Africa, the new VC playground ?!
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In 2022, I traveled across Africa and spent a few months living in Cape Town. So, naturally, when I was chatting with you all this week about VC investments, Africa came up big time!
One question kept popping up: Is Africa a good deal or not ? A risky bet or a golden opportunity? Spoiler alert: It might be both, and that’s what makes it so exciting.
Let’s dive in! 🚀 I've got a little surprise for you at the end, with two unique short intervew.
The VC Game
When I talk about investment here, I’m mainly talking about Venture Capital. That means investing in small businesses, startups, and SMEs in their early or growth stages, just before they hit profitability, with the ambition to take them from $1 to $1 billion in valuation in 5 to 7 years.
These are “toll booth” businesses with a huge scaling capacity: platforms where the marginal cost per transaction is practically zero. Think of giants like Stripe or Uber, who have become essential infrastructure in their industries, and you’ll get the picture. These companies thrive on network effects: the bigger they get, the more valuable they become, and Africa is still a relatively untapped playground for this kind of model.
So, Why Africa?
Alright, why should we be thinking about Africa?
Two major reasons: the cost of opportunity and the market opportunity.
1. Cost of Opportunity
I won't spend too much time here. We all know money is pouring into Asia, the US, and Europe. Valuations are through the roof, and the markets are crowded (not saturated, but crowded). The result? It’s getting harder and harder to find THE gem, which means the cost of opportunity is climbing, directly impacting the financial performance and IRR of funds. Bottom line, coming in late means buying in at a high price.
2. Market Opportunity
Africa is a whole different ball game. We’re talking about a $2.5 trillion GDP, 1.4 billion consumers, a middle class of 350 million people, and 2.5% annual population growth. With 60% of the population under 25, the continent is young, ambitious, and tech-savvy. Add to that a $100 billion funding gap in tech, according to the World Bank, and you’ve got an incredible playground for VCs.
To sum it up: a booming, tech-hungry population, with a massive need for funding. In other words, endless opportunities for those who know where to look.
The Key Sectors: Where to Place Your Bets
1. Fintech: The Banking Revolution
Did you know that over 60% of Africans are still unbanked? That’s over 800 million people! To give you some context, it’s like the entire population of Europe not having access to a bank account. Imagine the potential for digital financial services. African fintechs haven’t wasted time; they’re delivering fast, accessible, and affordable solutions, thanks to massive mobile penetration.
Examples:
Flutterwave and Paystack have transformed online payments, making transactions seamless for thousands of SMEs and boosting the digital economy across Africa. Stripe’s $200 million acquisition of Paystack shows just how valuable this space is.
Wave, based in Senegal, disrupted the money transfer market with near-zero fees, attracting millions of users in record time.
Why invest? African fintechs aren’t just filling a need; they’re building a whole new economic ecosystem. They’re empowering local businesses, making loans more accessible to SMEs, and driving financial inclusion. Investors jumping in now will ride a wave of explosive growth and long-term penetration.
2. Renewable Energy & Cleantech
About 600 million people in sub-Saharan Africa still don’t have access to electricity. That’s a huge opportunity for companies focusing on renewable, decentralized solutions. Unlike traditional, heavy, and costly grid infrastructure, cleantech solutions are flexible, scalable, and affordable.
Examples:
d.light and M-Kopa revolutionized access to electricity with pay-as-you-go solar kits, bringing light and power to millions of homes.
Zola Electric offers hybrid systems (solar + batteries) to counter regular power outages and provide reliable energy access.
Why invest? Africa has one of the best solar potentials in the world. With the cost of renewable energy dropping, cleantech startups are perfectly positioned to meet the growing demand. Investing here means you’re betting on the future of clean energy while solving a fundamental issue.
We were just talking about SMRs (small modular reactors) the other day - right here. By the way, I'm still digging deeper into this topic, so hit me up if you want to chat about it!
Strategy: Diversify geographically to mitigate risks tied to fluctuating energy policies. Focus on off-grid projects that are less dependent on public infrastructure.
3. Agritech: Feeding a Growing Population
Agriculture employs 60% of Africa's workforce, but it’s largely under-optimized. With the population expected to double by 2050 to 2.5 billion, boosting agricultural productivity is crucial. It’s a matter of economic survival and food security.
