Fund­ing is stream­ing into African fin­tech and tech firms

Financial Nigeria Magazine - - Contents - By Martins Hile Martins Hile is Ex­ec­u­tive Ed­i­tor, Fi­nan­cial Nige­ria mag­a­zine

The struc­tural rigid­ity, which has long de­fined Africa's com­mod­i­ty­de­pen­dent economies, is giv­ing way. At least, we can no longer speak in gen­er­alised terms that Nige­ria is an “oil econ­omy” or that Kenya is agro-based. One of the sec­tors that have been broad­en­ing the pro­duc­tive base of African economies is in­for­ma­tion and com­mu­ni­ca­tion tech­nol­ogy (ICT).

In Q4 2016, the ICT sec­tor ac­counted for 10.78 per­cent of Nige­ria's GDP. The sec­tor grew by 17.4 per­cent in nom­i­nal terms in the same pe­riod. In 2014, Kenya's ICT sec­tor grew by 13.4 per­cent – more than two times the GDP growth rate of 5.5 per­cent.

The trends in Nige­ria's and Kenya's ICT un­der­pin the out­look of the sec­tor across Sub Sa­ha­ran Africa. The re­gion has a youth­ful pop­u­la­tion, which pro­vides a burst of brain and brawn for in­no­va­tion. Ex­pan­sion in data net­works and In­ter­net ac­cess is now in tow with the dra­matic in­crease in mo­bile pen­e­tra­tion of the last one and half decades. And, macroe­co­nomic con­di­tions have sig­nif­i­cantly im­proved across Africa over the last two or more decades, boost­ing an emer­gent mid­dle class.

Global fi­nanciers and early-stage in­vestors have been re­spond­ing to the growth out­look of Africa's tech­nol­ogy and fin­tech com­pa­nies. There are now sev­eral funds that are tar­get­ing start-up firms and pro­vid­ing growth fund­ing for African com­pa­nies in the tech­nol­ogy space. They are do­ing so in pur­suit of risk di­ver­si­fi­ca­tion, earn­ings growth and, in some cases, as im­pact in­vest­ment.

The re­main­der of this ar­ti­cle high­lights some of the funds or fund­ing that have been an­nounced in the last one year, pro­vid­ing an in­di­ca­tion to the risk ap­petite of fi­nanciers for African tech­nol­ogy firms. This is not in­tended as a com­pre­hen­sive roll call of the funds. The aim is to in­spire Africa's tech en­trepreneurs that they can over­come fund­ing chal­lenges if they de­liver in­no­va­tions at scale to the mar­ket. The funds men­tioned may also serve to pro­vide in­di­ca­tion as to the kind of op­por­tu­ni­ties that are be­ing funded, given the broad range of ac­tiv­i­ties within the ICT sec­tor.

Last month, TL­com, a lead­ing pri­vate eq­uity firm, said it raised $40 mil­lion for its TIDE Africa Fund to in­vest in com­pa­nies that pro­vide tech­nol­o­gy­driven so­lu­tions in Sub-Sa­ha­ran Africa. “TIDE Africa of­fers a great op­por­tu­nity to our in­vestor part­ners and to global pri­vate cap­i­tal to achieve sig­nif­i­cant re­turns and sup­port world class tech­nol­ogy en­trepreneurs who are work­ing in Africa to cre­ate so­lu­tions for lo­cal and global mar­kets,” said Omobola John­son, TL­com's Se­nior Part­ner and a for­mer Nige­rian Min­is­ter of Com­mu­ni­ca­tion Tech­nol­ogy.

Ade­nia Part­ners, a lead­ing Africafo­cused pri­vate eq­uity firm, has raised €230 mil­lion to in­vest in high-growth sec­tors in Sub-Sa­ha­ran Africa. The fund man­ager said it raised the funds un­der a new ve­hi­cle – Ade­nia Cap­i­tal IV - which will tar­get a va­ri­ety of growth sec­tors in­clud­ing con­sumer goods, busi­ness ser­vices, man­u­fac­tur­ing, fi­nan­cial ser­vices, ICT and telecom­mu­ni­ca­tions, hos­pi­tal­ity, and health­care.

African fi­nan­cial tech­nol­ogy com­pany Zoona has suc­cess­fully raised $15 mil­lion in a sec­ond round of fi­nanc­ing. This Se­ries B round is led by the In­ter­na­tional Fi­nance Cor­po­ra­tion (IFC), a mem­ber of the World Bank Group, and will help Zoona scale up its op­er­a­tions as it aims to reach 10 mar­kets and 30 mil­lion ac­tive con­sumers across Africa by 2020.

The IFC, in part­ner­ship with Google, Con­ver­gence Part­ners, and Mit­sui & Co. has also agreed to in­vest up to $100 mil­lion in CSquared – a com­pany fo­cused on de­ploy­ing whole­sale, “car­ri­erneu­tral”, open-ac­cess fiber op­tic net­works across Sub-Sa­ha­ran Africa.

Last month, Tizeti, a Nige­rian wire­less In­ter­net com­pany, raised $2.1 mil­lion in seed fund­ing to ex­tend its Wifi ser­vices in Nige­ria. The com­pany raised its seed fund­ing from African and Amer­i­can ven­ture cap­i­tal firms, in­clud­ing Western Tech­nol­ogy In­vest­ment, So­cial Cap­i­tal, Vy Cap­i­tal, Pi­cus Cap­i­tal, Ace & Com­pany, Lynett Cap­i­tal Part­ners, Zeno Ven­tures and sev­eral an­gel in­vestors in­clud­ing Y Com­bi­na­tor's Michael Seibel and Gabriel Ham­mond.

Apart from the in­vest­ment funds, some ac­qui­si­tions have also been tak­ing place in Africa's tech­nol­ogy space. Syn­ergy Cap­i­tal Man­agers, an Africa-fo­cused pri­vate eq­uity firm, re­cently ac­quired the Nige­rian and Ghana­ian sub­sidiaries of Di­men­sion Data Group, a lead­ing Dutch ICT provider. The La­gos-based firm said it made the acquisition through its Syn­ergy Pri­vate Eq­uity Fund (SPEF) – a $100 mil­lion pri­vate eq­uity fund tar­get­ing high-growth com­pa­nies in West Africa.

The in­vest­ment flows into Africa's fin­tech and tech firms are com­ing on the back of Africa’s tele­com boom of the early 2000.Be­sides the pay­ment and ecom­merce in­dus­tries, which have lever­aged sig­nif­i­cant fund­ing from the tele­com boom, other fron­tiers that can at­tract fund­ing through in­no­va­tions in­clude ICT education – an area where An­dela has pi­o­neered in Africa – as well as ICT ap­pli­ca­tions in the agribusi­ness value chain.

Omobola John­son, TL­com's Se­nior Part­ner

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