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Ricky Rapa Thomson was a security guard and then a motorcycle taxi driver before becoming an entrepreneur. SafeBoda, a startup he founded, promises safe and reliable transportation on Uganda’s deadly streets. In addition, fintech offers solutions for its drivers and customers and hopes to become Africa’s largest touring service.
It’s the kind of fairy tale that tech investors usually love. However, it is also a type of trip full of holes that foreign capital has traditionally avoided in Africa, rather than focusing on mining industries or infrastructure projects such as mining.
So Thomson was worried when SafeBoda was looking for Series B investments in 2019. But the startup was funded by German major insurance company Allianz and Indonesia’s super-application investment goj, one of which never put money into African technology.
“It was humiliating,” Thomson told Al Jazeera, recalling the emotions of the time. “It’s an amazing validation.”
Two years later, Thomson’s experience resonates with hundreds of African creators as the continent emerges as a zero base as a result of a staggering rise in fintech funding. Global investors, often from countries that have not been major players in Africa, are in a hurry to support promising startups. From giant corporations to large-scale venture capital (VC) companies, no one wants to be left behind.
It’s an amazing validation
In the third quarter of this year alone, African fintech companies raised $ 906 million, according to Digest Africa’s initial investment database. It accounted for more than 60 percent of all monetary risks to Africa in the last quarter, and more than all other sectors combined in the first half of 2021.
This year’s trend is based on a separate analysis by BFA Global’s Catalyst Fund, which showed that fintech funding in Africa has grown exponentially, from $ 385 million in 2018 to $ 1.35 million last year.
Unicorns reproduce
Three years ago, the continent owned a privately owned startup worth more than $ 1 billion: the Nigerian e-commerce company Jumia. Today, at least seven African startups have joined the “unicorn” club. Five of them are fintech companies, three of which – Flutterwave, OPay and Wave – became acorns this year.
Too many numbers? This wave has only just begun, according to Ryosuke Yamawaki, whose Kepple Africa Ventures entered the continent in 2018.
“I think it will explode,” Yamawaki told Al Jazeera. “Now we see new investors from outside Africa every day.”
In October, Google announced a $ 50 million fund to help African startups. In the same month, New York’s Tiger Global invested $ 15 million in the Nigerian Mono, and $ 3 million in the Zambian Union54. In March, Tiger Global directed a $ 170 million round of funding for Nigeria’s Flutterwave, which helped the company turn it into a deal.
But it’s not just the West that has the eyes of African fintechn. In August, Nigeria-based mobile money service OPay became Africa’s most valuable startup with $ 2 billion after a $ 400 million round of financing led by Japan’s SoftBank and backed by Chinese investors like Sequoia Capital.
But while these huge funds often take center stage, it is small investors in many countries who have laid the groundwork for the moment in the fintech sun of Africa.
Now we see new investors from outside Africa every day.
Unlike Tiger Global and SoftBank, which only started investing in African startups this year, Japanese venture capital firms Kepple, Samurai Incubate Africa and Asia Africa Investment & Consulting have been building their portfolios rapidly over the past two years.
Kepple has now invested about $ 15 million in 96 companies, Yamawaki said.
In April, Australia’s TEN13 invested an undisclosed amount in Kenya-based ImaliPay. And Indonesia’s investment in Gojek’s SafeBoda underscores how emerging market funds are merging with members of developed economies in their commitment to Africa. “The world is realizing that the best way – really the only way – is to invest in local innovators who are able to design solutions that actually work to find solutions to Africa’s challenges,” Thomson said.
The race is on
Sure, fintech is hot all over the world, not just in Africa. But the continent has unique characteristics and challenges that make it an ideal sector.
Traditionally, the high cost of doing business in Africa has served as a deterrent for many foreign investors, said Aubrey Hruby, who advises Fortune 500 companies and other large companies on investments on the continent. Poor physical infrastructure complicates business activities.
“Fintech is removing these infrastructure challenges,” he said.
African talent in the sector has also matured now, with many founders starting second or third. “Investors know they’re dealing with people who have a proven track record of learning along the way,” Hruby told Al Jazeera.
Then there’s the market itself: 40 percent of sub-Saharan Africa’s population is under the age of 15, and potential customers are the ones to access phones, still below 50 percent, at a time when it’s growing significantly.
Investors know that they are dealing with people with a proven track record.
“It’s a tremendous opportunity,” says Ricardo Schäfer, a partner at Target Global, a London-based venture capital fund. “Like in a gold dam, you want to invest in pickaxes and paddles. We want to focus on digital money infrastructure, and that’s fintech.”
Although the United States, China and all others are competing for influence in Africa, the race to invest in fintech is unlikely to be affected by geopolitics, according to Hruby and Yamawaki. VCs, Yamawaki said, don’t think so. But another competition, among private sector investors around the world, seems inevitable. “There’s a mix to get into,” Yamawaki said. “Those who come to the market earlier will be the winners.”
However, getting in early brings its own risks and concerns. After Target Global led a $ 10 million round of investment for digital bank Kuda in Nigeria last year, Schäfer said his company’s “biggest concern” was that “smart capital” would “follow us”. He did just that: in early August, Kuda was valued at $ 500 million after new funding. “Our concern disappeared very quickly,” he told Al Jazeera.
Now, the inclusion of some of the largest funds on the planet like SoftBank and Tiger Global is likely to increase the confidence of small VC companies looking to make early-stage investments, Yamawaki said. And as startups grow, “they’ll leave their talent and start their own businesses,” expanding the lessons learned from their success, Hruby said.
It is true that the political instability and regulatory uncertainties that have long frightened investors in Africa remain a reality in many nations even today. But Thomson of SafeBoda is convinced that the flood of investment in fintech in Africa shows the way to a better future. “When global investors support local innovators and local technologies, you build a better world,” he said.
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