East Africa’s investment in start-ups fell by more than 50% in 2021, with transaction activity falling by 2%, largely due to the impact of new restrictions imposed by governments to contain the spread of the third wave of the Covid -19 pandemic .
The latest report “Venture Capital in Africa” (April 2022) by the African Private Equity and Venture Capital Association (AVCA) shows that the value of funds raised by East African entrepreneurs is relatively of total transaction value in Africa fell by more than half, from 18 percent ($900 million) in the seven-year period (2014-2020) to 7 percent ($364 million) in 2021.
However, on the continent, the total amount of capital raised by African startups has more than quadrupled to $5.2 billion from $1.1 billion in 2020, driven by an increase in V venture capital deal (VC) activities in Nigeria.
The amount was raised from 604 individual companies, raising the annual average total transaction value from USD 700 million to USD 1.3 billion between 2014 and 2021 Leo between 2014-2020.
According to the report, African start-ups raised a total of US$5 billion in the seven years to 2020.
Overall, the financial sector accounted for both the largest share of VC deals on the continent by both volume and value, followed by information technology and consumer discretionary.
“This increased share is due to the overwhelming influx of activity and capital into the financial sector over the year 2021, which attracted a monumental 60 percent of total transaction value for the year,” the report said.
Nigeria hosted 23 percent of total early-stage investment deals in Africa in 2021, followed by South Africa (17 percent) and Egypt (15 percent), with Uganda ranking ninth at two percent.
Kenya’s VC funding was negatively impacted, pulling just 13 percent of total transaction volume in Africa and just four percent of total business value, with the declining performance is compounded by increasing competition in the Ea from neighboring countries such as Rwanda and Uganda.
According to the report, 87 deals were struck in Kenya in 2021 with a reported total value of US$225 million.
Major deals taking place in Kenya in 2021 include the $50 million Series C round in e-commerce grocery distribution platform Twiga Foods from a consortium of investors including TLCom Capital, which raised $40 million investment in Victory Farms, as well as British International Investment’s $10 million investment in wealth financing platform M-Kopa.
Despite the poor performance of Kenyan VC financing, the report notes, that the country’s startup ecosystem remains robust, with over 200 new companies registering daily, up from 30 company registrations daily six years ago.
Strong macroeconomic performance in 2021, as well as the recent launch of a Business Regulatory Toolkit are likely to foster a resurgence in Kenya’s startup ecosystem, according to the report.
The majority of venture capital funding for startups in Africa remains focused on early-stage funding rounds.
According to the report, the number of Africa-focused startups without headquarters has increased in recent years.
In 2021, global venture capital investments reached nearly $600 billion, sustained of fintech, as Africa’s share remained small at $5 billion.
Some of these types of companies are being started or have been created by members of the African diaspora seeking venture funding to expand or maintain its presence in Africa.
West Africa attracted the highest volume (33 percent) of VC deals in Africa in 2021, moving up two places between 2014 and 2020 eclipsing the longstanding dominance of Southern Africa.
East Africa, North Africa and Southern Africa each accounted for 20 percent of the total transaction volume.
Kenya’s Capital Markets Authority issued a regulatory in May 2021 sandbox platform and allowed nine fintech startups to test their products and services live in a controlled environment free from the constraints of existing regulations.
The Uganda Capital Markets Authority, in partnership with the European Union and FSD Uganda established the Deal Flow Facility in July 2021 to address the ongoing gap in access to growth capital for emerging market companies.