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VENTURE FINANCE IN AFRICA
2015
VENTURE CAPITAL FOR AFRICA
african venture finance starts here
the progress of early-stage ...
2 VC4Africa 2015 VENTURE FINANCE IN AFRICA
INVESTMENTS
44% of the ventures are successful in securing external capital inv...
3 VC4Africa 2015 VENTURE FINANCE IN AFRICA
TABLE OF CONTENTS
2	 EXECUTIVE SUMMARY
4	FOREWORD
5	 ABOUT VC4AFRICA
5	 Graph 1...
4 VC4Africa 2015 VENTURE FINANCE IN AFRICA
The data in this report indicates these companies are maturing over time,
and t...
5 VC4Africa 2015 VENTURE FINANCE IN AFRICA
1. VENTURE APPLICATIONS
cumulative applications
ABOUT VC4AFRICA
The vision is t...
6 VC4Africa 2015 VENTURE FINANCE IN AFRICA
Every year VC4Africa reaches out to entrepreneurs who are
part of the community...
7 VC4Africa 2015 VENTURE FINANCE IN AFRICA
3. DISTRIBUTION OF VENTURE STAGES
base N = 257
57% of the ventures are in a sta...
8 VC4Africa 2015 VENTURE FINANCE IN AFRICA
EMPLOYMENT
This section of the report looks at the job performance of the
compa...
9 VC4Africa 2015 VENTURE FINANCE IN AFRICA
COUNTRY
Nigeria
Kenya
South Africa
Tanzania
Uganda
Ghana
Cameroon
Egypt
NUMBER ...
10 VC4Africa 2015 VENTURE FINANCE IN AFRICA
Agribusiness N 40
Health Services N 24
Education N 37
E-Commerce N 45
Computer...
11 VC4Africa 2015 VENTURE FINANCE IN AFRICA
Year 1
Year 2
Year 3
Year 4
Year 5
Not break-even yet
USD +100K
USD 50 - 100K
...
12 VC4Africa 2015 VENTURE FINANCE IN AFRICA
13. INVESTMENTS
distribution of capital
secured
Only founder capital N 17
Inte...
13 VC4Africa 2015 VENTURE FINANCE IN AFRICA
Founder
USD 12,670,067 N 112	
Friend/Family
USD 2,228,301 N 65	
Grant/Competit...
14 VC4Africa 2015 VENTURE FINANCE IN AFRICA
X % of investments
O number of investments
COUNTRY
Nigeria
Kenya
Tanzania
Sout...
15 VC4Africa 2015 VENTURE FINANCE IN AFRICA
INVESTORS
This section of the report looks at the investors part of the
commun...
16 VC4Africa 2015 VENTURE FINANCE IN AFRICA
18%
6%
13%
21%
25%
25%
25%
38%
38%
61%
ICT N 34
Agriculture N 27
Finance  Bank...
17 VC4Africa 2015 VENTURE FINANCE IN AFRICA
24. DECISION MAKING FACTORS
on a country level indicated by investors
18 VC4Africa 2015 VENTURE FINANCE IN AFRICA
ECOSYSTEM
This section of the report looks at some of the external influencing...
19 VC4Africa 2015 VENTURE FINANCE IN AFRICA
YES NO
Year 5
Year 4
Year 3
Year 2
Year 1
No break-even yet
28. MULTINATIONAL ...
20 VC4Africa 2015 VENTURE FINANCE IN AFRICA
KEY TRENDS
The entrepreneurial base on the African continent is growing over t...
21 VC4Africa 2015 VENTURE FINANCE IN AFRICA
CASE STUDY
The World Bank estimates there are
approximately 169 million Africa...
22 VC4Africa 2015 VENTURE FINANCE IN AFRICA
The timing for local African angels to rise couldn’t be more critical. Indeed,...
23 VC4Africa 2015 VENTURE FINANCE IN AFRICA
CASE STUDY
Historically investors hesitated to invest
in a company more than a...
24 VC4Africa 2015 VENTURE FINANCE IN AFRICA
CONCLUSION
The report shows an increasing number of businesses
successfully gr...
25 VC4Africa 2015 VENTURE FINANCE IN AFRICA
• It will be interesting to see what trends emerge given larger
data sets show...
26 VC4Africa 2015 VENTURE FINANCE IN AFRICA
If you would like to have more specific insights on certain regions or other
f...
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2015 Report - Venture Finance in Africa

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The VC4Africa 2015 Venture Finance in Africa report shows an increasing number of African businesses successfully growing their operations over time. They generate an increasing amount of revenue and add new jobs to the African market place.

