Nigeria Bypasses South Africa In Record-Breaking Year For African Tech Startup Funding

The African startup ecosystem has been growing for years, and 2018 was the best year yet for startup funding, 

More startups — a total of 210 recorded — raised more funding (32 percent more) than ever before. These 210 startups secured $334.5 million in funding — up 72 percent compared to 2017.

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As the reputation of various African tech ecosystems grows and the number of success stories multiplies, investors are increasingly backing innovative tech solutions with hard cash, according to the latest edition of the annual African Tech Startups Funding Report, released by Disrupt Africa.

Increased faith in Africa-based entrepreneurs is further demonstrated by a significant rise in the average amount of funding raised by each business. This hit a new high of almost $1.6 million in 2018, with investors increasingly willing to provide startups with the levels of capital they need to grow into massive addressable markets.

Nigeria stakes its claim

Within these headline funding figures, however, there are further developments of note. For years now, conversations have hyped Nigeria’s potential to emerge as a tech powerhouse, with its massive market and huge number of issues that can be addressed by innovative technologies. Growth, however, was not as quick as many expected. Tech startup funding grew slowly and the country’s much-heralded e-commerce sector appeared to languish in the doldrums.

The Nigerian tech scene came of age in 2018. Funding multiplied. In 2017, Nigeria took the top spot from long-time market leader South Africa for funding raised, but that was wholly attributable to Nigerian coding school Andela, with raised two-thirds of an otherwise negligible total that year. In 2018, however, Nigeria was king.

In all, 58 Nigerian startups raised $95 million in funding, accounting for almost 30 percent of the continent’s total for tech startup funding. This was a big leap over 2017, when just 30 companies bagged funding and the majority of it went to just one of them. The number of companies securing investment jumped 30 percent in 2018, with total funding up 50 percent. This interest was primarily driven by fintech, with notable rounds for Paga, Mines, Flutterwave and Paystack.

Egypt emerges as a tech powerhouse

Nigeria will rightly grab the headlines, but the report highlights plenty of reasons for optimism across the whole continent.

South Africa may have surrendered its position as market leader when it comes to funding, but the country still had its best year yet, with 40 startups raising a combined $60 million — up 21 percent. Kenya also had a strong year, with 37 startups — more than ever before — raising just over $50 million, the most ever. With total funding up almost 60 percent, the country can look to the future with optimism as it witnesses strong, steady growth.

When discussing startup funding in Africa, talk often revolves around the “big three” — South Africa, Nigeria and Kenya. This lexicon needs adjusting after a year that saw the emergence of Egypt as a tech powerhouse on the continent. The “big three” is now the “big four”.

The North African country saw 34 startups (the fourth largest amount) raise a combined $58.9 million (third highest, ahead of Kenya), an increase of more than 500 percent over 2017. Indeed, Egyptian tech startups raised more in 2018 than they did in 2015, 2016 and 2017 combined.

In fairness, Egypt has always been a popular market for investors, given its large market and proximity to both the Middle East and sub-Saharan Africa. The emergence of the country’s tech innovation scene came at a time when investors were steering clear of the country in the wake of the Arab Spring. Egyptian startups have been innovating for years, yet funding has been lacking. With political turmoil now less of a concern, and local and international investors backing exciting local startups, the sector is exploding, driven by consumer-facing businesses such as e-commerce platforms.

Fintech dominant

Fintech remained the most popular sector for investors in 2018.  This is hardly surprising, given the sector’s ability to marry high impact with high potential returns and the fact that it is an easy jumping-off point for investors in Africa.

Growth was substantial, with 58 fintech companies across Africa securing $132.8 million in investment, almost 40 percent of the total and up 130 percent over 2017.

Aside from the Nigerian rounds mentioned above, there were notable rounds for South African companies Yoco and wiGroup.

There was growth across the board, with sectors such as agri-tech, ed-tech, e-health, transport and logistics all taking major steps forward. Transport startups raised a combined $34.5 million, driven mainly by Egyptian startup Swvl, while logistics businesses raised a combined $19 million. The African tech space looks healthy everywhere you look.

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