HAVAÍC’s Rob Heath takes the long view to unpack the perceived downturn in African Venture Capital (VC) funding. Here’s why the industry continues to grow at a very comfortable rate.
In November last year, we tested the numbers to make sense of the reported downturn in African VC funding. Working closely with both local entrepreneurs and global investors, market sentiment was clearly not reflective of the incredible energy and activity on the ground.
At HAVAÍC, we take views on opportunities that will play out over a number of years. In our industry, it's vital to gauge current sentiments against longer-term market trends at both the investment and sector levels. Taking the long view enables us to discount the noise around anomalies in the market and make decisions based on actual trends instead.
The updated graph below tracks the monthly investment into African VC. As indicated by the white line, the two-year period of unusually high spikes coincides with the funding boom from July 2021 due to an oversupply of capital in global markets (and the often damaging over-inflated valuations that followed). The red line tracks a three-month average to temper the effects of spikes. The blue and green dotted lines frame a reasonable and sustainable range of growth trajectories for African VC funding of between 25% and 35% annually. These are the growth rates we take into consideration when determining entry and exit prices for investments.
Since our last update six months ago, the growth rates have tracked within our projected range - despite the drastic drop reported in the global VC press. The updated graph reinforces our conviction that the decrease in funding does not signal African VC drying up. It’s merely a return to normal funding patterns as seen prior to the funding boom.
As can be expected, Africa has been affected by the reduction in capital felt globally, but the continent is maintaining its steady growth. What’s more, the growth rate remains a nominal 12% to 17% above the US VC market, as indicated by the yellow dotted line.
Our continent’s positive growth rate is buoyed by an exceptionally resilient start-up ecosystem. Africa has one of the highest entrepreneurship rates in the world. Our dynamic entrepreneurs are leveraging technology to leapfrog lacking infrastructure and give Africans access to vital services. Added to that, this is home to the world’s fastest-growing population. In addition to being young and tech-savvy, there is a large pipeline of people on the cusp of becoming economically active. The potential for further growth across technology-enabled sectors is enormous, and global investors are lining up to get behind Africa’s tech boom.
In line with the continent's continued growth, over the coming years, we will complete a further 20 investments in early-stage, high-growth tech companies. We look forward to further harnessing ongoing growth in African VC, expanding our portfolio, and maintaining market-leading and impactful returns for our investors.
Rob Heath is a partner at HAVAÍC. He has worked and traveled in Africa, the USA, and the UK as an executive, business founder, chartered accountant, and advisor. Rob’s operational expertise, wealth of multi-sectoral knowledge, and detailed financial acumen have been instrumental in the growth and success of HAVAÍC and its 19-strong portfolio of early-stage, high-potential African-born companies.