African tech companies try to find capital in a competitive market where international investors are looking to back the next Andela or Jumia.
For African startups, 2018 was a record-breaking year. More startups — a total of 210 recorded — raised 32 percent more funding than ever before, securing $334.5 million in funding, according to DisruptAfrica.
Many successful African tech firms that have attracted capital have certain strategies or achievements in common that made investors take note and decide to invest.
Here are 10 ways African tech companies can attract investment.
A number of African tech firms have made the move to the U.S., opening offices to be closer to some of the investors they are targetting. Nigerian fintech startup Flutterwave relocated its headquarters to Silicon Valley in 2018 and raised $10 million in funding, Techcrunch reports. Nigerian payments platform Paystack raised $8 million in Series A funding in September 2018 after setting up shop in Silicon Valley. Kenyan fintech firm Branch International, which moved to Silicon Valley a few years ago, raised $170 million earlier this year before raising another $5 million in July to expand its services in Kenya.
Andela, a Nigerian tech startup company that outsources African tech talent, is a perfect example of targeting a Western market and attracting investors as a result. The company outsources talent mainly to U.S. companies including Mastercard, Microsoft, Google, IBM, Viacom, Pluralsight and GitHub. At the start of 2019, U.S. investment firm Generation Investment Management led a $100 million funding round for Andela.
Impressive growth figures interest investors. In 2018, South African fintech startup Yoco, a point-of-sale payments provider, secured a $16 million Series-B funding round led by Silicon Valley VC firm Partech Partners based on impressive growth figures. Since launching in 2015, the company grew its base to more than 27,000 South African small businesses, adding 1,500 new merchants per month. It is now South Africa’s largest and fastest-growing independent card payments provider by the number of merchants, more than tripling in size since 2017, according to BusinessInsider.
In the 24th episode of the GHOGH podcast with Jamarlin Martin, Delane Parnell talks about his path to starting high-school esports company PlayVS, which recently raised a $15 million series A round. They discuss how Delane grew up in the streets of Detroit, developed a passion for business and tech, and closed an exclusive deal with the NFHS, which writes the rules for most high school sports. Delane also talks about how he put together the raise, and how entrepreneurs can keep a positive attitude after being rejected by investors.
Investors are willing to put capital behind startups that solve a serious local problem through tech and disruption. Ghanaian healthtech company mPharma, for example, raised a $12 million Series B funding round in January to increase patient access to affordable high-quality medications, according to Crunchbase. In December 2018, South African fintech platform Jumo, which offers financial services to underserved emerging markets, concluded a $64.5 million funding round led by U.S.-based investment bank Goldman Sachs, according to the company.
Many of the solar energy solution providers in Africa have shown the ability to scale their operations, resulting in investments. This year along, Solarnow raised $9 million, Peg Africa announced a $25 million Series C funding round, and Daystar Power received a $10 million investment.
By attracting recognizable talent that may be familiar with investors, African tech companies can receive a boost that could lead to future investment. An example of this is South African artificial intelligence start-up Xineoh. At the beginning of 2018 the startup added former Yahoo and Netflix executive John Robison to its board of directors. Following that appointment, Xineoh raised a $1.5 million Series A funding round in early 2019.
The ability of a tech company to expand in Africa is attractive to investors and has been the catalyst for some firms getting funding. In August 2019 Kenyan e-commerce startup Sokowatch‘s plan to expand into Uganda and Rwanda earned it a $2.5 million investment. The company is rumored to be expecting a Series A funding round before the end of the year.
Joining a global accelerator program such as Silicon Valley’s Y Combinator or Google Launchpad Accelerator Africa increases exposure and the chance for African tech companies to attract funding. Given the opportunity to pitch on demo days organized by global accelerators, companies often go on to raise funding. In the recent Google Launchpad Accelerator Africa class that graduated in June, 12 participants raised close to $9 million in funding before and during the program.
The mentoring and exposure that some startup competitions offer is worth the effort of entering, but winners may also get funding. That was the case for Nigerian cloud accounting platform Accounteer, which won the inaugural 2018 MEST Africa Challenge organized by the Meltwater Entrepreneurial School of Technology. The startup got $50,000 in prize money.
Launching an initial coin offering is another way that some African tech firms have chosen to raise capital. In February 2018, Nigerian blockchain startup SureRemit raised $7 million in the biggest African initial coin offering to date. The fintech firm, which uses blockchain to cut costs and increase access to digital payments in Africa, made a utility token available on the Stellar Network, according to BitcoinAfrica.