VC4Africa aims to be the world’s leading social network for entrepreneurs and investors in Africa. The VC4Africa community has over 17,000 members in 159 countries, including 600 investors. 2000 entrepreneurs in Africa present their companies on the platform: early stage ventures that require investments less than USD 1 million. Each venture is scalable, makes smart use of technology, or is disruptive in their application of a business model.

There is little information available on this emerging segment and there are few comparative studies. VC4Africa reached out to entrepreneurs and investors part of the community to find out more about their progress. While VC4Africa’s data sets do not represent the total African investment space, the research certainly indicates key trends.

Published in: Economy & Finance

2015 Report - Venture Finance in Africa

  1. 1. VENTURE FINANCE IN AFRICA 2015 VENTURE CAPITAL FOR AFRICA african venture finance starts here the progress of early-stage high-potential growth companies
  2. 2. 2 VC4Africa 2015 VENTURE FINANCE IN AFRICA INVESTMENTS 44% of the ventures are successful in securing external capital investment. The average capital secured per venture increased from USD 129,348 in 2013 to USD 205,374 in 2014, otherwise an increase of 59%. The largest investments are made in South Africa, the most investments are made in Nigeria, and Kenya secures the largest total amount of external capital. INVESTORS Of the 600 investors part of the community, 82% invested in an African venture. Angels represent one-third of the network, followed by Venture Capital firms and Social Impact Funds. Investors report management and team as being the most important factors they consider when investing. The country’s level of economic growth and size of market are the most important factors when deciding where to invest. ECOSYSTEM The ventures that participate in sector events, or join an incubator or accelerator, secure on average USD 126,090 in external investment. This is 23% more than their counterparts who do not participate in such programs. Ventures that have established a partnership with a multinational company secure 150% more capital on average, and are 57% more likely to break-even by their third year of operation. December 2014 in annual revenue. The number of ventures with this kind of revenue potential has grown by 56% over the course of 2014. Moreover, almost one-third of the ventures turned profitable or at least reached their point of break-even. EXECUTIVE SUMMARY Innovative ventures yield high social and environmental impact and are a key driver for Africa’s development. It is the opportunity driven entrepreneurs that generate much of Africa’s employment, income and hope for a better future. But how are these companies progressing over time? This question is answered in the VC4Africa 2015 Venture Finance in Africa report. Data sets on this emerging segment are limited and there are few compara- tive studies. The VC4Africa community of startup entrepreneurs and investors collects data to help explain trends and set the way forward. This report cap- tures the performance of ventures listed on the online platform and highlights the activity of investors part of the network. As the community continues to grow, it is expected this yearly report will lend insights into what is happening across the larger startup space. The report breaks down insights across 5 indicators: employment, performance, investments, investors and ecosystem. EMPLOYMENT Over the course of 2014, the average team size for a venture increased by 54%, resulting in 5.7 jobs per venture. The same ventures expect to quadruple their team size by the end of 2015. The data shows that new jobs are being created in almost all African countries. Agribusiness, health services and education related ventures are the most significant job creators. PERFORMANCE 49% of the ventures start generating revenue in their first year of operation. By their fourth year, 34% of the ventures expect to book more than USD 100K     
  3. 3. 3 VC4Africa 2015 VENTURE FINANCE IN AFRICA TABLE OF CONTENTS 2 EXECUTIVE SUMMARY 4 FOREWORD 5 ABOUT VC4AFRICA 5 Graph 1 Venture applications 5 Graph 2 Published ventures 6 RESEARCH 6 METHODOLOGY 7 BREAKDOWN SAMPLE 7 Graph 3 Distribution of venture stages 7 Graph 4 Venture breakdown by top 20 sectors 8 EMPLOYMENT 8 Graph 5 Total and average jobs created + expected 9 Graph 6 Total jobs created per country 9 Graph 7 Median and average team size across top 8 countries 10 Graph 8 Distribution of jobs across top 8 sectors 10 Graph 9 Median and average team size across top 8 sectors 11 PERFORMANCE 11 Graph 10 First year of revenue generation 11 Graph 11 Distribution of revenue generated per year 11 Graph 12 Distribution of years of break-even 12 INVESTMENTS 12 Graph 13 Distribution of capital secured 12 Graph 14 Median and average external capital secured 13 Graph 15 Median and average external capital per venture stage 13 Graph 16 Invested capital per funding source 13 Graph 17 Capital secured across the top 20 sectors 14 Graph 18 Capital secured per country 14 Graph 19 Median and average external capital secured across top 8 countries 15 INVESTORS 15 Graph 20 Investment activity 15 Graph 21 Median investment size by investor category 16 Graph 22 Allocation of investments per sector 16 Graph 23 Venture decision making factors 17 Graph 24 Country decision making factors 18 ECOSYSTEM 18 Graph 25 Monetary benefit of accelerator programs 19 Graph 26 Multinational impact on median and average invested capital 19 Graph 27 Multinational impact on revenue generation 19 Graph 28 Multinational impact on break-even point 20 KEY TRENDS: 3 INVESTOR CASE STUDIES 24 CONCLUSION 24 AFTERWORD 25 CLOSING REMARKS
