In the past 10 years, venture capital has played a major role in the development of the African tech ecosystem, breaking the age-long jinx of poor access to funding.
Access to capital has long been regarded as one of the most significant challenges facing entrepreneurs across Africa. The challenge is even more acute for tech startups, which are typically light on physical assets and cannot easily access capital from traditional sources like government grants and bank loans.
However, tech businesses are also high-growth and can deliver significant upside when they succeed. As a result, early investors in tech startups can sometimes get mouth-watering returns on investment.
The combination of poor funding for African tech businesses and the risk appetite of venture capitalists have made the African tech ecosystem a near-perfect marriage for both. Venture capitalists, after all, pride themselves on backing early-stage businesses with high-growth potential despite the associated risks.
Speaking at Startup Grind’s Global Conference in February 2021, Maya Morgan Famodu and Blessing Abeng, two protagonists in the African Venture Capital and tech ecosystems, shed some light on how both ecosystems have shaped one another.
In a sense, Famodu’s story is symbolic of the symbiotic growth between Africa’s tech and venture capital ecosystems. Born to a Nigerian father and an American mother, Famodu grew up in rural Minnesota, inspired by the grit of African entrepreneurs around her.
Growing up, she realised the gap in funding for African entrepreneurs and set out to tackle it by pursuing a career in VC in 2014.
“When I had this idea to launch the fund, I started going door-to-door and reaching out to people, and VC Funds on LinkedIn, Twitter, in Silicon Valley, and across the US,” Famodu said during the conversation with Abeng.
However, in a path familiar to most startup founders, she encountered several rejections. Africa was still regarded as a dark continent for tech, so investors were not too enthusiastic about visiting. It took persistence for Famodu to convince American VC Funds to invest in the continent. “I thought it was going to be a quick conversation and we’d close the deals… instead, it took six months before we got our first client into the continent and would take three years of consistent advisory work before they would transition to being investors in our fund,” she said.
By 2017 when Ingressive Capital launched with a $10 million fund, tech on the continent was just taking off. That year, venture capital investments on the continent totalled $560 million, according to Partech, with 124 startups participating in 128 funding rounds.
Ingressive Capital went on to invest in some of the most successful companies out of that era, including Paystack, which exited to Stripe for $200 million in 2020.
However, since 2017, funding on the continent has increased by nearly 100 per cent year-on-year, resulting in a record total investment of $2.7 billion as of Q3 2021. Over that period of four years, Ingressive Capital has had a huge role in backing startups with over 30 plus investments so far.
It hasn’t been all wins, though. Like every venture fund, Ingressive has had to deal with some failures. Two of the companies in the fund’s portfolio have failed, i.e. shut down. However, Famodu counts them as lessons.
“When companies fail, the question is not how could you invest in a company that failed? It is. Do you understand what happened to the company to be able to articulate it properly?” she asked.
The increasing inflow of venture capital has also correlated with increased successes for African startups. Prior to 2017, there were no unicorns on the continent. Today, there are six. Exits have also begun to gather pace. Jumia and Helios towers have IPO’d in the New York and London Stock exchange, respectively. Paystack, one of Ingressive’s earliest investments, was acquired by Stripe, the world’s largest private fintech, for $200 million. Sendwave was acquired by WorldRemit, DPO Group by Dubai’s Network International, and lots more.
The growth of tech into a headline-making industry has happened hand-in-hand with the explosion of venture capital in Africa. Although Famodu struggled to get investors interested in coming to Africa in 2014, the continent has now become a hotspot for investments, attracting even the biggest investors. Softbank, Tiger Global, and A16Z are a few globally renowned investors that have made their African debuts in the last few years. Ingressive, building on the work it has done, is also raising a second $50 million fund to back African startups.
However, venture capitalists in Africa are solving more than just the money gap. Abeng is Co-founder and Director of Communications at Ingressive for Good, a non-profit sister company of Ingressive Capital. Ingressive for Good aims to increase the total addressable market of talents available to tech startups and investors by equipping young Africans with digital skills.
“Everybody’s crazy about entrepreneurship, but you (companies) need intrapreneurship too. Not everyone can be a founder. You need people to drive the vision as Tim Cook did with Apple,” Famodu said in the conversation with Abeng.
The edtech non-profit does this through university scholarships, sponsoring computer science departments, technical skills training, and talent placement.
Explaining the vision behind Ingressive For Good, Famodu said, “In places where you’re building businesses and underdeveloped infrastructure, you have to backwards integrate and control supply. For us, that means two things – supply of talents and actively doing things to increase the number of investible companies. We do this by increasing the number of people with access to technology and technical skill.”
Although just over a year old, the non-profit has been successful both in the number of people it has trained and the impact it has had. Blessing recounts the story of a young lady who went from using soap-making to support her family to becoming a backend engineer in six months after going through one of Ingressive For Good’s programs. The young lady went from earning N20,000 to over N200,000 in less than six months. “It (her story) is amazing. I can imagine that in the next two to three years, she could probably come up with a great idea, and Ingressive or anyone else will fund it. But, regardless, Ingressive for Goodwill will always be a part of her story,” she said. This image Abeng has is not farfetched as two former Ingressive community student ambassadors met in the community and went on to co-found a product together solving financial problems in Africa – Aboki Africa, now, Grey Finance. The business has raised its pre-seed round and was even accepted into YC. So, it is evident that there is a pipeline, and technical training is an invaluable asset.
