A new report predicts Africa Venture Capital Funding to Drop by 40 Percent in 2020.
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According to Partech Africa’s reports, around 234 African tech companies raised a total of $2.02 billion in 250 equity rounds in 2019. This is a 74% increase against 2018’s $1.163 billion raised by 146 startups in 164 rounds.
In 2019, we had OPay and Interswitch, raising $120 million and $200 million respectively in November. That’s a combined $320 million raise which is more than 30% of the total fundraise in 2019.
Reports released by WeeTracker showed that Nigerian startups raised a whopping $663.24 million out of the overall $1.34 billion raised in Africa.
Flutterwave ushered us into 2020 with a total venture capital raise of $35 million.
Venture capital to African startups to reduce by 40%
According to State of Tech Innovation and Investment in Africa report of AfricArena, an African tech ecosystem accelerator, venture capital will decrease in the coming quarters of the year.
The report is based on the impact of the coronavirus pandemic on African startups.
“Whilst until early 2020 the trend seemed to be relatively clear in terms of the growth of investment in the continent’s tech ecosystem, the COVID-19 crisis has put a high level of uncertainty and poses many challenges,” an excerpt from the report reads.
The AfricArena report contains data from Partech Africa’s 2019 Africa Tech Venture Capital Report and Greentech Capital’s Maxime Bayen.
AfricArena believes that there will be around 40% drop in venture capital funding in the second and third quarters of 2020 though Africa recorded about $350 million raise in the first quarter.
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“We expect deal activity to fall sharply in Q2 and Q3 2020, primarily fuelled by VC investors doing refinancing deals on their portfolio. In spite of valuation metrics likely down by a 20 to 30% factor, new deals will be limited until the broad economy restarts.”
The report predicts a total capital venture funding of $1.6 billion in Q1 2021, should the COVID-19 pandemic linger into 2021. On the other, it holds an optimistic growth of $3 billion should businesses return to pre-coronavirus life.
“One critical factor is the risk that a large chunk of early-stage clusters (from pre-seed to Series A) will be largely wiped out in the coming 3 to 9 months destroying much of the future pipeline of investors.
“We do not expect angel investment or seed funds to be able to perform well in the current context and therefore the continuous lack of early-stage investors on the continent might prove particularly problematic at this juncture,” the report said.