  4. 4. 4 VC4Africa 2015 VENTURE FINANCE IN AFRICA The data in this report indicates these companies are maturing over time, and that their economic and social impact starts to increase in parallel. And despite the limited sample size, these companies are increasingly representa- tive of what is happening across the larger African startup ecosystem. The companies registered on the platform are securing increasing amounts of investment, and both revenue and team size increase significantly from when this same study was conducted in 2013. As these enterprises formalize their operations they contribute to the tax base of their local governments, which in turn increases their ability to invest in infrastructure and social services. More importantly, the entrepreneurs represented in this report do create meaningful employment opportunities for their fellow citizens. This is a critical economic contribution when taking into account that 43.3% of the Sub-Saharan African population is under the age of 141 . In many ways, the future of the continent will be shaped by the continued success of its entrepreneurs. The emergence of local investors is a key change and contributor to the ecosystem. We recognize three key trends that have considerable influence on the African startup funding landscape: a growing interest from African diaspora to invest in startups in their country of origin, the increasing number of business professionals turning angel investor locally and a growing appe- tite for cross-border investing across Africa generally. We would like to thank the entrepreneurs and investors that participated in this study. They continue to inspire all of us at VC4Africa. Our hope is that entrepreneurs and investors use this data to benchmark their own progress. We also hope the report captures the progress these entrepreneurs are making and offers hard data that shows these companies are i) successfully growing their operations over time and ii) adding much needed jobs to the African marketplace. - VC4Africa research team FOREWORD The VC4Africa community is a global peer-to-peer network where entrepreneurs and investors come together to build great African success stories. A growing number of ventures are active on our platform but do they make a difference? Do the companies we engage as a community add to the tax base of African economies and are they indeed a source of employment for the continent’s burgeoning population of youth? 1 Source: World Bank, 2013
  5. 5. 5 VC4Africa 2015 VENTURE FINANCE IN AFRICA 1. VENTURE APPLICATIONS cumulative applications ABOUT VC4AFRICA The vision is to enable African entrepreneurs and investors to find each other online. We aspire to become the preeminent social network for entrepreneurs and investors focused specifically on innovative business opportunities across the African continent. Learn more about the community by checking out our welcome page. • The ventures are early stage, post-seed and pre-late stage, and require investments less than USD 1 million; • The primary sectors include mobile, web, renewable energy, healthcare, education and agriculture, amongst others; • Each venture is scalable, makes smart use of technology, or is disruptive in their application of a business model; • Thirty percent of the registered ventures have an explicit social mission and could be qualified as a social enterprise. 350 900 1700 2600 2011 2012 2013 2014 2. PUBLISHED VENTURES breakdown by country PERCENTAGE Other countries repesented in the study: Algeria, Angola, Benin, Burkina Faso, Burundi, Cape Verde, CAR, Chad, DRC, Gambia, Guinea, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritius, Morocco, Namibia, Sierra Leone, Somalia, Sudan, Swaziland, Togo, Tunisia and Zanzibar
  6. 6. 6 VC4Africa 2015 VENTURE FINANCE IN AFRICA Every year VC4Africa reaches out to entrepreneurs who are part of the community to find out more about their progress. Specifically, this report looks at their organizational advancement as measured by growth in revenue and the number of new jobs created over time. This feedback underpins an annual benchmark for the companies listed on the platform, and offers tangible evidence of their impact. The report breaks down insights across 5 parameters: employment, per- formance, investments, investors and ecosystem. If you would like to have more specific insights on certain regions or other findings please contact the research team: e-mail: service@vc4africa.biz, tel: +31 20 779 55 74 RESEARCH METHODOLOGY The research team is in constant communication with members and conducts a regular series of surveys, interviews, focus groups, design sessions and brainstorms. For this report, the data is pulled from two main sources i) an annual survey conducted with the ventures registered on the platform and ii) the investors who are part of the community. VENTURES Entrepreneurs with a venture profile were asked to participate in an online survey. The survey was sent to 1300 entrepreneurs and 257 entrepreneurs responded, a 20% response rate. Entrepreneurs were asked to report on their revenue, profit, and change in team size over time. They were also asked to report on their capital requirements and progress fundraising. In recognition of their positive contribution to society, participants received the ‘Entrepreneurs Rule’ badge. INVESTORS 600 investors part of the community were asked to participate in an online survey. 71 responded, a 12% response rate. Investors were asked to provide feedback on their level of activity, the amount of capital available, their inten- tions to invest, and the considerations they make when allocating. LIMITATIONS The data sets are limited and by no means do they represent the African investment space. At the same time, there is little information available on this emerging segment and there are few comparative studies. Any conclusions should take the limited amount of data into consideration while recognizing that as the community continues to grow these insights will improve over time.
