Why Big Tech is investing in Africa’s start-up scene

While the global start-up scene has faced declining investment over the past two and a half years, some countries in Africa are bucking the trend.

According to industry service Disrupt Africa’s African Startup Funding Report, Kenya, South Africa, Morocco, Senegal, Democratic Republic of Congo, Rwanda, Ethiopia and Zambia raised more funding in 2023 than the previous year.

Particularly notable is the renewed interest from large US technology corporations.

Mobility specialist Uber, for example, emerged as a lead investor in a $100 million (Sh13 billion) funding round for Nigerian start-up Moove in the spring. Moove finances car purchases through installment payments. This marked Uber’s first investment in an African company.

In addition, Netflix co-founder Reed Hastings and former Alphabet CEO Eric Schmidt attended this year’s SunCulture in Kenya, which distributes solar-powered water pumps.

Venture fund

Payments giants Visa and Mastercard have also pumped several hundred million dollars into African innovation and investment over the past two years.

Amazon founder Jeff Bezos has invested through his personal venture fund, Bezos Expeditions, in Ghanaian fintech Chipper Cash for the past four years.

Africa’s start-up scene is growing. “When US firms invest hundreds of millions in deals in Africa, it signals economic potential and confidence in the growth of the market,” says Max Cuvellier Giacomelli, co-founder of market analysis platform The Big Deal.

The company specializes in the African start-up scene.

Due to difficult global economic conditions affecting young companies, investment on the continent has fallen by more than 60% in the first half of 2024. Giacomelli, however, sees a booming industry.

“More than a third of investments in 2024 are loans. Three years ago, this figure was below ten percent,” explains the French native.

This clearly indicates the maturity of the start-up ecosystem, demonstrating the confidence “that African start-ups can handle a wider range of investment instruments”.

Despite the recession, far more money continues to flow to African start-ups than in 2019.

Africa’s scene may be relatively nascent in scale. In 2023, the start-ups raised funds equivalent to the entire state budget of Miami.

According to the Global Startup Ecosystem Index, only 3.7% of global startup funding goes to African countries. Almost half go to the US, a quarter to Asia and just under 20% to Europe.

However, the growing interest reflects an important trend: According to the United Nations, Africa is expected to be the continent with the fastest growing population by 2050, potentially accounting for more than 25% of the world’s population. The potential is huge.

The “Big Four” countries—Kenya, Nigeria, South Africa, and Egypt—are particularly active. These four alone account for over 85% of all investments.

Just a year ago, Kenya’s capital Nairobi overtook Nigeria’s capital Lagos as the epicenter of Africa’s start-up scene.

According to founder Calvin Kebati, this shift is largely due to the improved conditions for start-ups in Kenya: “In recent years, investments have focused on infrastructure, fiber optics and the digitization of government agencies,” he says.

Through his tech start-up Nakili, Kebati offers a digital management platform for small shops, hairdressers and spas, and his idea was recently selected as one of 10 start-ups for Google’s Africa Accelerator.

Business models

This three-month project supports African start-ups with international experts and workshops to scale their business models.

Most investors come from the US, followed by Europe, with African countries themselves trailing behind.

“However, there is a growing trend for investors from other regions to collaborate with local venture funds,” reports analyst Oke Ekpagha of Nigeria-based early-stage investment fund Oui Capital.

The fund is particularly specialized in fintech investments, the continent’s most successful industry that raises the most funds. Even though mobility solutions attracted more funding in the first half of 2024, six of the seven unicorns in Africa come from the financial industry.

Unicorns refer to start-ups valued at over a billion dollars.

In February, Mastercard secured nearly 4% of South African telecoms giant MTN for $200 million (Sh26 billion), notably its fintech subsidiary Momo.

Momo, a mobile payment system, now serves more than 60 million customers in several countries. Unlike Paypal, Klarna and others, customers can easily transfer money from phone to phone without the need for credit cards or bank accounts.

Mobile payments are trending in many African countries. In Kenya, for example, 51 out of 54 million residents use M-Pesa, the domestic leader owned by Vodafone subsidiary Safaricom.

According to Giacomelli, the success comes from the fact that millions of African countries are gradually gaining access to the financial ecosystem, especially through mobile payment systems.

American giant Visa has also recognized this trend: “We have steadily increased our investment in Africa and aim to invest $1 billion over the next five years to expand operations, implement innovations and deepen collaboration,” explains a spokesperson of the company about their Africa. strategy.

Currently, however, expert Ekpagha notes caution among Western investors due to politically unstable situations in some countries, compounded by strained economic conditions.

“Investors are definitely more cautious and the requirements for investment have increased significantly,” says Ekpagha.

CEO Nakili Kebati also feels this challenge. Recently, the start-up received funding primarily from local investors. “The situation is challenging, but we are slowly seeing improvements,” he says.

According to “The Big Deal”, July was actually the most successful month for African start-ups in over a year. Founders from various countries secured $420 million (Sh54.6 billion). Among them, Egypt-based fintech unicorn MNT-Halan has raised more than $157 million (Sh20.4 billion).

Not included in this figure is the acquisition of South African start-up Quicket by US giant Ticketmaster.

“Together, we will usher in a new era of unprecedented growth in African entertainment,” Ticketmaster CEO Mark Yovich said of the acquisition.