Nigeria’s Start-up Funding Hit $1.2bn In 2022

Nigeria, reportedly received the most funding, at more than $1.2 billion, or approximately 28 per cent of the regional total due to the number of start-ups in the country, with 209 in Lagos alone.

Nigeria’s large population and rising measures of inclusion are driving the success of financial technology (fintech) start-ups in particular, with payment solutions such as ‘buy now, pay later’ micro-loans and cryptocurrency continuing to grow.

After becoming Africa’s fourth unicorn in 2021, fintech firm, Flutterwave raised $250 million in February of last year –its biggest funding round to date bringing its total valuation to over $3 billion.

Meanwhile, as rising borrowing costs and recession concerns weighed on global venture capital investment in 2022, Africa’s start-up ecosystem attracted record funding.

While most regions experienced double-digit declines in start-up funding last year, Africa posted gains in total investment volume, deals and number of investors.

Start-up funding on the continent grew by roughly five per cent in 2022, compared to a decline of 62 per cent in Latin America and 39 per cent in Asia Pacific.

Globally, venture capital funding was down 35 per cent at $445 billion, albeit still well above the levels posted in the years prior to the Covid-19 pandemic.

Total funding for the continent passed the $3 billion mark for the first time and hovered around $4.8 -5.4 billion by the end of the year. It is hoped that continued capital flows to the start-up ecosystem will support broader development goals, ranging from increasing financial inclusion to enabling digital transformation and the energy transition.

The continent’s ‘big four’ markets which include Nigeria, Egypt, Kenya and South Africa continued to attract the lion’s share of funding to African start-ups, accounting for around 75 per cent of the 2022 total, according to market analysis company Briter Bridges.

Kenya was the only other African market to see more than $1bn in funding, doubling its 2021 total.

The East African country has stood out in recent years thanks to developments in clean energy, which accounts for 90 per cent of its power supply.

Clean energy technology attracted the greatest share of Kenya’s 2022 funding, with off-grid solar power company Sun King raising $330 million in its latest Series D funding round. The company provides direct-to-consumer, pay-as-you-go solar networks, expanding solar power accessible to some 165,000 homes across eight African countries.

Financing company, M-KOPA, which started out providing pay-as-you-go solar-panel home systems, also raised $75m in its fifth equity round, bringing its total funding raised to $190 million.

Due to its dynamic tech ecosystem, Egypt has experienced considerable growth since recording the highest number of funded start-ups on the continent in 2019. The $811m raised by Egyptian tech start-ups in 2022 represents an 81.2 per cent increase from 2021, which in turn was up 215 per cent on 2020.

The fintech segment accounted for approximately half of funding in Egypt this year, well above the share received by the e-commerce segment, which is typically more active. In May fintech firm PayMob secured $50m in a Series B round, reportedly the most raised by an Egyptian firm in the segment to date.

While South African tech start-ups secured 12.3 per cent of total funding on the continent in 2022, both the number of backed firms and the volume of investment declined over the past year. Alongside the typically dominant fintech segment, however, e-health and artificial intelligence firms are attracting growing interest.

Activity in 2022 stretched beyond the big four, with deals reached in 27 countries on the continent.

Ghana, Morocco and Tunisia attracted significant funding, while Côte d’Ivoire, Senegal, Tanzania and Uganda also saw notable investment activity in 2022.

Although Ghana remains below the big four in terms of funding volume, firms in the West African country raised $149m in 2022, a 652 per cent increase from the year before.

Tunisia also witnessed strong growth, with 28 funded firms giving it the fifth spot on the continent’s rankings for this metric despite the relative small size of its market.

Central Africa, which has historically received the least funding of any subregion, raised almost double the amount it received in 2021, attributed mainly to the growth of web3 company Jambo. Based in the Democratic Republic of the Congo, Jambo has raised $7.5m in seed funding to build a web3 user portal, helping to unlock play-to-earn income opportunities.

The investment flowing to Africa’s start-up ecosystem comes from a wide variety of sources, with at least 987 disclosed investors present in the market in 2022.

Local and international early-stage funds – including Launch Africa Ventures, the continent’s most active investor backing 45 start-ups  and accelerators are the primary sources of investment. Venture capital firms and large investment groups such as Tiger Global, Sequoia Capital and SoftBank are increasingly active in Africa, as are African entrepreneurs.

In terms of gender distribution, male-led firms continue to attract the majority of capital flowing to the continent. Overall, female-led firms accounted for four per cent of the funds raised across Africa in 2022.

Sustained growth, however, could help bridge the gender gap. If trends continue, Africa could command a greater share of global funding.

Since 2015 funding for the continent’s tech start-ups has risen by more than 1000 per cent, while the number of funded start-ups has increased by 406 per cent annually over the same period.

Despite promising growth prospects, African start-ups raise the least funding of any region, at around 1.2 per cent of the global total, despite representing approximately thre per cent of GDP and 17 per cent of the population. This underscores significant potential for increased investment, especially given the continent’s demographic growth trajectory over the coming years.