & acquisition and public listing activity subdued in the current market, the Growth stage was likely to see a sharp downturn. What’s most noticeable about the split between stages in 2023 is that they are all now roughly equal in size, with no particular preference for any stage.  

VC Investing Expected to Recover

The decline in VC investing seen across the globe has been healthy for the asset class. There were excesses in 2020-21 in specific markets and the verticals that lacked longevity once the world returned to normal after the pandemic. Much of this has been cleaned out of the system, and the interconnectivity of global markets has ensured that the same broad trends have found their way into all regions to a greater or lesser degree. The pandemic revealed that greater digital solutions to real-world problems are necessary and that there is a continuous need for investment. Therefore, the pre-pandemic levels of investment provide some support for VC investing levels.  Thus, any correction in VC investing below those levels is an over-correction and should be rectified in the foreseeable future. We remain committed to finding pockets of value in verticals and regions where we can make outlier returns for our investors.