A dazzling January debut for tech startups in Africa

From SPACs to Y Combinator's new deal to the growth of neobanks and BNPL solutions, here's what happened across the African startup ecosystem in January 2022

Afridigest provides ideas & analysis for startup founders, operators, and investors across Africa and beyond. 

This article explores key trends and developments in the African tech space in January 2022.

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After a banner 2021 for the African startup ecosystem that saw the birth of five unicorns, eleven announced $100M+ mega-rounds, and a total of between $4 and $6 billion raised by Africa-focused startups according to various estimates, January was a solid kickoff month across Africa’s innovation economy.

The inaugural month of the year saw 58 announced deals from 57 companies across the continent totaling over $430M in disclosed funding raised (including mixed equity and debt rounds), according to Afridigest’s weekly tracking and methodology.¹

In terms of the number of deals, Nigeria led the way with 18 separate deals involving 17 companies, ~31% of the total number of January deals across the continent, thanks largely to the country’s strong representation in Y Combinator and On Deck accelerator programs.

And in terms of deal value, Tunisia led the way thanks to InstaDeep's $100M Series B (the continent's first mega-round of 2022), which accounted for ~23% of the total disclosed funding raised in the month.

Regional spotlight

In general, the new year brought quite a bit of geographic diversity as outside of Tunisia and the ‘Big Four’ countries that have historically attracted the bulk of VC attention on the continent (Nigeria, South Africa, Kenya, and Egypt), the month also saw fundraises from Morocco in North Africa, Ghana in Anglophone West Africa, Bénin, Sénégal, and Côte d'Ivoire in Francophone West Africa, Tanzania and Uganda in East Africa, Ethiopia in the Horn of Africa, and Namibia in Southern Africa. In all, countries outside the Big Four accounted for approximately one-fourth of deals announced in January.

But in terms of deal value, countries outside the Big Four accounted for a whopping half of the disclosed funding raised. The figure is skewed, of course, by the Tunisian mega-round; but even when one excludes InstaDeep from the analysis, countries outside the Big Four significantly outperformed in January with a ~33% share of deal value, compared to an estimated ~25% share for full-year 2021. The continued rise of sometimes overlooked, non-Big Four countries across the continent is among the trends to expect in 2022.

Sector breakout

Sector-wise, fintech unsurprisingly led the way, attracting 29% of the disclosed funding in the month, followed by deep tech’s 23% thanks again to the Tunisian artificial intelligence mega-round.

The top five sectors attracting funding in the month were fintech, deep tech, e-commerce, healthtech, and internet connectivity.

Trends and developments

Fintech continued its dominance across the continent, with several key fintech trends to note during the month. These include the following:

• The continued rise of BNPL. The September 2021 acquisition of South Africa’s Payflex by ASX-listed Zip sent a strong signal of the viability of buy-now-pay-later solutions on the African continent. And later in that year, players such as Omnibiz, Sympl, TradeDepot, and others announced BNPL solutions.
  
  January 2022 saw this trend continue with the Series A of Kenya’s Lipa Later, the launch of BNPL solutions by Egypt’s MNT-Halan, the announcement of an upcoming BNPL infrastructure solution by Nigeria’s ThankUCash, the announcement of a BNPL pilot by Morrocco’s Chari, and more.

• The increasing appetite for digital lending/financing solutions in general. While BNPL addresses the need for credit in specific contexts, there remain myriad other financing opportunities across the continent that a variety of providers are attacking.
  
  In January, among other developments, Uganda’s Asaak announced a $30M Series A for its mobility-focused asset financing solution, South African credit-focused firm Finclusion announced a pre-Series A, and Ghana’s Float and Kenya’s Zanifu announced seed rounds for their SME-focused financing offerings.

• The ongoing proliferation of digital banks & neobanks. On my list of 2022 trends to watch for is the continued rise of (specialist & generalist) neobanks/digital banks and January didn’t disappoint.
  
  South Africa’s Finclusion announced its new strategic direction: the development of a credit-led neobank; Vesti, a specialist Nigerian neobank targeting Africans migrating abroad, raised a pre-seed; and Ukrainian/British neobank builder Fintech Farm announced its upcoming Nigeria play, Fibo, not to be confused with Ghana-first Israeli neobank Fido — the subject of January rumors that it’s in the midst of a significant fundraise of its own.

While African fintech remains dynamic, there were important trends and developments that happened outside of fintech in January as well. Here are some of the more notable ones to take note of:

• Agent-driven models are commanding increased attention. I wrote in August last year that “across African markets, the agent network model is particularly well-suited to drive scale & business impact as a last-mile channel for acquiring, educating, and engaging end customers” in an article that highlighted Egypt’s Brimore and Kenya’s Copia as examples.
  
  And in January, the two firms raised a combined $75M with Els Boerhof, Managing Partner at Goodwell Investments (lead investor of Copia’s Series C), saying “the model is built for the unique requirements of the African market…we see it as one of the next big leapfrogging [🙄] technologies.” For his part, Brimore CEO & Co-Founder Mohamed Abdulaziz added that Brimore is “crack[ing] the concept of go to market in Africa…through people.”
  
