A new report estimates that venture capital (VC) investment in tech startups serving the African market could fall by up to 40% this year.
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Using figures from Partech Africa’s recent report on investments in Africa’s tech sector and data from Greentech Capital’s Maxime Bayen, AfricArena forecasts that investments in 2020 could drop to between $1.2-billion and $1.8-billion, compared to the over $2-billion recorded in 2019.
AfricaArena’s estimates from Bayen are based on figures he gathered that Africa tech startups netted $343-million in investments in the first three months of 2020.
AficArena estimates that the total of the 2020 investment in African tech startups could fall by up to 40% over 2019
AfricArena says despite valuation metrics being down by 20% to 30%, new deals will likely be limited until the broad economy restarts.
In the worst case scenario (of $1.2-billion) AfricArena forecasts no significant pick up in deals this year, while the best case scenario factors a strong uptake in the fourth quarter.
Factoring in a 27% year-on-year growth, AfricArena expects deal activity to fall sharply in the second and third quarter of 2020, primarily fueled by VC investors doing refinancing deals on their portfolio.
The report uses Partech’s broad definition to define a startup. Therefore companies headquartered in Africa or whose operations serve the African market are included. Furthermore the report’s authors define a startup as any tech-based company (no matter the age of the firm) that is seeking financing to scale its operations.
‘2021, 2022 to remain uncertain’
Furthermore, the report expects that 2021 will remain a highly uncertain year.
Its forecast range from a figure of total investments raised of $1.6-billion to over $3-billion raised, with the worst case scenario based on a prolonged and fragmented impact on the African economies, and the best case scenario factoring in a full recovery by the first quarter of 2021.
AfricArena expects 2022 will largely depend on the speed of recovery observed in 2021, with total investments expected to range between $2-billion and over $5-billion.
Early-stage investing at risk
The report said the pandemic risked wiping out a large chunk of early-stage investing in the coming three to nine months, destroying much of the future pipeline of investors.
“We do not expect angel investment or seed funds to be able to perform well in the current context and therefore the continuous lack of early-stage investors on the continent might prove particularly problematic at this juncture,” said the report’s authors.
However, the report’s authors said Africa has repeatedly proven it’s resilience. “There is one thing we have learnt that in Africa in particular “it always seems impossible until it’s done”.
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