Venture capital (VC) investing in Africa is gaining traction, driven in part by lucrative opportunities in technology on the continent, according to panellists at Fund Forum Africa.
Preqin data indicates venture capital firms globally control roughly $2.4 trillion, having raised $47 billion in 2015. An increasing number of North American and European VC firms are looking towards African markets to attain returns. Much of the VC inflows into Africa are being directed towards technology companies and innovations.
Monica Brand Engel, partner and co-founder at Quona Capital, said online lending platforms – also known as peer2peer (P2P) lenders – had significant potential in Africa. The continent was one of the earlier adopters of online mobile payments, for example, and P2P is in an excellent position to disrupt traditional financial services and lenders in the region.
Drone technology is also an attractive target for VC in Africa, and it is being increasingly deployed throughout the continent. Zipline, a Californian robotics company, is working with the Rwandan government and using drone technology to deliver medical supplies to inaccessible areas. “Many parts of Africa do not have usable roads. Why build roads and railways at billions of dollars in cost when a fleet of drones can make deliveries?” said Bex Nwawudu, managing partner at CBO Investment Management.
However, there are challenges for VC firms with an Africa-focus. The market remains small and there may be insufficient VC deal opportunities for large managers. Furthermore, domestic African institutions prefer to invest in the regional bond market, which is generating impressive yields - far superior to those on offer in the developed markets.
Some foreign VC firms do not always recognise that Africa is highly diverse and the modus operandi of doing business in individual countries can be wildly different. Equally, the style of VC investing in Africa is different to North America and Europe. A VC firm focused on Africa may invest in a company that has existed for many years whereas in the rest of the world, VCs’ focus is geared more towards nascent and embryonic companies.