  7. 7. 7 VC4Africa 2015 VENTURE FINANCE IN AFRICA 3. DISTRIBUTION OF VENTURE STAGES base N = 257 57% of the ventures are in a startup phase where 43% are in a growth stage. Startups focus on solution validation, product market fit and survival, whereas growth ventures focus on expanding product line, growing revenue and growing team. 43% 57% 4. VENTURE BREAKDOWN BY TOP 20 SECTORS computer software, internet and e-commerce are the three sectors best represented in this report. Computer Software Internet E-Commerce Agribusiness Education Media Professional / Diversified Services Health Services Clean Technology Financial Services Food Beverages Renewable Energy Telecommunications Computer Hardware Leisure Transportation Import/Export Retail Construction Real Estate 24 % 21 % 17 % 15 % 14 % 12 % 11 % 9 % 7 % 7 % 7 % 7 % 7 % 5 % 4 % 4 % 3 % 3 % 3 % 3 % BREAKDOWN SAMPLE
  8. 8. 8 VC4Africa 2015 VENTURE FINANCE IN AFRICA EMPLOYMENT This section of the report looks at the job performance of the companies. The graphs show job creation over time and job growth by country and sector. Total amount of jobs created is highly dependent on the sample size. That said, with over 1,000 people hired up to 2013 and another 4,176 jobs expected to be created by the end of 2015, the figures in this section show that ven- tures active on the VC4Africa platform are creating a significant number of new jobs. A deeper analysis indicates that in almost all African countries new jobs are being created. Significant outliers include Nigeria (18%) and Kenya (17%) where the most ventures are located. For the sector analysis only segments with a subsample size of 20 or higher have been taken into account. Agribusiness, health services and education related ventures are the most capital intensive. The average team size for e-commerce companies is highly influenced by a few outliers. 5. TOTAL JOBS CREATED realized up to 2013 and expected by the end of 2015 = 100 jobs created: 1011 jobs, average = 5,7 expected: 4176 jobs, average = 21,3 
  9. 9. 9 VC4Africa 2015 VENTURE FINANCE IN AFRICA COUNTRY Nigeria Kenya South Africa Tanzania Uganda Ghana Cameroon Egypt NUMBER OF VENTURES CREATING JOBS 38 36 17 12 12 11 9 9 X median O average 7. TEAM SIZE median and average values of top 8 countries 0 to 50 51 to 100 101 and more 6. TOTAL JOBS CREATED per country X realized O percentage 5,5 6,2
  10. 10. 10 VC4Africa 2015 VENTURE FINANCE IN AFRICA Agribusiness N 40 Health Services N 24 Education N 37 E-Commerce N 45 Computer Software N 63 Professional/Diversified Services N 29 Media N 30 Internet N 53 MEDIAN AVERAGE 9. TEAM SIZE median and average employees per venture. Top 8 sectors: 8. JOB CREATION distribution of top 8 sectors Computer Software N 63 Agribusiness N 40 Internet N 53 E-Commerce N 45 Education N 37 Media N 30 Professional/Diversified Services N 29 Health Services N 24 27% 20% 17% 17% 13% 10% 9% 8% BASE N = 257 % = PERCENTAGE OF TOTAL
  11. 11. 11 VC4Africa 2015 VENTURE FINANCE IN AFRICA Year 1 Year 2 Year 3 Year 4 Year 5 Not break-even yet USD +100K USD 50 - 100K USD 10 - 50K less than USD 10K no revenue 11. REVENUE GENERATION distribution per year year 1 year 2 year 3 year 4 12. BREAK-EVEN POINT distribution of years when ventures reached point of break-even 10. REVENUE GROWTH distribution of years when ventures generate their first revenue PERFORMANCE This section of the report looks at the revenue performance of the companies. Especially how revenue of the companies improves year on year and a comparison to their break-even points. With over 70% of all ventures generating revenue, it is clear that the African market is full of opportunities. Looking at the distribution of revenue genera- tion per year, the majority of ventures are making less than USD 10K in their first year of business. On the other hand, the positively changing distribution of revenue generation over time indicates their increasing market potential. Moreover, almost one-third of the ventures turned profitable or at least reached their point of break-even. 