Examples:
Twiga Foods connected farmers directly with retailers, cutting out middlemen and streamlining the supply chain, reducing waste and increasing farmer incomes.
Farmcrowdy enables farmers to get crowdfunding to buy agricultural inputs and modernize their farms.
Why invest? Agritech solutions optimize supply chains, improve yields, and reduce waste. Investing here means betting on a vital sector for the African economy, one that has enormous potential for modernization.
Strategy: Back startups providing accessible, scalable tech. Partner with agricultural organizations to develop locally-tailored solutions.
4. Healthtech & Edtech: Bridging Infrastructure Gaps
In terms of healthcare and education, Africa faces significant challenges. Limited access to services, insufficient infrastructure, uneven distribution… but where there are problems, there are also innovative solutions!
Examples:
Zipline delivers medicines by drone to remote regions of Ghana and Rwanda, saving lives in record time.
Andela trains developers and connects them to tech companies worldwide, boosting local employment and tech inclusion.
Why invest? These startups aren’t just creating economic value; they’re improving people’s lives. As an investor, you can make profits while making a massive social impact.
Strategy: Support startups with flexible models that can pivot according to local needs. Leverage partnerships with development organizations to tap into additional funding.
But Let’s Not Sugarcoat It:
Africa Isn’t an Eldorado Without Challenges...
Politics & Regulation: Political environments can be unpredictable. Take South Africa’s power outages (load shedding) due to tensions in the electricity trade.
Strategy: Diversify your investments, target stable countries, and work with local partners to better navigate these challenges.
Weak Infrastructure: The lack of infrastructure can be a hindrance, but also an opportunity: tech startups can bypass these obstacles with decentralized solutions like Starlink for internet.
Strategy: Invest in critical infrastructure and bet on resilient solutions that don’t rely on shaky public infrastructure.
Talent Shortage: The brain drain is real, but it also means that those who stay or return are super motivated.
Strategy: Encourage flexible work, build local talent hubs, and connect local talent to the global economy. Initiatives like Andela show how to tap into the continent’s human potential.
Exits: The Winning Play That’s Just the Beginning
Let’s talk about exits. Because let’s be real, as exciting as growth potential is, investors want to know how they’re going to cash out — and Africa is starting to offer solid exit options.
1. Acquisitions: A Rising Wave
In recent years, we’ve seen a wave of strategic acquisitions in Africa, and it’s been a real boost for VCs. Global players are taking a closer look at the continent and are ready to invest. A prime example: Sendwave, acquired by WorldRemit for $500 million. It wasn’t just a big payday; it was a strong signal that African fintech is ready to play in the big leagues.
2. IPOs: Stepping Onto the Global Stage
IPOs for African startups are still rare (just like in Europe, by the way 🫠), but they’re no longer unheard of. In 2019 (19, I know), Jumia became the first African tech startup to list on the New York Stock Exchange (NYSE). Yes, Jumia has had its ups and downs, but that IPO was a turning point — it showed other ambitious startups that they, too, could aim higher.
3. Secondary Markets: Liquidity Before the Finish Line
Secondary markets are also becoming more active, allowing early investors to sell their shares even before a full exit. Platforms like NaijaFund and Naspers Foundry are helping create liquidity, which is essential to keep investor interest high. Basically, VCs don’t have to wait for a big acquisition or IPO — they can find buyers along the way and still get a solid return.
This model also opens the door for founders to explore other forms of financing, like private equity (PE) or leveraged buyouts (LBOs), either with a fund or through their own structures. In short, it paves the way for a range of healthy financial strategies.
Experts' notes
To give you a local view of the subject, I've asked two local investors to give you their point of view in audio format.
Caleb Maru is the CEO of a media company in Kenya and an investor in Proximity Ventures.
Élisabeth Moreno, former French minister and now Chairwoman of Ring Capital’s Board
Africa, A Deal You Don’t Want to Miss
With a booming population, a tech-savvy youth, and hot sectors on the rise, Africa is poised for a transformation like no other. Sure, there are challenges, but those who see beyond the obstacles will find untapped market opportunities waiting for them.
So, ready to take the African bet? Let’s chat in the comments! Which sectors excite you the most, and where do you see investment potential? Drop your thoughts and questions - I’m curious to hear from you!
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