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Venture Capital Deal Activity in Africa - March 2014

by Joel Coulson

  • 17 Mar 2014
  • PE
  • VC

With a population of one billion, a growing middle class, and a handful of the world’s fastest growing economies that are outperforming its emerging market peers, Africa is positioned well for growing venture capital activity. With the region’s poor infrastructure, economic inequality and slow job creation, there are concerns about the region’s ability to support such growth, and whether investors are remaining confident in investing in the region.

Preqin’s Venture Deals Analyst shows 116 deals in Africa from January 2007–2014 YTD at an aggregate value of $262mn. The country with the most number of deals over this time period is South Africa, accounting for 24% of the total, followed by Kenya (21%) and Ghana (14%). When looking at the aggregate deal sizes, South Africa came out on top with $129mn, Kenya second ($45mn)and Nigeria third with an aggregate deal size of $26mn, 333% higher than Ghana’s.

In regards to venture capital investments made by private equity firms based in Africa, Mauritius is the front runner, with 108 venture capital financings across the globe; however, only five of these investments are Africa-focused. South Africa-based firms made 48 venture capital investments globally, with over half (26) focused on Sub-Saharan Africa. Kenya-based firms are the third most active African investors, with 11 venture capital investments globally, eight of which were made in Sub-Saharan Africa. The most active investor over this time frame was Helion Venture Partners, a primarily India-focused firm based in Mauritius, which has been involved in 66 venture capital financings with a total aggregate deal value of $505mn since January 2007.

When looking at the rounds that African venture capital investments were made in, the most active deal stage was the seed round (16%), followed by growth capital investments (13%), suggesting that investors within the last seven years were investing at very early stages or perhaps targeting the region in the hope of capitalizing on the buoyant economic outlook by nurturing their investments. This is also indicated by the statistics for Series B & Series C financings, which accounted for 2% and 1% of the total number of deals, with further support coming from the fact that only eight of the 116 deals have been exited so far.

During the period 2007-2010 the number of deals in Africa was sporadic, a pattern common in emerging markets. However, a rate of steady growth was seen during 2010-2013 year-on-year: a 40% rise between 2010 and 2011, a 36% rise between 2011 and 2012, and a 37% rise between 2012 and 2013, further suggesting that investors are becoming increasingly confident in African start-ups. Preqin’s data shows that the most prominent industries, in terms of the number of deals, were financial services (11%), software (11%) and internet (9%), with the latter having the highest aggregate deal value of$55mn. These three sectors greatly outweigh all other industries, and exemplify how venture capital firms are finding opportunities in Africa’s burgeoning middle class and technological advancements. However, a problem with this growth is that the rather low total venture capital activity across the entire African continent indicates that poor infrastructure and political risk could still be causing concern among some investors.

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