Tech startups and the venture capital ecosystem transforming ideas and startups into disruptive businesses are growing globally, a phenomenon that Boston Consulting Group (BCG) explores in a recent report on the expansion and maturation of tech startups African.
According to the authors, Africa enjoys a fertile environment for tech entrepreneurs due to the continent’s young and growing population, increasing Internet penetration, and the application of emerging technologies that have the potential to improve access to healthcare, financial services, education and energy. As such, the research paper focuses on the meteoric growth of tech startups across the continent, the persistent challenges and structural barriers that hamper the future growth of these companies, and policy recommendations to overcome these obstacles and develop. the innovation centers of Africa.
Securing venture capital financing, according to BCG, is an important milestone for startups and is an important step that allows them to scale and develop novel products. In the study, BCG found that the number of African tech startups that achieved this significant step experienced exponential growth between 2015 and 2020. In fact, during that time period, the growth in the volume of African tech startups that received financial backing was almost six times faster than the world average.
However, trends in financing do not reflect the overall performance of startups, as the continent’s track record in expanding and sustaining such businesses is not as promising. The vast majority of African tech startups do not survive beyond Series B venture capital funding – the second round of venture capital funding and the third stage of start-up funding (typically initiated by seed venture capital financing and angel investor financing). As an indicator of their poor performance vis-à-vis startups in industrialized countries, such as the United States, this trend suggests that African startups suffer from long-term instability, according to the authors. In fact, compared to the United States, a higher proportion of African tech startups have yet to progress beyond early stage funding, a trend that held steady between 2014 and 2019. Since 2014, some tech startups African companies have made progress beyond Series B Venture capital financing: a positive trend signaling the maturation of African tech startups. However, as seen in Figure 3, only a few (albeit growing) African tech startups have successfully evolved into mature companies, as BCG analysis indicates that venture capital investment in Africa presents relatively low average returns compared to other regions.
Percentage of startups receiving venture capital financing, by funding stage, in Africa and the United States.
Percentage of startups receiving venture capital funding, by funding stage, in Africa and the United States
The public sector, financial incentives for investors and large national companies to nurture and collaborate with new start-ups have the potential to develop innovation centers that attract foreign investment and talent to the country. Additionally, BCG calls on African governments to improve the regulatory environment so that countries can better cultivate hospitable investment ecosystems for startups and venture capitalists.
