So with VC activity increasing over the years, what are venture capitalists really looking for in African startups?
An important aspect is finding a team that is committed to their business and idea. Since 2019:
48% of deals over $1 million have been received by startups with two founders
26% of deals have been received with teams of 3 founders
20% of the deals are by one-founder teams
6% of the deals are received with a team of 4 or more
Other than the size of the team is their ability.
VCs are interested in working with founders who have the ability to attract other excellent people to work with them.
Also, VCs favor founders with technical skills.
A key aspect of VC work is determining whether founders truly understand the problem they are trying to solve.
As repoted by TechNext, Lauren Cochran, a VC on the African continent, points out that ‘sometimes people see a problem that they don’t fully understand, or that they haven’t really evaluated and try to solve them which often times doesn’t work.’
Lauren Cochran also points that VCs are looking for ‘billion-dollar‘ problems and a hundred million dollar problems at the very least.
Moreover, they are interested in startups that have achieved some kind of product-market fit, in which case they should be pulling in some revenue.
Most VCs won’t invest in a pre-revenue startup.
So far, financial technology (fintech) startups have been the most attractive across the continent. In the half-year, 48% of funding went to such startups, buoyed by Flutterwave’s $170 milllion deal to become the third startup with over $1 billion valuation (unicorn) on the continent.
The other unicorns are Interswitch and Paystack, both in fintech payments.
In terms of region, Nigeria, South Africa, Kenya, and Egypt have traditionally been more attractive destinations for venture capital.
In the half year:
80% of the deals were closed by startups in those countries
In deals between $100k and $1 million, 1 in 3 startups that raised was from outside the 4 countries, suggesting wider early-stage funding across the continent
Overall, the bumper half-year suggests that 2021 is going to be a record investment year for startups on the continent.