Plugging the Funding Gap for Africa’s Next Unicorns

From Nigeria’s Interswitch, Andela and Flutterwave to Senegal-based mobile money provider Wave, Africa’s technology landscape has seen the emergence of several unicorns — private companies with a valuation of over $1 billion — in recent years, buoyed by increasing venture capital (VC) being poured into disruptive firms operating in the region.

Read more: Andela Unicorn Status Increases Buzz Around Africa’s Startup Scene

According to data from Partech, a U.S.-based VC firm, Africa-focused firms together raised a record $5.2 billion from 681 equity rounds in 2021, an increase of 264% from the $1.4 billion venture capitalists gave in 2020.

With hundreds of innovative startups popping up on the region’s tech scene, investors who see the potential of the region’s tech ecosystem have joined forces to help support new unicorn-potential firms on the continent that often struggle to access domestic capital beyond the seed stage.

“At some point, all these [very successful] businesses had to look to Western investors, mostly from Silicon Valley, to come and turbocharge their businesses because seed funding or the early-stage funding dried up on the continent,” Ngetha Waithaka, general partner at Norrsken22, told PYMNTS in a recent interview.

It’s this gap that the Norrsken22 African Tech Growth Fund is looking to fill, Waithaka said, launching a $200 million VC fund backed by 30+ unicorn founders and CEOs of companies like Flutterwave, DeliveryHero, Klarna and Skype.

“Now we want to be that pool of capital that can back our winners all the way,” Waithaka added, “and we also come with a lot of experience [and insights] on the African continent. We’ve built some very deep networks, and we know how to buy and sell businesses.”

Launched by Klarna co-founder Niklas Adalberth and leading VC investor Hans Otterling’s Norrsken Foundation, the fund is also validation from individuals who’ve built large organizations that are tech-enabled and see the huge potential in Africa’s tech ecosystem.

“[They] are not only devoting their time to help mentor African tech entrepreneurs and open up their networks and talk about business models, but they’re also investing in the fund,” he said.

See also: Tech Firm Founders Debut VC Fund for Africa’s Next Unicorns

FinTech Holds the Most Promise

In terms of sectors with the most unicorn potential, Waithaka highlighted FinTech as the main space to keep an eye on.

“The financial infrastructure that’s been laid down for businesses to ride off of the rails of payments organizations is actually going very well — there’s a lot of opportunity in that [FinTech] space,” he explained.

And with weak supply chain networks common across the region, market enablement businesses — “a big bucket of businesses that almost greases the ability of doing trade on our continent” — that take out the middlemen and improve the customer acquisition journey will be another key growth driver on the continent, he noted.

EdTech and MedTech are two other sectors that are growing in their own respect and will also contribute to the booming tech landscape.

When screening startups and investment opportunities, Waithaka said they look for firms that have already generated revenue and have grown past the early stage: “It has to have product-market fit — we have to see that this is an idea that’s viable if we are to inject our capital in it.”

With a continental market of over 50 countries, he added they prioritize tech-heavy, asset-light business models that offer solutions that are not limited to one country alone and can easily scale across borders, as well as businesses that do not need a lot of regulation to operate.

“There are some that are just obvious plug in and play, and the problem is the same within the entire continent. Those are the types of business models we’re looking for,” Waithaka explained.

B2B and Neobanks

Predicting where the next African tech unicorn will come from is not an easy undertaking, but Waithaka was of the view that the business-to-business (B2B) eCommerce marketplace is an increasingly interesting space to watch.

He said these B2B businesses that are working to digitize outdated systems and support the delivery of goods and services to informal merchants, as well as providing some ability to finance their purchases, will ultimately transform the business landscape on the continent.

He referenced the case of an informal merchant in Lagos who previously had to physically go to the market to buy flour and cooking oil for their food business. Today, there are several tech-enabled businesses that provide a platform for this business owner to purchase those goods and services on an app, in addition to offering financing that allows users to buy more than they could usually afford with cash in the past.

Several success cases will also come out of the neobanking space, which Wathaika said is particularly ripe for a unicorn, due to the use of cash and the significant number of underbanked or unbanked people on the continent.

“I do think there’s an opportunity for using smartphones to deliver those services at an affordable basis throughout the continent,” he said. “These are two spaces that I am very excited about, and we’ll be spending a lot of time looking [at them].”

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