Last month, the African business landscape was buzzing with excitement and optimism in reaction to the news that Flutterwave, a payments company, had closed its Series C fundraising round at $170 million, valuing the company at over $1 billion. Founded in 2016 by Olugbenga ‘GB’ Agboola, a young Nigerian, Flutterwavefirst raised $10M in its series A round, and then $35M in its series B round. Over the past five years, the company has experienced rapid growth, and currently serves 290,000 businesses using its platform and is active in 20 African countries.
Sadly, Flutterwave’s success story is still an anomaly in the African context. According to Briter Bridges, only 1.7 billion was deployed in capital across Africa in 2020, with half of these funds concentrated in 10 companies, in stark contrast to the financing needs estimated to be $136 billion annually. Even more alarming is that 30% of the companies that received this funding have headquarters outside Africa. This data reinforces disturbing information that ofthe top 10 African-based startups that received the highest amount of venture capital in Africa last year, eight were led by foreigners.
Thankfully, there are a growing number of local angel networks emerging across Africa, and local investors and philanthropists stepping in to fill some of these funding gaps. However, there is still an urgent need to increase funding flows to and within Africa dramatically and address the inequities in the financing landscape. This will require leadership and commitment by development finance institutions and global and local impact investors to embrace three critical actions.
There is a sense of urgency to ensure equitable funding flows and greater diversity in the financial investments on the continent
Build a vibrant and investment-ready local pipeline. When challenged about their track record of investments in companies run by Africans, investors’ biggest argument is that they cannot find credible and capable local companies. In their defence, African founders argue that they are closed off from the global financial landscape because of their limited networks and implicit bias. Some local entrepreneurs even argue that international investors hold them to a different set of standards and that a natural bias compels international partners to support individuals who share similar experiences to their own. They point to a few recent African MBAs from leading universities in Europe and the United States who appear to have successfully established support networks abroad before returning home to start their ventures, enabling them to access funding.
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It is also important to note that the overwhelming focus of new investments on technology and limited flows to critical growth sectors. As reinforced by Briter Bridges’ 2021 assessment flows, 31% of the funding flowed to fintech and 22% to cleantech. Agriculture only attracted 7% and health, only 9%, even amid the COVID-19 pandemic. In addition, only 17,4% of those who raised funding were female. While these results are not unique to Africa, there is a sense of urgency to ensure equitable funding flows and greater diversity in the financial investments on the continent.
To achieve this, the international financing landscape must broaden and deepen its pipeline of local entrepreneurs by:
Tapping into in-country networks of accelerators and incubators that have a strong base of early-stage companies such as CCHub in Nigeria and blueMoon in Ethiopia, which have established strong relationships with local universities and have local credibility.
Co-investing with local fund managers with proven track-records and strong industry expertise such as the Fund for Agriculture Financing (FAFIN), managing by Sahel Capital in Nigeria and partnering with industry associations such as African Venture Capital & Private Equity Associations.
Partnering with hubs such as Nourishing Africa that can support early screening, investment readiness training and due diligence efforts.
Partnering with industry, youth and gender associations which have a positive track record of supporting aspiring and emerging entrepreneurs in critical growth sectors. Organizations such as WomenWork in Kenya, and initiatives such as GoGettaz and Value4Her which AGRA is championing are potential partners to reach more women and youth.
Support investments with local talent: Beyond identifying more local investment-ready companies in diverse growth sectors and closing the gender gap, investors must build a local support ecosystem to ensure due diligence, accountability, transparency and enhance the likelihood of successful exits. Where possible, international investors should partner with local advisors, law, and auditing firms to vet potential investee companies, resisting the urge to parachute other international organizations into a context they do not fully understand and where they have limited local knowledge and networks.
It is also critical that international investors identify credible local Board members and senior team members, in addition to the investors themselves, to join the newly reconstituted boards to ensure continued oversight, transparency and accountability and critical guidance rooted in local expertise and credibility. Building a pipeline of local board members, advisors, law and auditing firms, and team members will not only prove more cost-effective but also ensure local knowledge, on-the-ground support which will ultimately lead to more successful investments. Special emphasis must be placed on ensure gender equity on boards to ensure a diversity of ideas, but also achieve greater financial returns.
Set bold targets and actively track equity data: What does not get measured does not matter! If investors are genuinely committed to impact and sustainability, investing in local, “home-grown” businesses with sound business models that “do well and do good” should be their primary focus. As a result, setting clear targets around the percentage of their portfolio that should be channelled to local companies, and women-owned businesses and demanding that the Boards of these companies are diverse, reflective of the communities they serve is the first step towards achieving results. This should be actively tracked not only by investors, and their industry associations but also by national and regional governments to drive behavioural change and impact.
Development finance institutions, global and local impact investors as well as African investors and philanthropists must rise to the challenge and implement these ideas. If they can do it, they can succeed in addressing the inequity in financing African ventures and closing the gender financing gap.
Nwuneli is the co-founder and Managing Partner of Sahel Consulting Agriculture & Nutrition Ltd., and AACE Foods. She is the founder of LEAP Africa and Nourishing Africa.