  12. 12. 12 VC4Africa 2015 VENTURE FINANCE IN AFRICA 13. INVESTMENTS distribution of capital secured Only founder capital N 17 Internal + external capital N 114 No capital N 126 INVESTMENTS This section of the report looks at the capital raised by the companies participating in this study. The sources of capital being deployed, the stage the capital is being invested, and how the capital is invested across sectors and countries are also researched. Total invested capital more than doubled compared to last year’s research: from USD 12 million to USD 26,9 million. This can be explained partly by the growing sample size. However, looking at the average amount invested per venture the numbers increase from USD 130K last year to over USD 200K this year. The invested capital has been split into founder’s capital and external capital. Results show a substantial amount invested by the entrepreneurs themselves (46%). The most capital is invested in Kenya, followed by South Africa, Uganda and Nigeria. Where Kenya is 33%, South Africa is 19%, Uganda is 10% and Nigeria is 9%. From the median and average values it can be concluded that invest- ments in South Africa are larger than investments made in Kenya. This might be due to the more mature state of the South African startup space. In the case of Uganda the average value is 15 times above the median value, the result of one outlier. 26,903,943  14. EXTERNAL CAPITAL median and average investment secured from external investors N = 114 TOTAL = USD 14,534,126.20 USD 30,000.00 USD 127,492.34 MEDIAN AVERAGE
  13. 13. 13 VC4Africa 2015 VENTURE FINANCE IN AFRICA Founder USD 12,670,067 N 112 Friend/Family USD 2,228,301 N 65 Grant/Competition USD 3,348,025 N 52 Angel Investor USD 3,297,047 N 37 VC/Impact Fund USD 2,589,331 N 22 Bank Loan USD 1,018,722 N 26 Not specified USD 1,752,450 26,903,943 16. INVESTED CAPITAL per funding source E-Commerce Agribusiness Clean Technology Health Services Financial Services Media Computer Software Renewable Energy Wholesale Transportation Education Food Beverages Internet Automotive Telecommunications Computer Hardware Professional/Diversified Services Retail Import/Export Real Estate 29% 17% 14% 14% 13% 12% 12% 11% 11% 10% 9% 8% 8% 6% 5% 5% 4% 4% 4% 4% 17. INVESTED CAPITAL by top 20 sectors GROWTH N 111 STARTUP N 146 15. EXTERNAL CAPITAL median and average investment secured from external investors MEDIAN AVERAGE USD 65,350.00 USD 177,442.08 USD 20,000.00 USD 61,298.27
  14. 14. 14 VC4Africa 2015 VENTURE FINANCE IN AFRICA X % of investments O number of investments COUNTRY Nigeria Kenya Tanzania South Africa Ghana Uganda Cameroon Egypt INVESTMENTS 24 19 12 11 10 10 9 9 18. CAPITAL SECURED per country 19. EXTERNAL CAPITAL median and average external capital of top 8 countries X median O average , , , , , , , , , , , , , , ,
  15. 15. 15 VC4Africa 2015 VENTURE FINANCE IN AFRICA INVESTORS This section of the report looks at the investors part of the community. It investigates their activity level, average size of investments and their allocation. Also insights on the venture and country factors that influence their investment decisions are analyzed. The investors are actively investing with 82% indicating investments have already been concluded. The difference in investment sizes varies between the different types of investors. Angels are investing between USD 25K and USD 100K, whereas VC’s and social impact funds are investing over USD 100K. The ICT sector is the most attractive for investors securing 61% of all investments. Entrepreneurs should focus on the quality of their management and team to attract investors. This point was identified as the most important factor for investors deciding in which ventures to invest. Team was followed by finan- cial performance and market size. On a country level the economic growth, combined with investment protection and political stability, are seen as the most important factors for investors. At the same time, affinity with the market is seen as less important when compared on average. This could indicate an increasing opportunity for cross-border investing and appetite for syndication. Invested in African companies N 58 Not yet invested in African companies N 12 No answer N 1 20. INVESTORS investment activity  Venture Capital firm N 16 Social impact fund N 10 Other N 11 SME lender N 6 Angel investor N 22 Accelerator N 6 Total sample N 71 0 100K 200K 300K 400K 500K 21. MEDIAN INVESTMENT SIZE by investors category in USD
