Funding 101 // Understanding the Funding Scene in Africa

The startup funding scene in Africa has experienced exponential growth in the last two years with the fintech start-ups still leading the way. However, fundraising still remains a challenge to many start-ups.

Despite the pandemic African start-ups have recorded a heightened surpassing a number of predictions. Key to the milestones being in the last year 5 African Start-ups achieved the unicorn status, more women led start-ups secured million-dollar status and the continent is finally experiencing growth in the number angel investors networks.

Fundraising can supercharge your company’s growth, but it’s tricky to know when to start the process. That’s because raising money isn’t as simple as pitching your idea and receiving funds. It’s a choice you’ll want to think carefully about. 

When you take money from investors, you’re giving them a piece of ownership in your company. You dilute your personal equity as a result, and you also open the door to outside feedback and opinions. Investors aren’t just sponsors—they’re decision makers with influence over things like which markets you enter, whom you hire, and how you handle product development.

While it may be difficult to crack the whole concept, getting the right guidance when you are on that journey makes it a whole lot easier. From where to when and how to raise funds and a myriad of information out there, this still remains a head ache to most entrepreneurs.

As part of providing an environment where businesses can thrive, towards the end of last year,  Nairobi Garage, held a panel discussion with the industry movers & shakers in the start-up funding scene in Africa who shared their insights with entrepreneurs in a bid to shed light on the topic that many are struggling with.

Esther Ndeti – Investment Lead at Unconventional Capital explained that now more than ever African Entrepreneurs are positioned to raise more funds as the continent is attracting more investors from Europe and USA.

True to that, in the last two years the start-up funding scene in Africa with an emphasis on the tech ecosystem had a newfound attention from global players that translated to the continent’s best year of receiving venture capital. 

From varying sources, it is estimated up to $2 billion went into African tech startups in 2019. With the onset of the pandemic, African tech start-ups made upto $1.5 billion and later on in 2021 was when African tech reached an inflection point and took center stage as companies raised over $4 billion (more than they got in 2019 and 2020 combined).

What’s more interesting is that the year recorded five start-ups receive their unicorn status that is Flutterwave, Andela, Wave, OPay and Chipper Cash.  Also recorded more million-dollar funds raised by female CEOs,

She also stated that there was indeed a surge in start-up funding scene in Africa hence in the coming years we might see more true early stage start-ups in the continent getting funded.

One other area that was tackled during the session was the areas the different investors thought that the start-ups were struggling with when it comes to funding. 

Moving forward the panel explained that entrepreneurs shouldn’t overlook some key areas while preparing their pitch. First, they should understand their market , understand the kind of partnership they are getting into, make use of legal advisors to understand the terms they are getting into and also talk and network with other Founders.

On when the right time was to start fundraising, the panel shared interesting tips stating that entrepreneurs should fundraise only when they don’t need money and 

Marie Benrubi, VC Analyst from Partech, advised that entrepreneurs should fundraise when they are at the peak of their performance because this is the only time that an investor would buy into your business. 

“ At the peak of your performance you will have had a good growth, solved a problem and found the right decision making, making this the appropriate time to fundraise,” she added.

On the other hand, Esther explained the entrepreneurs should also fundraise only when they have understood  the different categories of fundraising and what type of capital is relevant to their business.

To understand how the funding process works, the growth in the African Funding sector and more on the African Angel investor networks, here is a recap video of the from the funding 101 event