Summary of Key Findings

By region, West Africa maintained the top spot for the second consecutive year, with Nigeria as the most active country both in the region and on the continent. Dealmaking was concentrated in the Financials sector, which assumed 31% of deal volume and 42% of deal value.

The 2022 median deal size across all investment stages was US$2.0 million, a 43% increase from the 2021 full year median of US1.4 million.15 super-sized deals in companies raising both venture capital and venture debt took place in 2022, with a  combined value of US$2.2 billion. 1,000+ investors were active in Africa’s venture ecosystem in 2022. Startups raising their first round of venture financing only accounted for 37% of VC deal volume in 2022. The path to parity gained momentum - startups with a gender diverse founding team raised a cumulative total close to US$950 million.

A Lean Year for Venture Capital

Global investments in venture capital reached US$445 billion in 2022, a 32% YoY decrease after a record year of growth for this asset class in 2021. In fact, global venture capital fell prey to persistent market instability, which was aggravated by geopolitical crises, supply chain disruptions, and unprecedented inflationary pressures, which led to an increase in interest rates. As a result, these factors had a compound negative effect on venture capital deal flow. Both globally and in Africa, the fall in investments noticeably takes effect in the second half of the year. Two thirds (67%) of venture deal value in Africa for 2022 can be attributed to deals that occurred in 2022 H1. 2022 got off to a very strong start – the strongest half-year activity the continent has seen to date – and this record performance bolstered annual figures after an anaemic 2022 H2.

From Takeoff to Layoff

Headlines detailing thousands of tech-related job losses made their rounds in 2022. Although news about industry layoffs were largely preoccupied with tech titans in the United States such as Amazon, Google, Meta, Microsoft and Twitter, the mass dismissals that swept through the tech industry also trickled into Africa in 2022. Chipper Cash, Wave Mobile Money, Sendy and Twiga Foods, some of the continent’s better known and well-funded startups, all cut their headcounts by 15% to 30% in 2022. In addition to downsizing, some startups closed operations entirely in key jurisdictions. South African based on-demand home cleaning startup SweepSouth closed its Nigerian and Kenyan operations in November 2022, while in the same month Egypt-based Swvl also shutdown its operations in Pakistan. Although industry layoffs were in part due to market instability and declining revenue resulting from falling consumer demand, a large number were also due to necessary streamlining of workforce after inflated hiring during the Covid-19 pandemic to cope with heightened demand. The nature of staff being let go in the African context also differs to its North American and European counterparts. A large percentage of layoffs amongst Africa’s tech firms targeted business support and not tech-related roles. Overall, the need for, and relative scarcity of, tech talent across Africa remains a more pressing concern than broad global layoffs. And while the trend towards 
cash-strapped startups reducing costs by trimming staff has continued into 2023, job creation by funded African tech startups far outweighs layoffs. Notably, the number of jobs created by VC-backed African startups saw increases of close to 100% in 2022, employing over 34,000 people across the continent. 

Venture Debt
Venture debt has emerged from the periphery to become a key component of the African investment ecosystem in recent years, as early stage and high-growth companies opt to remain private longer and seek creative forms of financing that minimize founder dilution. The combination of a lower cost of capital and flexible repayment terms have led to the increasing popularity of the asset class as an attractive alternative to traditional equity financing, enabling startups to scale their businesses without sacrificing their ownership stake. Several already well capitalised startups raised venture debt to facilitate market expansion in 2022. For example, Yellow Africa raised US$20 million in a series of debt transactions from a consortium of lenders to enable the company to expand its distribution network of pay-as-you-go solar home systems beyond Malawi to Uganda, Rwanda and Zambia; and provide the startup with bridge capital whilst it prepares to raise a Series B equity round. 

