African Startups Represent The Next & Final Frontier For Venture Capital

Asia’s economy is growing exponentially, anchored by China, Japan, and India, with the rest of the continent moving forward thanks to technological innovations and e-commerce juggernauts fueling growth across all economic sectors.

Africa is the last continent yet to realize the enormous benefits of capital investments in startups. Growth has been traditionally slow on this continent, but that’s been changing over the past ten years as international companies from the United States, Europe, and Asia have all invested in African nations.

And these investments go beyond the typical powerhouse companies based in South Africa.

African Startup Venture Capital by the Numbers

Business Insider notes African startups raised a record $4.65 billion in venture capital in 2021, twice the amount from 2020, and that was the global pandemic gripping the world.

Most of these investments are in the fintech realm, says TechCrunch. The report notes that startup capital may have reached $5 billion in 2021, with nearly two-thirds of the funding (62 to 63 percent) going to fintech firms.

And these were just the numbers that were announced. We don’t know how much higher these numbers could actually be. There is some disparity between the numbers of actual investments, depending on which company compiles the figures.

As many as 240 deals were not disclosed in 2021. The number of deals in 2021 rose 25 percent compared to deals in 2020.

Most venture capitals went to firms in four counties: Nigeria, South Africa, Kenya, and Egypt. These make sense as they are some of the most stable countries on the continent with vibrant labor forces willing to work.

The top 20 deals of 2021 captured a whopping 65 percent of the year’s funding, many of which earned more than $100 million in a single funding round.

Not only do these numbers showcase how important Africa is on the global stage, but it also shows the trust and willingness of venture capital firms to bring more of their cash flow into African countries.

Zipline’s Logistics & Drone Deliveries

Zipline began as a company delivering much-needed medical supplies through drones.

In 2021, the company raised a remarkable $250 million in venture capital to build its instant delivery service.

Zipline started in 2014 by delivering vital medical supplies in Rwanda and Ghana. It manufactures the drones from scratch, using proprietary onboard computers, guidance systems, launch and recovery infrastructure to make sure the drones get where they need to in a hurry.

Its paradigm came out of necessity because Zipline realized off-the-shelf parts weren’t good enough for what they wanted to accomplish. Undeterred, they build their own systems.

Although the technology is there to make incredible drones that deliver goods accurately and very quickly, CEO Keller Rinaudo says it’s the relationships to build a logistics network that is vital to Zipline’s success.

Right now, Zipline is looking to partner with telehealth companies to deliver prescription medications to patients. Eventually, they would like to move beyond healthcare and go into other areas of deliverable goods.

In terms of FAA approval for the United States, Zipline has an advantage in that they have millions of data points that could go a long way to getting operational approval over American skies.

Andela Finds Engineering Talent

Andela is a fully remote company that pairs the right engineering talent with companies looking to hire people to take on engineering projects all over the world.

Initially started in Lagos, Nigeria, in 2014, Andela received $250 million from SoftBank to propel its funding to over $1.5 billion in 2021.

The firm started with seven African countries before moving to 37 at the beginning of its global expansion. Then the pandemic hit, and Andela moved to a completely virtual format, which works well with the way the world currently seeks and hires talent.

Now, Andela has \engineers in more than 80 countries worldwide, with a goal of having a base of 500,000 engineers in the foreseeable future.

Some of the 200+ firms that have used Andela include GitHub, CloudFlare, and Paramount.

Andela vets engineers by their experience, skills, expertise, and education and matches them with the firms looking for that type of talent.

Engineers coming from Africa are especially valuable as they have unique skills, insights, and experience on one of the most challenging continents on Earth. SoftBank’s investment shows that Africa is no longer just a continent for tourists and oil exploitation and that there is more to the region than just South Africa’s technical might.

Tala Loans Small Amounts to People and Small Businesses

Ten years ago, much was made about microlending, where borrowers could get very small loans of $1 to $10 to help them out in emergencies. Studies showed that people paid those loans back on time and with interest with stunning regularity.

Expand this principle just a little bit, and you will understand the business model of Tala, a startup out of Kenya with offices in India, The Phillippines, and Mexico.

Tala, founded by former Googlers, loans anywhere from $10 to $500 to individuals or businesses at no more than a 4% interest rate. It’s ideal for people who have no credit and need assistance in emerging markets.

Founder Shivani Siroya got the idea when she worked in the financial services field and researched the effects of microlending on local economies through the UN Population Fund.

Tala snagged $145 million in funding in 2021 to expand its reach into emerging markets, bringing its total investments to more than $800 million.

The process is very simple. Tala has an app for people to use on their smartphones where they can request funding. The approval process is simple, and terms are easy to understand.

Considering the economic boost, local towns can get from people who are not living in extreme poverty, helping those who need it most strengthens local markets to make them more stable as they look to grow.

TradeDepot Delivers Goods Through E-Commerce

TradeDepot received $110 million in funding in 2021 to expand its buy now, pay later model for e-commerce.

The B2B marketplace gives small shops, retailers, and kiosks access to global consumer brands associated with food, beverage, and personal care product lines. As part of the expansion, TradeDepot owns its own warehouses and fleet of vehicles with drivers to distribute the goods it receives. The company, based in Nigeria, connects thousands of well-known wholesalers with customers in Africa.

The startup was already in the midst of expanding when the pandemic hit. Then its e-commerce model and logistics were a perfect fit when companies when remote and to an online sales model because people weren’t going to stores as often.

TradeDepot had 40,000 merchants on its platform in 2020, which jumped to more than 100,000 in 2021. The company’s expansion is more than just with physical warehouses. It provides financial services, credit to qualified merchants, and digital wallets for easy payments.

It gives retailers in Africa plenty of choices based on demand for their buyers.

Why Is Africa a Powerhouse for Startups?

Three main reasons are why companies are moving into Africa for investments.

First, there are plenty of people who are looking for work. Nigeria’s population looks to double in the coming decades, and those people will need prosperity and abundance to maintain their growth without subjecting the country to poverty. A stable government in Nigeria, making wise investment choices, is one key to Africa’s growth.

The second is the stability factor. Stalwarts Egypt, South Africa, Nigeria, and Kenya form the backbone of Africa’s commerce. They have been relatively stable for at least two decades, and they continue to work with the rest of the global community as these countries seek more investment opportunities. Stable countries are more apt to have companies pay back their investment capital.

Third, companies look to labor costs in terms of investments. Twenty and thirty years ago, international investment firms looked to Asia for low-cost labor when trying to keep overhead low. Controversially, this brought to light horrible sweatshops and child labor practices. The difference with Africa is that international investors will not make that same mistake twice. Socially conscious investors in Europe and the United States have higher standards moving forward. Investors are keen to make sure there is no fallout from shoddy labor conditions brought on by the increase in investment capital in Africa.

There are plenty of emerging markets in Africa beyond the eco-tourism sites in Kenya and the historical significance of Egypt. Fintech is one aspect of the African economy that has plenty of room for growth. The more stable African nations will eventually show their neighbors the right path to economic growth.

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Africa is just one reason why you should consider venture capital investing as a way to make passive income while you reap the profits of your investments.

Originally published at https://forevermogul.com on March 30, 2022.