Are UK venture capital firms missing out on an African tech boom?
When the Nigerian payments firm Flutterwave closed a mammoth $250m funding round earlier this year, conspicuously absent from its list of big-name backers was UK venture capital.
A host of US giants had poured cash into the round, valuing it at over $3bn and placing it at the forefront of what has becoming a booming tech scene in Nigeria, but UK firms there were none.
And their absence does in some respects out a wider dearth of UK funding into the continent’s start-ups.
Last year was a record breaking year for African tech investment, with $5.2 billion pumped into firms across the continent in 681 equity rounds, up 264 per cent from 2020 figures of $1.4 billion, according to data from Partech’s Africa Tech Venture Capital report.
With firms like Flutterwave ramping up numbers again 2022 is set to be another bumper year.
But amid the funding surge, UK VC has not been pulling its weight.
A report from the African Venture Capital Association, which champions and facilitates foreign investment into Africa, last year found that just nine per cent of backers were UK based.
Investors stateside meanwhile made up 35 per cent of those that took part in VC deals.
The difference in depth between the two pools of capital will always lead to an imbalance, but are UK VCs failing to fund the growth potential in front of them?
“This is a massive opportunity being missed,” says Tosin Agbabiaka, a London-based specialist in African fintech and tech at Octopus Ventures.
“For Anglophone Africa, London is the portal and entryway to the west. You have an extremely massive African diaspora here, so there is no reason that the UK should not be the first port of call for African companies looking to expand.”
For Agbabiaka, a conservative mindset is holding back investors compared to their US counterparts, who have been putting boots on the ground and sourcing investment opportunities for years.
Tom Jackson, a specialist at African tech organisation Disrupt Africa, meanwhile says investors have been conditioned into thinking that grant funding and impact funding is the only way to deploy capital in the continent.
“It’s almost been hammered into the UK psyche that Africa isn’t a place that you go to invest.
“Part of it is a lack of visibility – what investors need to see are success stories. Investors need to see exits and other investors that have made good money.”
GOODSoil venture capital is one of the firms aiming to prove that mindset wrong. Founder Charmaine Hayden specialises in seeking out early-stage firms across sub-Saharan Africa and Europe, and similarly says UK VC firms and their investors need to shake off the conservatism and follow her lead.
“We spoke to one fund of funds in the UK that asked us to drop the Africa focus of our portfolio because they felt it was too risky and they didn’t understand how we were going to due diligence,” she said.
She argues that in fact the nature of the start-up space allows the due diligence process to be more thorough, with investors often able to speak to close-knit communities and get to know firms from the ground up.
Hayden’s firm has proved the effectiveness of her strategy so far, with a portfolio boasting names including Ghana’s leading brokerage Obsidian Achernar and Ghanaian fintech Zeepay. It’s time UK investors realise the size of the growth opportunity, she says.
“They are often Seeing Africa as a country rather than a continent, and not looking at the true population and the true scope.
“This is a frontier market, we’re at the very beginning of the technology wave. Anyone who is looking at their true fiduciary responsibilities to their investors should be looking at the opportunity for growth.”
There are signs that things are changing. Just last week Nigerian firm mobility firm Moove closed a $105m funding round to supercharge its growth in Europe and Asia, backed by a number of new investors including UK firms Kreos Capital and Latitude,
With 2022 set to be a bumper year for African venture investment, time will tell whether more UK VCs follow suit.