The VC4Africa 2015 Report: Venture Finance in Africa shows the progress of early-stage growth companies across Africa. Jasper Grosskurth, Managing Director at Research Solutions Africa Ltd, reacts to the results below. This article is also included in the report.
These are exciting times for those who invest in Africa. We observe a strong increase of interest ranging from small scale investors to global multi-billion dollar funds. Their money meets an increasing number and diversity of businesses. New ways to match funds with businesses, such as VC4Africa, are catalysts for this growth of activity.
Less than 1%: Algeria, Angola, Benin, Burkina Faso, Burundi, Cape Verde, CAR, Chad, DRC, Gambia, Guinea, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritius, Morocco, Namibia, Sierra Leone, Somalia, Sudan, Swaziland, Togo, Tunisia and Zanzibar.
This report clearly shows the momentum. The number of venture applications on VC4Africa has grown by 640% in just 3 years. That growth in volume reflects a larger and more vibrant SME ecosystem in Africa: more ideas put into action, more encouragement, more risk taking entrepreneurs, more networks, more visibility. While many of the companies might still be in a stage of pure ambition or mentor dependency, a quickly increasing number are investor ready with attractive offers.
My own favourite set of indicators in the VC4Africa survey covers the team size. Just a year ago, the survey yielded an average team size per company of 3.7. The 2015 survey reports a rise to 5.7. Better even, the participating companies expect to quadruple their team size within the next two years. Many might fall short of that target, but the positive momentum is significant.
Larger teams reflect the fact that the idea owner is able to convince others of the benefit of the idea and has more shoulders to stand on. And in a large, yet committed group an investor is more likely to find promising people to work with. Given that team is probably the single most important decision criterion for investors, the growing team size is a very positive signal.
When we look at revenues, we see another set of hopeful signals. The share of companies participating in the survey that have reported to already have revenue stands at close to 60%. And for those that have revenue, the average revenue ranges from less than USD 10K per year for fresh startups to a median of USD 50K and more for mature businesses. Investors love businesses with a proven business model and there is no better proof than revenues.
The money follows these positive developments. In last year’s survey the average investment into a company was USD 130K, including external funding and owner’s funding. This year’s survey puts the average investment at USD 205K, almost 60% growth. The average external funding alone has now grown to USD 127K.
This heightened level of activity will bring stories of success and of failure, stories of big wins and total losses. Both, bulls and bears of Africa will find evidence confirming their view. In that way, Africa is growing into a regular investment market where professional businesses meet professional investors. 2014 might well be a major positive tipping point on that journey. I am very bullish and find my evidence in the 2015 VC4Africa fresh business survey.
Download a summary of the VC4Africa 2015 Report: Venture Finance in Africa and see for yourself!
Data sets on this emerging segment are limited and there are few comparative studies. The VC4Africa community of startup entrepreneurs and investors collects data to help explain trends and set the way forward. This report captures the performance of companies listed on the online platform and highlights the activity of investor’s part of the network. As the community continues to grow, it is expected this yearly report will lend insights into what is happening across the larger startup ecosystem. The VC4Africa 2015 Report: Venture Finance in Africa breaks down insights across 5 parameters: employment, performance, investments, investors and influencing factors.
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