  16. 16. 16 VC4Africa 2015 VENTURE FINANCE IN AFRICA 18% 6% 13% 21% 25% 25% 25% 38% 38% 61% ICT N 34 Agriculture N 27 Finance Banking N 27 Real Estate N 18 Healthcare N 18 Education N 18 Transportation N 15 Wholesale Retail N 9 Sanitation Waste Management N 4 Other N 13 BASE N = 71 22. ALLOCATION OF INVESTMENTS per sector 23. DECISION MAKING FACTORS on a venture level indicated by investors
  17. 17. 17 VC4Africa 2015 VENTURE FINANCE IN AFRICA 24. DECISION MAKING FACTORS on a country level indicated by investors
  18. 18. 18 VC4Africa 2015 VENTURE FINANCE IN AFRICA ECOSYSTEM This section of the report looks at some of the external influencing factors, for example how the invested amount of capital changes when there is a relationship to a multinational company. This section also looks at the ability of ventures to raise capital as per their membership to a hub and/or participation in pitch events. The importance of participating in an acceleration program, or being selected for a pitch event, results in an increased amount of capital raised. Ventures participating in acceleration programs or events secure higher median and average amounts of capital compared to ventures that do not. Multinational collaboration, defined as a strategic business relationship, is an important factor in the performance of startups. Analyzing the results, collaboration with multinationals increases both median and average amounts of invested capital and shortens the time to break-even. Also the percentage of ventures generating revenue is higher for the sample collaborating with multinationals when compared to ventures that do not.  25. BENEFIT OF ACCELERATOR PROGRAMS with or without participation in acceleration program or event MEDIAN YES USD 45,000.00 USD 126,090.20 NO USD 25,000.00 USD 102,576.17 AVERAGE
  19. 19. 19 VC4Africa 2015 VENTURE FINANCE IN AFRICA YES NO Year 5 Year 4 Year 3 Year 2 Year 1 No break-even yet 28. MULTINATIONAL COLLABORATION distribution of multinational impact on break-even point 26. MULTINATIONAL COLLABORATION median and average investment size with or without impact of multinationals 27. MULTINATIONAL COLLABORATION percentage of ventures generating revenue with or without impact of multinationals YES NO MEDIAN AVERAGE INVESTMENT RATE No multinational collaboration N 172 - 49% Multinational collaboration N 85 - 55% NO USD 16,875.00 USD 72,309.36 YES USD 90,000.00 USD 180,002.98
  20. 20. 20 VC4Africa 2015 VENTURE FINANCE IN AFRICA KEY TRENDS The entrepreneurial base on the African continent is growing over time. More importantly the quality of the ventures is improving. As a result, we recognize three key trends that have considerable influence on the African startup funding landscape: 1. A growing interest from African diaspora to invest in startups in their country of origin, 2. The emergence and increasing number of business professionals turning angel investor locally, 3. A growing appetite for cross-border investing across Africa generally. At VC4Africa we see that these trends highlight a change in mindset and a growing recognition of the opportunities and entrepreneurial talent coming from Africa. These stories also capture the value, importance, and relevance of such a community and platform. They show that by connecting a global network of business professionals we are better able to unlock resources across the African startup ecosystem.
