Resilient Africa must leverage informal sector, demographics to attract start-up investment
Venture capital firm 500 Global believes Africa’s large informal sector and strong demographics are key to the continent’s sustained ability to attract investment in its start-up ecosystem.
New data from CB Insights shows that venture capital flow into African start-ups fell to US$367-million for the third quarter period to September.
500 Global - which has a portfolio of 78 start-ups across Africa - believes the continent has shown resilience and continues to attract funding.
The company said it planned to close three funding deals for African start-ups this year, including a contribution to West African B2B retailer BetaStore.
According to 500 Global, “Africa has some of the strongest demographic trends in the world with 60% of its 1.37 billion population is under the age of 25. These facts point to incredible long-term economic growth prospects for start-ups when considering the ever-growing household and business spending. The informal economy, a key driver of economic growth in Africa, is also underserved.”
In the past week, Nigerian Fintech Pivo closed a US$2-million funding seed round while Djamo, an Ivorian start-up that allows for banks and mobile money interoperability raised US$14-million in funding.
When deciding to invest, 500 Global “looks for a strong team and a sizable market” as well as “technical talent” that the company deems as helpful. “However, we also look for certain traits, such as how quickly founders move to execute, and how open they are to feedback.”
The company has invested in Egyptian Fintech AMWAL Corp, Nigerian Fintech Aella, Ugandan Fintech Asaak, Egyptian social commerce firm Brimore and Ghanaian software services company Dropifi.com, among others.
While Africa has demonstrated resilience in being able to attract venture capital, challenges remain, including government regulations and foreign currency access in markets like Nigeria and Zimbabwe, which make payment integration difficult.
“Every market has its challenges, whether they are FX issues, irregular government regulations, or the cost of doing business,” 500 Global explained.