Venture Capital funding in Africa as a catalyst for innovation

Isaac Chindotana, portfolio manager at Lireas

Fundraising is one of the hardest undertakings that entrepreneurs have to grapple with, especially in the early stages of their journey. One of the major reasons why raising funding is such a painstaking process is because of the scarcity of Venture Capital in Africa to support start up and early stage entrepreneurial ventures. Whilst we have seen the emergence of a number of VC funds on the continent in countries such as South Africa, Kenya, Nigeria, Egypt and Morocco, the pool of potential investors remains limited when compared to much larger and well developed VC markets in North America, Europe and Asia.  Further to the limited but growing pool of VCs in Africa, there has also been limited high profile exits that would naturally encourage and increase interest and appetite for these types of investments. So for these reasons, African VC capacity and appetite to write big cheques is still limited, despite ever increasing entrepreneurial activity and great ideas and innovations emerging out of the continent, that deserves funding.

As a Venture Capital player in the South African market with a specific focus on Insurtechs, Lireas Holdings has made Seed and Series A Investments into 8 Insurtech startups in the last 5 years. We have indeed been on a journey of exploration and learning together with our family of entrepreneurs as well as local and international co-investors in our portfolio companies. Compared to 5 years ago and despite what is noted above, we are observing increasing appetite to invest in local and international tech businesses by Corporate Venture Capital firms (CVCs) and Enterprise Development Funds (EDFs) of large corporates in conjunction with independent VCs and in some cases international investors as well.  In the last +/-3 years, International Investors from the US, Europe and parts of Asia are increasingly taking note of smart innovations that are coming out of Africa, some of the unicorns that have emerged from the continent as well as the vast potential of the continent with respect to a large and growing consumer population, smart ideas emerging out of the continent. In some cases, these ideas develop into solutions to problems that entrepreneurs exploit and tap into the massive commercial and export potential that these African grown solutions and innovations present. Two of our portfolio companies Inqaku and Lumkani are perfect examples of such phenomenon.

Africa’s diverse tech scene has been one of the fastest growing in the world this last decade albeit off a low base. The increasing interest from international investors is a great development for African entrepreneurs and the African VC community as a whole since it stimulates and spurs investment, as entrepreneurs and VCs are more encouraged to take the investment risk with the confidence of better prospects for follow-on rounds, potentially larger ticket sizes and additional value of international investors opening doors with other investors, markets and potential trading partners. So Yes! The outlook for African Venture Capital is indeed a positive one and very for exciting for entrepreneurs and investors globally.