  21. 21. 21 VC4Africa 2015 VENTURE FINANCE IN AFRICA CASE STUDY The World Bank estimates there are approximately 169 million Africans living outside the continent in North America, Latin America, the Caribbean and Europe, not including Asia. In 2012 it was calculated remittances were USD 31 billion. The World Bank forecast expects the numbers to increase to USD 33 billion in 2013, USD 36 billion for 2014, and USD 39 billion in 2015.2 These remittance flows are an important source of funding for African based ventures. Rodrigue Fouafou is a member of the VC4Africa community since 2013. He is a Cameroonian born Canadian entrepreneur and angel investor who originally moved to Ottawa, Canada to pursue his studies. Rodrigue now lives there permanently and manages his own group of companies. In the last 10 years his business endeavors have proved successful and he has been able to build up personal savings over time. During the last two years, Rodrigue has been thinking a lot about Cameroon and to what extent entrepreneurs might be innovating in his home country. Eager to find out more about these entrepreneurs, and to engage them in conversation, he joined VC4Africa. It was through VC4Africa’s Mentorship Marketplace that Rodrigue ended up engaging the founders of two companies, Njorku and Kiro’o Games. The former is a job listing service and the latter seeks to become the first digital gaming company in central Africa. It is through these mentorship-based inter- actions that Rodrigue got to know each founder and better understand the Cameroon  investors from the African diaspora business they were building. Being a Cameroonian, Rodrigue can appreciate the business climate and has an easier time assessing the market risks. As a result, Rodrigue made investments into both companies and is now working with the teams to see how he can help them grow and develop their visions. The VC4Africa community welcomes a growing number of members like Rodrigue who join the network and are interested to engage with entrepre- neurs. It is expected this trend will only grow in the years to come. 2 Source: World Bank, 2013
  22. 22. 22 VC4Africa 2015 VENTURE FINANCE IN AFRICA The timing for local African angels to rise couldn’t be more critical. Indeed, foreign capital can only engage when there are local investors willing and able to lead the way. At the same time, African companies increasingly look outside their country for expansion or follow on capital. They seek access points to these networks. At VC4Africa we see a growing number of high net- worth individuals starting to invest locally. This is the single most significant development seen over the course of 2014. CASE STUDY Over the past two years various angel networks have emerged across Africa, including the Lagos Angels Network (LAN), Cameroon Angels Network (CAN), Cairo Angels, Ghana Angel Investment Network (GAIN), Silicon Cape and many others. VC4Africa expects the number of networks to increase the coming period, and as a result a growing number of high net-worth individuals will become active as angel investors. Nigerian-Finnish mobile payment startup IroFit raised USD 600K in seed funding from a group of investors including a leading Nordic early-stage VC firm, a major Finnish payments industry software development company, and a Nigeria based industry expert and angel investor. IroFit’s founder and CEO explains: “The angel investor from Nigeria found us through our VC4Africa venture profile and then reached out to us”. The funds raised will be used to finalize IroFit’s proprietary platform and pay for the rollout of the service in Nigeria. In addition to the funding round, IroFit simultaneously signed a major agreement that guarantees a hundred thou- sand payment devices will be available to the Nigerian market upon launch. The critical point in this story is to recognize that African born innovations, and the entrepreneurs that drive them, won’t receive the support they need until local investors vouch for them first. In this case, the Nigerian angel investor added a unique perspective to the market. The commitment from the investor put the wheels in motion needed to get other investors involved. Nigeria  emergence of the local angel investor
  23. 23. 23 VC4Africa 2015 VENTURE FINANCE IN AFRICA CASE STUDY Historically investors hesitated to invest in a company more than a one-hour drive away. But with the emergence of technology, and increasing access to real-time data and analytics, distance becomes less of a factor. This also builds on the realization that innovation can come from anywhere in the world. With over 20,000 angel investors in Europe alone, and an increas- ing number of investors who consider opportunities in Africa worldwide, there is a growing appetite for cross-border investing.3 Meet Dr. Stefan Shaw, a manager based in Munich, Germany, who invested in Kenyan startups Karibu Solar Soko. As he explains in an interview we conducted: “My wife and I have decided to dedicate a percentage of our income to social impact in Africa. Instead of supporting aid projects, we want to support businesses that are sustainable and yield both a social impact and financial performance”. Kenya  increasing interest for cross-border investing The motivations for investors vary greatly. In this case, Stefan explains, “Invest- ing comes with risk, but my wife Rose and I are getting a lot in return: Direct access to the founding team, becoming part of their business story and of course the chance to become a contributor to a business that eventually will change the life of a lot of people for the better. Isn’t that worth risking some- thing?” When asked about what he looks for in the companies he supports he talks about the quality of the founders and team. Specifically he explains: “We are looking at the people who run the businesses and try to understand their val- ues. If they correspond with ours this is a major step towards getting involved. Above all, I find honesty regarding the things that haven’t worked especially important. This helps me understand both how the business works and also how the team deals with failure.” VC4Africa sees a growing number of foreign-based angels looking at early stage African opportunities. And where distance at one point might have been an issue, increasingly angel investors look to the team and their proven track record to overcome the distance. Cross-border investing is growing in popu- larity and is a trend expected to grow the coming years. 3 Source: EBAN (European Business Angel Network), 2010
  24. 24. 24 VC4Africa 2015 VENTURE FINANCE IN AFRICA CONCLUSION The report shows an increasing number of businesses successfully growing their operations over time. They generate an increasing amount of revenue and add new jobs to the African marketplace. Indeed, supporting Africa’s opportunity driven entrepreneurs generates a meaningful return. Despite considerable gains, the ‘missing middle’ problem persists, although narrower than when VC4Africa started in 2007. From this report, we know that entrepreneurs have been able to secure venture funding In 26 African countries. Especially in leading markets like Kenya and Nigeria, founders increasingly succeed in raising the first USD 100,000 from external investors. The challenge now is to reach entrepreneurs across markets. At the same time help these companies grow to a size they become viable prospects for the larger venture capital funds, impact investors and SME financiers. AFTERWORD - BY JASPER GROSSKURTH These are exciting times for those who invest in Africa. We observe a strong increase of interest ranging from small scale investors to global multi-billion dollar funds. Their money meets an increasing number and diversity of businesses. New ways to match funds with businesses, such as VC4Africa, are catalysts for this growth of activity. This report clearly shows the momentum. The number of venture applications on VC4Africa has grown by 640% in just 3 years. That growth in volume reflects a larger and more vibrant SME ecosystem in Africa: more ideas put into action, more encouragement, more risk taking entrepreneurs, more networks, more visibility. While many of the companies might still be in a stage of pure ambition or mentor dependency, a quickly increasing number are investor ready with attractive offers.
