As we reflect on the venture capital activity in Sub-Saharan Africa in 2016 we note both challenges and opportunities. On the one hand, there was a growing interest in the region’s startup ecosystem, with a number of local and international investors increasing their investments in African startups. On the other hand, political instability and regulatory hurdles continued to pose challenges for startups, while female-led startups faced persistent funding gaps. In this article, we reflect on the lessons learned from venture capital activity in SSA in 2016, highlighting the opportunities for growth and the challenges that need to be addressed to support the region’s burgeoning startup ecosystem. 
2016 was a significant one for venture capital (VC) activity in Sub-Saharan Africa (SSA), with startups in the region raising over $366 million in funding. This marked a significant increase from the previous year, highlighting the growing interest of investors in the potential of the SSA market.
So, what did we learn from VC activity in SSA in 2016? Let’s explore some of the key trends and insights.
- Fintech continued to dominate investment activity Fintech remained the most attractive sector for investors in SSA, with startups in this space accounting for over 50% of total funding raised in 2016. This trend reflected the growing demand for financial services in the region, particularly among the unbanked and underbanked populations.
One of the most notable fintech investments in 2016 was the $24 million funding round raised by South African mobile banking startup, TymeDigital. The company’s innovative approach to banking, which leverages mobile technology and AI to provide affordable and accessible financial services, resonated with investors and positioned it as a leading player in the market.
Other fintech startups that raised significant funding in 2016 include Kenya’s Cellulant ($47.5 million), Nigeria’s Paystack ($1.3 million), and South Africa’s Jumo ($24 million).
- Local investors played a greater role in deal-making In 2016, we also saw a greater involvement of local investors and funds in VC activity in SSA. This trend reflected the growing maturity of the startup ecosystem in the region and the increasing interest of local investors in supporting entrepreneurship and innovation.
For example, Nigeria’s Ventures Platform Fund, a local early-stage VC fund, invested in several startups in 2016, including Printivo, a Nigerian online printing company, and Thrive Agric, a Nigerian agriculture crowdfunding platform.
Similarly, South Africa’s Futuregrowth Asset Management, a local asset management company, invested in Silvertree Internet Holdings, a South African e-commerce and digital services company.
This trend of local investors playing a greater role in deal-making was important as it helped to address some of the challenges that foreign investors faced in the region, such as regulatory hurdles and currency fluctuations.
- Startups expanded beyond their home markets In 2016, we also saw startups in SSA expanding beyond their home markets, signaling a growing interest in regional and international expansion. This trend was particularly evident in the e-commerce and logistics space, where startups such as Jumia, Konga, and MallforAfrica were scaling across multiple countries in the region.
This expansion was facilitated by the increasing availability of cross-border payment infrastructure and logistics services, which made it easier for startups to operate in different markets.
However, expanding beyond home markets also presented challenges for startups, such as navigating regulatory frameworks and cultural differences in different countries.
- Impact investing gained momentum In 2016, we saw a growing interest in impact investing in SSA, with investors looking to support startups that had a positive social or environmental impact.
For example, the $10 million investment in Uganda’s SolarNow, a provider of solar energy solutions to rural communities, was driven by the company’s potential to reduce carbon emissions and provide clean energy to underserved populations.
Similarly, the $8.5 million investment in South Africa’s GetSmarter, an online education platform, was motivated by the company’s potential to improve access to education and upskilling opportunities.
This trend of impact investing was significant as it highlighted the potential of startups in SSA to address social and environmental challenges while also generating financial returns.
- Political instability continued to pose challenges While there were many positive developments in VC activity in SSA in 2016, political instability continued to pose challenges for investors and startups in the region.
For example, the political turmoil in South Africa in 2016, including the firing of the country’s finance minister, caused a significant drop in the value of the country’s currency, which made it difficult for foreign investors to invest in local startups.
Similarly, the political unrest in some parts of West Africa, such as Nigeria and Cameroon, also posed challenges for startups in the region, including disruptions in logistics and supply chains.
This highlights the importance of political stability and a supportive regulatory environment for the growth and sustainability of the startup ecosystem in SSA.
- Female-led startups continued to face funding challenges Despite the growing interest in VC activity in SSA, female-led startups continued to face funding challenges in 2016. According to a report by Village Capital, only 10% of VC funding in SSA went to female-led startups in 2016, highlighting the gender gap in access to funding.
This was despite the fact that research has shown that female-led startups often outperform their male-led counterparts in terms of revenue and profitability.
Efforts to address this funding gap have included the launch of initiatives such as the We-Fi (Women Entrepreneurs Finance Initiative) fund, which aims to mobilize $1 billion in funding for female-led startups in developing countries.
Summary of venture capital activity in Sub-Saharan Africa in 2016
Overall, the VC activity in SSA in 2016 highlighted the immense potential of the region’s startup ecosystem, with fintech continuing to dominate investment activity and local investors playing a greater role in deal-making.
However, the challenges posed by political instability, regulatory hurdles, and gender bias in funding allocation underscored the need for continued efforts to support and grow the startup ecosystem in SSA.
As we look back at the venture capital activity in Sub-Saharan Africa in 2016, it is clear that the region’s startup ecosystem holds immense potential for growth and innovation. We see impact Investing in Africa specifically holding an immense amount of promise However, it is equally clear that there are significant challenges that must be addressed to ensure that this potential is realized. At Caban Investments, we are committed to building on the lessons learned from 2016 as we approach the new year with a renewed sense of enthusiasm. We will continue to seek out opportunities for investment in African startups, while advocating for policies and frameworks that support a stable and supportive ecosystem for entrepreneurship. We will also work to address the funding gap for female-led startups, recognizing the crucial role that women entrepreneurs play in driving economic growth and social progress. With a focus on impact, innovation, and sustainability, we are confident that the future of venture capital in SSA is bright, and we look forward to playing our part in shaping that future.
