VC Funding: What will become of the other African countries?
The steady growth of VC capital to Africa has been exciting news over the last few years. With $7.4+ billion in private capital allocated to Africa with projections to grow, more investors continue to explore the potential of the African market. Since I became interested in the African VC space, I noticed that the growth and success of funding was determined mostly by Nigeria, Kenya, South Africa and Egypt — for the entire continent. As a Nigerian, I am proud that it is quickly becoming one the leading hubs for start-up funding. But when I put my Pan-African hat on, I can’t help but wonder what is going on in other African countries.
Why am I concerned?
Well first… what is venture capital?
According to The Big Deal data pictured above, 83% of Africa’s total VC funds are allocated to 4 countries, and the remaining 17% was distributed to the remaining 50 countries in Africa. These are quite alarming stats because VC funds are strong indicators for innovation and economic growth of many nations.
Venture Capital Enables Innovation
In many developed nations, venture capital is a direct indicator of the level of innovation. VCs have been known to invest in research and development and turn ideas into profitable businesses. Given the current data, one might conclude that there is little to no innovation happening in these regions. How true is this? Are there no great entrepreneurs or innovative ideas in Zimbabwe or Mali? I refuse to believe this. The question becomes, how can we enable innovation and shed light on great ideas that are coming from the less popular countries? A few ideas come to mind:
- Increase and encourage research and development in educational institutions across African institutions
- Establish more business incubators and accelerators to prepare founders for private capital
- Leverage technology to equalize venture capital funding distribution across the continent
The goal is not to have a Silicon Valley in every country, but to encourage more distributed capital across these countries to ensure new ideas and solutions are funded. In the end, lack of VC capital in these parts of the continent means that new ideas and solutions are not being supported.
Venture Capital Drives Growth
While African VC capital is promised to rise over the years, I am concerned that Africa is missing out on expotential economic growth because of the concentration of capital across the top 4 countries. If there is no conscious effort to enable innovation in other countries and fund them, we risk the creation of monopolized start up hubs that are hard to penetrate. I am not naive to political, social and religious factors that stifle economic growth in many African countries and the uncertainities that VCs must face to find new markets to invest in. However, healthy competition and proper distribution of VC capital across certain countries or regions as innovative ideas come up will promote growth and solve significant problems. Luckily, there are has been increased activity across countries like Ghana, Senegal, Uganda, Tunisia and Tanzania. Moving forward, investors must keep an eye on entrepreneurs in other promising countries like Ethiopia, Zimbabwe, Morroco and Rwanda to fund profitable solutions to pressing problems, create jobs and increase productivity. Ultimately, this will drive the economic growth of these regions.
The trends of venture capital funds of Africa are promising and data shows that stimulating competition is building up across the African continent. An intentional focus on distributing funds to promising founders across the other 50 countries across will prevent monopolization of capital, promote innovation and drive economic growth through out the continent.