  25. 25. 25 VC4Africa 2015 VENTURE FINANCE IN AFRICA • It will be interesting to see what trends emerge given larger data sets showing how ventures mature over longer periods of time; • The average and median values of invested capital per venture differ considerably. This implies a significant impact due to a few outliers. Therefore these outcomes have to be treated carefully; • The top investment categories are related to the Technology sectors, and then followed by Agriculture, Health, Finance and Energy; • This is the second time VC4Africa has endeavored to create such an index, an activity we look to build on in the future; • You can see which companies participated in the index and interact with the participants on VC4Africa.biz. My own favourite set of indicators in the VC4Africa survey covers the team size. Just a year ago, the survey yielded an average team size per company of 3.7. The 2015 survey reports a rise to 5.7. Better even, the participating com- panies expect to quadruple their team size within the next two years. Many might fall short of that target, but the positive momentum is significant. Larger teams reflect the fact that the idea owner is able to convince others of the benefit of the idea and has more shoulders to stand on. And in a large, yet committed group an investor is more likely to find promising people to work with. Given that team is probably the single most important decision criterion for investors, the growing team size is a very positive signal. When we look at revenues, we see another set of hopeful signals. The share of companies participating in the survey that have reported to already have revenue stands at 72%. And for those that have revenue, the average reve- nue ranges from less than USD 10K per year for fresh startups to a median of USD 50K and more for mature businesses. Investors love businesses with a proven business model and there is no better proof than revenues. The money follows these positive developments. In last year’s survey the average investment into a company was USD 130K, including external funding and owner’s funding. This year’s survey puts the average investment at USD 205K, almost 60% growth. The average external funding alone has now grown to USD 127K. This heightened level of activity will bring stories of success and of failure, stories of big wins and total losses. Both, bulls and bears of Africa will find evidence confirming their view. In that way, Africa is growing into a regular investment market where professional businesses meet professional inves- tors. 2015 might well be a major positive tipping point on this journey. I am very bullish and find my evidence in the VC4Africa fresh business survey. - Jasper Grosskurth is Managing Director at Research Solutions Africa Ltd. CLOSING REMARKS
  26. 26. 26 VC4Africa 2015 VENTURE FINANCE IN AFRICA If you would like to have more specific insights on certain regions or other findings please contact the VC4Africa research team: e-mail: service@vc4africa.biz, tel: +31 20 779 55 74 RESEARCH TEAM Lead Research, Thomas van Halen Data Analyst, Vivek Badgamia Author, Ben White Author, Bill Zimmerman Editor, Hendrik Admiraal Editor, Miguel Heilbron Editor, Bertil van Vugt RESEARCH PARTNERS Research Solutions Africa, Jasper Grosskurth Nyenrode Business Universiteit, Andre Nijhof NETWORK PARTNERS AfriLabs DEMO Africa EAVCA IN PARTNERSHIP WITH DOEN Foundation Humanistic Institute for Development (Hivos) Argidius Foundation GRAPHIC DESIGN 40rovers All photos in this report are used under Creative Commons license 4.0. Photo credits: TEDx Accra, Oluniyi Ajao, page 6; Nile vista real estate, David Evers, page 17; Guy talking, Michael Pollak, page 20; Patrick Bukoma, DFAT photo library, page 21; Mobile affair, Yenkassa, page 22; Tetteh Quashie, Accra, Ghana, George Appiah, page 24. VC4Africa’s vision is to enable African entrepreneurs and investors to find each other online. We aspire to become the preeminent social network for entrepreneurs and investors focused specifically on innovative business opportunities across the African continent. Learn more about the community by checking out our welcome page. Get involved and join the community today! VENTURE CAPITAL FOR AFRICA

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