Too Much Investor Money Chasing Too Few Deals?

It has never been a hotter time to invest in Africa.  

We at Kenyans Come Home have experienced a significant increase in recruitment requests from the investment space, making successful placements both at investment funds and their portfolio of companies.  We have worked closely with impact funds such as Acumen, Novastar Ventures, DOB Equity and LGT Impact, as well as Helios Investment Partners and Catalyst Fund.

This recruitment increase is further confirmation that start-up investment is up across the continent. Research by entrepreneurship portal Disrupt Africa shows that 2017 was the biggest tech startup fundraising year ever with the total investments ringing in at over $195 million. That marks a 51% increase on the previous year’s figures.

In turn, the number of African tech startups that were able to raise funding hit 159 — up from 146 companies in 2016 and 125 startups in 2015. Unsurprisingly, South Africa, Nigeria, and Kenya accounted for the majority of the funding, though other countries like Ghana and Morocco are seeing more investment coming in.

But as the world starts to invest more in Africa, and other Africans also slowly start to invest in their local startups, is there too much money and not enough solid deals? Have we reached an over-saturation of investorsand not enough sound investments to be made?

Some don’t think so. Sacha Poignonnec, the founder and CEO of Jumia e-commerce store, told The Standard newspaper last year that he felt Africa was too far behind its other continental counterparts when considering how the total global venture capital investments were spread (majority went to the Americas).
I think there is too little foreign capital coming into African companies,” he said. “We are stage zero of the venture capital journey in Africa, and we need to make it bigger. There are too few examples of success and we need more.”

Others say that it's not how much investment is coming in, but how it is being spread out. Foreign, and sometimes local, investors have also been known to have a bias for start-ups led or run by European founders, or Africans connected to foreign markets by education or association.

A 2017 study published by Village Capital established that out of 60 deals signed with tech start-ups in East Africa between 2015 and 2016, 72 percent of the deals went to just three companies. Further, 90 percent of start-ups funded in East Africa over the same period were led by at least one European or North American founder. 

If you’re an emerging market founder and you’re not part of a well-connected elite, it can difficult to build trust and relationships with investors, advisors, and other partners,” the study found.

But Brian Waswani Odhiambo, an associate director of Novastar Ventures, told Kenyans Come Home earlier this year that the time is ripe for investors and startups wanting to connect now because the field is likely to become even more saturated a few years from now.

From his viewpoint, it'll be even hard for start-ups to connect with the right funders in a few years: “For me, I just think this is the right time to be doing [venture capital] and to be an entrepreneur, and I believe those universes are finally converging” he said.