A new report has found that African investors outperformed their foreign counterparts in investments in tech startups from January to September.
The report by Africa: The Big Deal showed that local investors’ involvement amounted to 58 percent of the investment raised in the period.
In 2019, African investors accounted for 36 percent of investments in tech startups. Their participation rose to 52 percent and 59 percent in 2020 and 2021.
Olayindolapo Olusesi, chief executive officer at Mustarred Crest, said local investors are on the rise for several reasons. One reason is that it stands as a great way to ensure African investors do not lose out on the opportunities being created by the current breed of African founders, he said.
“This will in turn make access to capital easier for African founders; this means, in essence, that capital originates and is utilised within Africa,” he said.
Olusesi added that many startups will not necessarily need to go and incorporate in Delaware or San Francisco to attract American investors. “At best, you can shop for stable countries within Africa and capital flows within Africa.”
Africa-based investors are more active in deals with start-ups headquartered in one of the Big Four (involved as a main investor in 59 percent of $1m+ deals since 2019) compared to those headquartered elsewhere (37 percent), according to the report.
However, they are particularly active in Egypt (67 percent), South Africa (65 percent) and Nigeria (59 percent), and Kenya (47 percent), which are the Big Four.
Commenting on why African investors are more active in deals headquartered in Africa compared to outside, Olusesi said the issue facing founders looking to raise funds is thinking out structures to ensure the foreign investors can repatriate their capital. “Usually, the money does not even largely come into Nigeria, as it is paid to the company’s offshore account.”
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He said: “This is because of the several macroeconomic and political risks to which the investors are exposed to. However, local investors understand the terrain and how to navigate it.
“With time, once governments cooperate, founders will no longer have to situate their holding companies outside Africa, thereby saving Africa’s money for Africa.”
An analysis on the report by BusinessDay indicates that the investors investing in Africa are slightly more active in deals involving a start-up with a female CEO (that participated as a main investor in 59 percent of such deals since 2019) than a male CEO (53 percent).
“There is a disproportionate ratio of male-led startups versus female-led startups being funded. Investors are trying to change the narrative – to balance the gap and ensure that more female founders have significant access to investments.” Olusesi said.
He said most funds also need to ensure compliance with their environmental, social, and governance policies. They need to ensure that a significant number of females have access to funding and that their portfolios don’t appear discriminatory on the basis of gender, he said.
The funds are channeled to different sectors with education and jobs involved as a main investor with 66 percent of $1m+ deals since 2019, healthcare (63 percent) and fintech (58 percent), agriculture and food (34 percent), energy and water (36 percent) and logistics and transport (31 percent), the report said.