Similarly, Solarise Africa, an energy leasing company for solar assets, raised US$33.4 million of debt funding to help it grow and expand its portfolio in Kenya and other selected African countries. Reflecting this increased uptake of venture debt strategies and the diversification of capital structures in African venture capital, the methodology for this report was expanded in 2022 to track pure / exclusive venture debt dealmaking. 67 venture debt deals with a cumulative value of US$1.3 billion took place last year, making use of a variety of instruments including mezzanine financing, direct lending, and convertible loan notes. Venture debt fundraising was also on the radar of investors last year. TLG Capital and Future Africa launched a US$25 million venture debt fund from TLG’s existing funds in December 20224.

Venture Capital Fundraising
Venture capital fundraising proved an exception to the downward trend in private capital fundraising in Africa, which registered a 54% YoY decrease from the US$4.4 billion raised in 2021, according to the 2022 African Private Capital Activity Report. 9 venture capital funds raised a cumulative US$0.4 billion in capital commitments at final close last year, with the figure rising to over US$1.0 billion with the inclusion of the value raised by interim closes. While modest, this value nevertheless represents an annual increase of 5.3x and is particularly noteworthy given the highly competitive fundraising environment for venture capital fund managers both globally and in Africa last year.

Africa’s newest wave of private fund managers are predominantly adopting venture capital strategies. Illustratively, over two thirds of the first-time private capital managers active in Africa in 2022 and reached final closes were raising venture capital funds – a majority of which were below US$100 million in size. Examples of first-time fund managers that reached interim closes in 2022 include the US$36 million first close of the gender-lens Janngo Capital Startup Fund, the US$9.6 million first close of the Tunisia-based 216 Capital Fund, and the US$8 million first close of the Egypt Deep-Tech Fund by Sequence Ventures. The rise of fund managers with an exclusively venture capital focus reflects the maturation of the asset class and its growing attractiveness to limited partners.

A Global Hub for Venture Capital

Africa was a global hub for venture capital in 2022, with both familiar and new investors coming to the table. Foreign investors outnumbered domestic investors dealmaking on the continent in 2022, with Africa-based investors accounting for slightly less than a quarter (23%) of the total number of investors active in Africa in the same period. There was also significant elevation in the number of investors backing the innovative solutions African entrepreneurs brought to market in 2022. In an industry-first accomplishment, the number of investors that took part in VC deals on the continent topped a thousand in 2022 across both venture capital and venture debt deals.

A broad consortium of global investors were dealmaking in Africa last year from multibillion dollar American VC fund managers (Tiger Global, Avenir Growth Capital) to corporate venture firms from the Asia-Pacific region (Softbank, Temasek and Tencent Holdings) and high-net-worth investors such as Serena Williams (via VC firm Serena Ventures), Jack Dorsey (via digital-payments company Block) and Justin Mateen (via VC Fund JAM Fund). While the presence of global investors signals investor confidence in the industry, particularly promising was the presence of Africa focused fund managers leading early-stage funding rounds in 2022. Continental investors including AfricInvest, Aruwa Capital Management, CardinalStone, KawiSafi and TLCom (to name a few) all led or co-led seed and early stage rounds in 2022. Given the often-cyclical nature of foreign investment in Africa which is contingent on global macro-economic trends, the emergence and increasing participation of indigenous capital allocators with a long-term commitment to the continent bodes well for the future of the industry.

Conclusion

2022 was certainly a lean year for venture capital, but several silver linings remain. A look at the bigger picture quickly nullifies concerns of what may appear at first glance to be below-potential growth in 2022. The fact that Africa recorded positive net growth in 2022 is in itself remarkable when compared to the global context, which experienced significant contractions in venture capital deal activity to varying regional degrees. While far from unaffected, Africa remained one of the fastest growing VC markets globally in 2022, proving bullish despite an unfavourable macroeconomic climate. The US$6.5 billion raised across 853 deals (including US$1.3 billion of venture debt) in 2022 proves the industry’s ability to shoulder shock and remain constant in crisis. The fourth edition of AVCA’s Venture Capital in Africa report chronicles the maturation of Africa’s entrepreneurial space between 2014 and 2022. In so doing, this report exemplifies AVCAs commitment to being part of Africa’s growth story by providing independent industry research that supports actors on both the supply and demand sides of capital.