The Venture Capital (VC) ecosystem in Africa is one that has steadily evolved over the last two decades to become a recognised and definable investment mechanism that is simultaneously attracting international investment to the continent while encouraging the development of local venture capital firms and home-grown financing solutions. 

According to a report by the African Private Equity and Venture Capital Association (AVCA), the growth in the venture capital space and entrepreneurial landscape in Africa is chiefly due to the continent’s robust macroeconomic progress from 2000-2016, the combination of a growing consumer base, external inflows of investment, and entrepreneurial business solutions addressing African consumer needs and structural problems.

FIG 1: Source: African Private Equity and Venture Capital Association, “Venture Capital in Africa: Mapping Africa’s start-up investment landscape,” 2020.

However, the African startup space is dominated by several industries and investors who are focused on particular industries over others. In essence, the composition of VC deals by volume in Africa is concentrated in financial tech companies, purpose-fit startups, and consumer discretionary (nonessential goods and services) providers. 

Here are the five major industries attracting VC Firms in Africa

The Financial Technology Industry

The Fintech industry has attracted a huge number of investments with its innovative and scalable hallmark - In the heat of the pandemic in 2020, figures showed that VC funding for African fintech startups rose by 51% with funding being targeted towards virtual banking projects, consumer credit checks and finance apps. Later in the year, reports showed more significant growth, as new fintechs startups across the continent raised almost $350 million during the first quarter of 2020.

This industry has over the years experienced the highest investment boom and more investors are willing to invest in any promising fintech startup. Investors are still very keen to pump money into this industry for its innovative nature and especially due to the fact that the industry is yet to be saturated by any key player, this makes the fintech ecosystem an ‘anybody’s game’ space.

So far, South Africa, Kenya and Nigeria are the leading countries in the fintech startup space in Africa.

Clean Technology Industry

This is another industry garnering a lot of attention in Africa and this is chiefly due to its purpose-fit structure targeted in the reduction of potential harm in the environment.

Investors are investing to create renewable energies across Africa - from solar panels to recycling and waste management, startups in this category are in the eyes of the venture capital market.

According to Future Africa, in 2018, the cleantech sector received a total of $143.5 million in funding against the fintech startups which received $284.6 million.

Due to its purpose-fit nature, this industry will continue to attract investors - for as long as the issues surrounding the environment persist. Ignoring this thriving industry in Africa - especially when you consider that the governments of many African countries aren’t doing a great job on renewable and clean energy - would be catastrophic due to its global implication. 

Health Technology Industry

Thanks to the COVID-19 pandemic, most of the shortcomings of healthcare in Africa was brought to light in full scale to the global community. Now in Africa, the healthtech sector is another industry booming and attracting investors rapidly. 

In 2020, there were about 180 companies active in Africa’s healthtech space, with investment peaking ($90 million) in the first half of 2020 despite the COVID-19 pandemic.

The issue of health is somehow interlinked with the reasons why investors would invest in clean and renewable energy - its purpose-fit nature. Also, in the case of the healthtech space, innovative solutions are also an attractive point of value to the VC market.

Agricultural Technology Industry

The food challenges in Africa are this: The population is growing, but it is threatened by low farm productivity exacerbated by weather changes, shorter fallow periods, and rural-urban migration that deprives farming communities of young people. And due to mismanagement tendencies in many African countries, the Agritech industry in Africa is getting the attention it deserves from investors locally and globally.

READ ALSO - Top Five Fintech Startups in Africa by Funding

According to a Digest Africa report, the Agrictech industry in Africa stands at 131 agritech startups that have raised $62M in a mixture of disclosed deals over time.

Data Analytics Industry

The Data Analytics industry is one that is estimated to generate nearly $18 billion in cumulative revenues and 3.1 billion in revenue opportunities by 2028. This is due to the fact that data is now required by various organisations, government parastatals and services at various stages.

VCs are investing in both train data analysts and mine data in Africa. And according to Space in Africa, the African data centre market size is expected to cross $3 billion by 2025, growing at a CAGR of over 12% during the forecast period (2020-2025).

Data is needed to make informed decisions hence the plunge into data research. And because Africa stands as one of the continents with no well-documented database, this industry creates a level of interest to the VC (both locally and globally) space who are trying to understand the continent and create several opportunities.

In conclusion, the growth of venture capital investment in Africa demonstrates the evolving nature of external financial inflows to the continent and thanks to the startups emerging in these industries Africa appears to be on the verge of a digital transformation. Although the growth in Africa's economy from the emergence of startups is mostly due to the continent’s robust macroeconomic progress in the early 2000s, in recent times, more progress has been made in ensuring sustainability with the help of a number of VC firms.