ODBA’s Gbite Oduneye and Other VCs Lend their Voices to the Tougher Year Ahead
With Africa’s young, dynamic, and tech-savvy population, the continent has become an attractive investment destination for many venture capitalists. From fintech to e-commerce, African startups are attracting record amounts of investment, which is expected to continue this year.
Despite the global pandemic, Africa’s venture capital industry managed to navigate the challenges and opportunities presented by the crisis. Investors were able to support startups in healthcare, logistics, and education, among other sectors, to address the urgent needs of the continent.
However, a number of investors predict a substantial decrease in VC investments in Africa and African VCs are now lending their voices to the tougher times ahead.
Africa is likely to see a slowdown in the amount of capital invested by foreign VCs, said Gbite Oduneye, general partner at ODBA in an article published by PitchBook. Roughly 70% of the region’s deals include funding from firms based outside Africa.
“For a lot of [foreign investors], Africa is a nice-to-have, but not the norm,” Oduneye said. “We are seeing now that as VC comes under a spotlight, these investors are not wanting to take big risks. Also, for VCs in places like the US, their dream startups are now much cheaper. So Africa, which was nice and sexy two years ago, is becoming more of a second thought.”
“Average valuations have dropped and it’s becoming more of an investor’s market,” said Olu Oyinsan, managing partner of Nigeria’s Oui Capital. “The firms who have dry powder are realizing that they might not be able to replenish their treasure chests as easily as before, so [they] are becoming more careful with how they deploy capital. People are preparing for winter.”
Despite the challenges ahead, African VCs remain optimistic about the future of the continent’s VC ecosystem. With innovation and creativity at the forefront of African entrepreneurship, the potential for growth and impact is tremendous.
“A lot more companies are going to survive,” Oyinsan said. “There’s a different mentality in Africa compared to other regions when approaching expenses and cash burn because capital is more scarce. I know African companies that have a four-year runway, which is not something I saw really when working with startups in the US.”
“As capital gets more expensive, everybody’s starting to think about where they can get more returns,” said Iyinoluwa Aboyeji, founding partner of Future Africa. “There’s a lot of capital sitting on the sidelines that needs to be deployed. And Africa is probably the best place to get great companies at affordable prices.”
As Africa’s VC industry evolves, it’s clear that collaboration, innovation, and resilience will be critical in navigating the challenges and seizing the opportunities of the future.
Citation Source: Africa’s VC market braces for tougher times | PitchBook