  Also featured in the August 2021 article about new agent-driven models was Kenya’s Tanda and it was itself the subject of January 2022 rumors of a significant upcoming fundraise. Stay tuned.

• Cautious optimism around Africa-focused SPACs. The Wall Street Journal wrote in a January article titled ‘The SPAC Ship Is Sinking’ that “the [SPAC] hype is giving way to reality … [and] a number of companies are now withdrawing from previously announced SPAC deals.”
  
  In July of last year, Egyptian mobility tech platform SWVL announced a tie-up with special-purpose acquisition company Queen's Gambit Growth Capital that is said at the time was expected to close in Q4 2021. That didn’t happen.
  
  But news reports in December 2021 said the SPAC IPO was then expected to take place “by the end of January 2022.” That also didn’t happen. On the contrary, on January 30th, SWVL and Queen’s Gambit terminated some previous agreements. But recent news reports in early February seem to indicate that the deal is still under consideration. What comes next remains to be seen.
  
  In any case, January brought talk of a new SPAC across the ecosystem, with a pair of successful Africa-focused angel investors sharing early plans to list a SPAC targeting African tech companies with Bloomberg, SABC, & others. Their efforts may be buoyed by the recent success of music streaming platform Anghami’s SPAC IPO — headquartered in the UAE with offices in Egypt, the Spotify rival became the first MENASSA tech company to list on Nasdaq on February 4th.

• The growing impact of global accelerators on African startups & investors. Y Combinator generated a lot of discussions around the ecosystem in January with the announcement of its new standard deal terms: $125K for 7%, along with a mandatory $375K at the most favorable terms of the next equity round.
  
  Quartz Africa’s Alexander Onukwue noted the “anxiety” this generated, OO Nwoye expounded on “the YC Bump, the YC Premium, and the YC Arbitrage,” Eloho Omame wrote that “the new deal forces African founders to think strategically about their fit with the program and its implications for their fundraising flexibility,” and many other investors, journalists, founders, and ecosystem actors added thoughts of their own.

  iyin.eth @iaboyeji

  The challenge now is how early are they willing to go. YC is Africa's default seed fund. If you aren't earlier than them in a deal most of the best dealflow will be priced past you and proceed straight to the Tiger Globals of this world..

  January 24th 2022

  7 Retweets38 Likes

  Another global accelerator to watch in Africa is On Deck. In late 2021, it announced a $100M community-backed fund/accelerator (offering then-similar terms to Y Combinator: $125K in exchange for 7% equity) and a search for an Africa Director. While perhaps lacking the cachet of YC, On Deck has garnered a lot of respect and goodwill across the continent via the On Deck Fellowship and in January, five African startups announced their participation in On Deck’s ODX and ODX Flexport programs.
  

• Globally recognized VCs increasingly active in Africa. January saw the official arrival of globally well-reputed VC firm Andreessen Horowitz to Africa with its Series A investment in South Africa’s Carry1st. While a16z had previously invested in Branch, Zipline, and Goldfinch—companies with significant African operations—this marked the VC firm’s first investment in a company headquartered on the continent.
  
  Also active in the month, among others, were Tiger Global who co-led the seed round of Ghana’s Float; Accel who participated in the seed round of Tanzania’s NALA; Chamath Palihapitiya’s Social Capital who participated in the Series D of Ghana’s mPharma, the pre-Series A of Uganda’s Asaak, and the seed round of Kenya’s Sote.

  

  In a sign of what’s to come, January also saw globally renowned, fintech-focused VC firm QED Investors announce two new hires: a Partner to focus on African investments and a Principal with a dual focus on US and African investments.

Final word

All in all, January was a dazzling debut across Africa’s startup ecosystem that bodes well for 2022 & beyond. And the world is increasingly beginning to take note.

“If you don't have an Africa investment strategy as a 'global' VC today, you're about to sound like those who wished they entered Southeast Asia and Latin America earlier.” — Stephen Deng, Co-Founder, DFS Lab

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AUTHOR’S NOTE

If you want to explore certain subjects more deeply, if you’re considering or already building something interesting in/for African markets, or if you’re interested in investing in African tech, I’d love to chat. Contact me on Whatsapp, slide in my Twitter DMs, or send me an email.

Thanks for reading 🙌🏽
— Emeka

1. A note on the methodology used: startups participating in accelerator programs from On Deck and Y Combinator were deemed to have already raised $125K and $500K, respectively; fundraises from what we term ‘Africa-adjacent’ companies like the Ukraine/UK’s Fintech Farm, the UK’s Aceleron, and the US’s Goldfinch that may have significant operations on the continent are excluded; grant funding and deals from less traditional sources of capital like WeFunder or GetEquity are generally excluded; for standardization, the date of the first public fundraising media announcement or press release is used to indicate the month of the deal; unannounced and rumored deals are excluded; and due to a tech focus, startups like Kenya’s Mr. Green Africa that are arguably less tech-enabled are also excluded.