At StartupList Africa, we enjoy diving deep into data to uncover patterns that can support informed discussions among key players in the African startup ecosystem, facilitating data-driven decision-making.
Last week, we released a preliminary report on the Top 5 VC investment destinations in Africa 2020, which garnered significant attention and feedback from the African community.
One notable comment came from Firas Ahmad, Co-Founder and Group CEO at AzamPay, an online payments management solution based in Mauritius.
To clarify, our analysis links VC investments to the African country where startups are founded or headquartered, even if they operate in multiple regions. Ahmad’s comment sparked questions within our team, such as, “Do the markets where a startup operates affect the size of their investment?” and “What factors influence an African startup to expand to new regions?”
Our analysis revealed:
The Markets Influence the Size of Investment Deals
Startups operating in multiple regions or planning to expand attract more funding. All companies closing the largest deals in the top 5 African startup locations in 2020 operated in multiple regions:
- Kenya’s Greenlight Planet, operating in 11 countries, raised over $90 million.
- Nigeria’s Lumos, with operations in two countries, raised over $35 million.
- South Africa’s Jumo, active across Africa and South Asia, raised $55 million.
- Egypt’s Vezeeta, with offices in the UAE and Saudi Arabia, raised $40 million.
- Ghana’s Chipper Cash, operating in West and East Africa, raised over $44 million.
Regional Expansion Intentions
Startups from Nigeria, Ghana, and Kenya are often Africa-focused from day one, aiming to expand within the continent. Conversely, startups from South Africa and Egypt often plan to expand within their countries before considering other regions due to developed startup ecosystems, higher GDP per capita, and cultural factors.
Developed Startup Ecosystems
South Africa and Egypt have mature ecosystems, attracting investment to cities like Cairo, Alexandria, Cape Town, and Johannesburg, which offer critical resources for startups. Nigeria, Kenya, and Ghana, though growing, face resource constraints such as access to capital and infrastructure.
Higher GDP Per Capita
South Africa and Egypt have higher GDP per capita than other top locations, indicating greater purchasing power. Startups in these countries may focus on their local markets before expanding.
Cultural Factors
Investors advise startups to expand into culturally similar markets, which may explain why South African startups often look to Western markets, while Egyptian startups eye the MENA region.
Infrastructure-Focused Startups Attract More Funding
Investors prefer infrastructure-focused startups as they serve multiple markets. In Kenya, Nigeria, and Ghana, fintech and cleantech startups are popular due to capital needs and critical infrastructure, especially in sectors driving the digital economy.
Investors are more likely to back ambitious multi-region startups aiming to conquer the continent. Such companies are also prime candidates for acquisition, as noted by Victor Basta, founder of Magister Advisors.
Conclusion
For African startups to attract investments, they should be infrastructure-focused and meet business needs. Companies in smaller markets should consider expanding to one or more top countries in Africa. Starting with an Africa-focused strategy is advantageous.