While startups on the continent have been setting milestones in terms of investments, Africa’s contribution to the global fintech funding flow is yet to reach 1 percent. The most it has gotten to is 0.4 percent recorded in 2020.
However, the Flutterwave $170 million Series C funding raise announced on Wednesday, and many more experts expect to follow could mean 2021 is the year the ceiling is shattered. Flutterwave’s funding puts it on the list of fintech unicorns on the continent, a position it shares with only Interswitch.
“Flutterwave’s recent announcement that it has secured $170 million additional funding (bringing the total amount raised to $225 million and generating a valuation of the business in excess of $1 billion), signals that investor appetite for African startups remains strong in 2021. I am sure we will see more sizeable transactions before the year is through,” Rahul Shah, Head of Financials Equity Research, Tellimer told BusinessDay via mail.
Africa may account for a tiny portion of the global investment flows in fintech, funding to startups on the continent has grown, rising 43 percent year-on-year in 2020 (five-year CAGR at 30 percent), according to new data from Tellimer.
Fintech is the top sector in Africa in terms of funding flows, attracting 23 percent of total funding value and 25 percent of deals. The number of investors involved in funding African startups has also been growing strongly with a 68 percent increase in 2020. As these investors’ knowledge improves, they will feel more comfortable allocating a bigger proportion of their portfolios to the continent.
Read Also: GTBank to challenge Flutterwave, Paystack with HabariPay
The data show that Nigeria is the top African market for start-up fintech funding. In 2020, fintech start-ups from the country attracted $89 million (56 percent of total) over 37 deals (37 percent of total).
2021 is already looking like it would surpass previous years, particularly 2019 where startups raised the most funding ever.
According to data compiled by Maxim Bayen, venture builder for Catalyst Fund, Flutterwave is now the 100th tech company in Africa to raise over $100,000. Total funding from January is already close to $550 million representing about 48 percent more than the funding raised in the first three months of 2020.
“If you look at the data, it took just over 1 year for Flutterwave between their Series B and Series C and this Series C, which took them to over $1 billion valuation. Strictly applying the same pattern and looking at startups that closed a large Series B in 2019/2020 we have potential candidates like mPharma, Twiga Foods, Copia Kenya, Swvl, and JUMO,” Bayen said.
The Tellimer report found that over the past five years, Kenya and Egypt have gained funding market share, while Nigeria and Egypt have declined in relative importance.
The $170 million Series C raised by Flutterwave also puts Nigeria back in the driving seat in Africa’s payment market and also in the investment landscape.
“The world will increasingly pay attention to the Nigerian, and the African tech ecosystem. It’s about time,” Odun Eweniyi, co-founder and COO of Piggyvest said.
The market in Nigeria is also expecting the launch of Bank-led fintech companies. BusinessDay reported that Guarantee Trust Bank (GTBank) and Access Bank are all at the last stage of perfecting a holding company structure that will enable them to deploy full fintech entities into the market.
GTBank is already shopping for fintech talents to recruit for its platform called HabariPay. The bank said one of its ambitions for HabariPay is to become a fintech unicorn.
Sources also say the CBN licence is the last barrier delaying the launch of Access Pay Limited, a digital banking company being floated by Access Bank. The platform is expected to provide payment infrastructure that will power Access Bank’s expansion ambition across the continent. The bank wants to be in 22 African countries by 2025. It has already mapped out about 8 countries for 2021.
However, experts say investors hunting for the next unicorn need to realise it takes patient capital, and not every deal will lead to a unicorn.
“You can’t really know which deals will succeed and which will fail. So you have to invest wisely. The chief differentiating factor in VC success or failure is access to deal flow,” said an expert who will not be mentioned.
Shah said the diversity and quality of African startup firms are steadily improving. New technology hubs are rising across the continent, in continents such as Cairo, Johannesburg, Lagos, and Nairobi. The hubs are also creating opportunities for the exchange of ideas and attracting tech talents who are raising the bar on innovation.
“Also there are numerous examples of a reverse brain-drain taking place; highly skilled emigrants are returning home and putting their knowledge and experience to work in Africa. The scope for generating supernormal investment returns in some of the more established large markets, such as China, has likely diminished. The leading operators in these markets already command huge valuations. This is not typically the case in Africa, so investors have a strong incentive to gain exposure to the continent,” Shah said.
