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Africa

5 important trends that show Africa’s venture scene is on the rise

New data from VC4Africa, a startup funding platform, revealed that startups are contributing more to job creation while the investment scene is steadily growing. The data also reiterated the fact that South Africa, Nigeria and Kenya are the startup hotspots on the continent.

South Africa has the largest investment per startup (average investment) at US$250 000 average, and Nigeria has the largest mass of startups (investments tracked) in its ecosystem, at 24 (startups), while Kenyan startups have received most funding from the platform (sum of all investments) at US$4.7-million.

The data proves one thing. The African ecosystem is growing both economically and socially. The report breaks down its insights into five key growth areas:

1. EMPLOYMENT

The data shows that new jobs are being created in almost all African countries. Over the course of 2014, the average team size for a venture increased by 54%, resulting in 5.7 jobs per venture. The same ventures expect to quadruple their team size by the end of 2015. Agribusiness, health services and education related ventures are the most significant job creators.

2. PERFORMANCE

About 49% of the ventures start generating revenue in their first year of operation. By their fourth year, 34% of the ventures expect to book more than US$100 000 in annual revenue. The number of ventures with this kind of revenue potential has grown by 56% over the course of 2014. Moreover, almost one-third of the ventures turned profitable or at least reached their point of break-even.

Total amount of jobs created is highly dependent on the sample size. That said, with over 1 000 people hired up to 2013 and another 4 176 jobs expected to be created by the end of 2015, the figures in this section show that ventures active on the VC4Africa platform are creating a significant number of new jobs.

Read more: Get married and 4 other tips on getting off the ground as an entrepreneur

3. INVESTMENTS

The research shows that about 44% of the ventures are successful in securing external capital investment. The average capital secured per venture increased from US$129 348 in 2013 to US$205 374 in 2014, otherwise an increase of 59%. The largest investments are made in South Africa, the most investments are made in Nigeria, and Kenya secures the largest total amount of external capital.

Total invested capital more than doubled compared to last year’s research: from US$12-million to US$26.9-million. This can be explained partly by the growing sample size. However, looking at the average amount invested per venture the numbers increase from US$130 000 last year to over US$200 000 this year.

4. INVESTORS

Of the 600 investors part of the community, 82% invested in an African venture. Angels represent one-third of the network, followed by Venture Capital firms and Social Impact Funds. Investors report management and team as being the most important factors they consider when investing. The country’s level of economic growth and size of market are the most important factors when deciding where to invest.

The investors are actively investing. Money is allocated to a broad range of sectors and investment sizes varies between the different types of investors.

5. ECOSYSTEM

The ventures that participate in sector events, or join an incubator or accelerator, secure on average US$126 090 in external investment. This is 23% more than their counterparts who do not participate in such programs. Ventures that have established a partnership with a multinational company secure 150% more capital on average, and are 57% more likely to break-even by their third year of operation.

The importance of participating in an acceleration program, or being selected for a pitch event, results in an increased amount of capital raised. Ventures participating in acceleration programs or events secure higher median and average amounts of capital compared to ventures that do not.

Image by Tarantino Vincenzo via Flickr