African venture capitalists bullish over VC sector ahead of Nigerian Interswitch’s IPO

The World Bank has forecast growth in Sub-Saharan Africa to slow from 3.4% (forecast) in 2019, to 2.9% in 2020. But despite slower growth, venture capitalists remain bullish over the continent’s venture capital (VC) scene.

Earlier this month London-based research firm Briter Bridges reported that African tech companies last year raised over $1.2-billion in funding in 167 disclosed deals (see this story).

EWB Ventures investment director Muthoni Wachira is expecting investments to continue a steam this year.

“With bull markets and low interest rates predicted to persist in 2020, capital will remain abundant and investors will continue to seek exposure to alternative asset classes and frontier markets to diversify portfolio risk and improve portfolio performance,” she told Ventureburn last week.

2020 is expected to be a good one for tech investments in Africa, says venture capitalists

Wachira pointed out that the fundamentals for investing in Africa remain strong and continue to improve. These fundamentals include the African demographic dividend, geopolitical stability, growth in smartphone adoption, digital sophistication and a rise of the middle class.

She added that the unicorn status Lagos-based digital payments firm Interswitch Group attained last November (see this story) ahead of its planned initial public offering (IPO), marks a significant milestone for the African tech sector.

“New fund announcements, mega-rounds and significant injections of capital from international investors like Visa, Goldman Sachs, and Transsion are all indicators of high investor confidence. We expect to see this trend continue in 2020,” she added.

Wachira said EWB will position itself to benefit from these trends, and early this year plans to launch a $20-million seed fund aimed at early-stage tech startups in East and West Africa.

She added that the investor is looking to close a Series-A investment this quarter in a tech venture — which she did not name — that is transforming last mile distribution and e-commerce across sub-Saharan Africa.

Investments to concentrate in Nigeria, Kenya

TLcom Capital founder and managing partner Maurizio Caio believes there will be more availability of capital at all levels of ticket size. Caio said new investors, primarily international investors, are coming in.

However, he noted out that governments are still fundamentally absent from the investment ecosystem.

When it comes to where the investment goes, he expects that there will still be “strong concentration” in Nigeria and Kenya. Caio expects South Africa will this year become less relevant, as investments in Egypt and Ethiopia pick up.

He said between this quarter and the next, TLcom Capital expects to announce two or three investments in the automative and fintech space. These deals will mostly be seed and Series-A with ticket sizes ranging from $1-million in two cases to $5-million in the other.

Last week, UK development finance institution and impact investor CDC Group announced that it had committed $15-million to TLcom’s Tide Africa fund to support early-stage high-growth startups across sub-Saharan Africa (see this story).

‘Interswitch IPO to have knock-on effect’

In Francophone Africa Senegal and Ivory Coast are likely to remain among the top investment destinations in the region.

But Brightmore Capital managing partner Dmitry Fotiyev expects to see more investments coming into the smaller regional economies like Benin, Togo, Burkina Faso and Guinea. “There are also some interesting tech opportunities in these countries,” he added.

Chanzo Capital managing partner Eric Osiakwan (pictured above) points out that there are several mega trends that will drive the Africa growth story this decade.

The first is around the common market in Africa which he said is currently estimated at about $3-trillion.

The second is Africa’s returning diaspora, who bring with them capital and human resources, while the third is a growing demography, with the continent’s population expected to quadruple in the next two decades.

For Osiakwan the pending Interswitch IPO will further shine a spotlight on Africa and re-enforce the notion that African tech ventures are coming of age into the global public market.

Says Osiakwan: “This is also going to create a knock-on effect with local capital which would start aligning to the tech sector”.

Is 2020 then going to be a dream year for African venture capital?

Read more: African tech firms closed funding deals worth $1.27b in 2019 – Briter Bridges report [Updated]

*Ventureburn editor Stephen Timm contributed to writing this piece.

*Correction: Africa’s new common market will be worth $3-trillion — and not $3-million as we stated earlier. 

In addition, we initially reported that EWB had launched a $20-million seed fund — when in fact it still plans to launch the fund, early this year.

Featured image: Chanzo Capital managing partner and Angel Fair founder Eric Osiakwan (Supplied)