Trickle down economics works about as well as trickle down tech ecosystem funding…
At Spurt! we are continuously looking for ways to highlight advancements in the start-up space. This week we reviewed “How fintech and serial founders drove African pre-seed investing to new heights in 2020” by Tage Kene-Okafor for TechCrunch”.
In less than a decade, seven-figure seed investments in African tech start-ups have increased probably due to Paystacks immensely successful seed investment of $1.3 million in 2016. This investment was one of the largest disclosed rounds of that stage in Nigeria. Today other African tech companies have similar stories; Egyptian fintech start-up Cassbana raised $1 million in pre-seed investments in 2021 and Kuda raised $10M in 2019 making it the largest seed round in Africa.
In the past, pre-seed rounds usually raised about $25,000-$150,000 however, this paradigm is changing as investor appetites for a share in the African fintech market increases.
Over the last two years, Venture Capitalists (VCs) who usually fund seed and Series A rounds have begun participating in pre-seed rounds with investments over $1 million. VCs change in appetite can be boiled down to three main points which are expanded upon below.
Firstly, an increase in founder credibility. The seed-stage start-ups mentioned in this article, are founded by already existing founders and serial entrepreneurs. It is important to note that their socioeconomic position and experience were essential to securing larger deals. This pattern of re-investment reaffirms the elitism in the global tech space.
Amongst many founders are Adedayo Amzat, founder of Zedcrest Capital, who is also the lead investor in Talent QL’s round. Mono co-founder and CEO Abdulhamid Hassan who was the co-founder of Nigerian fintech start-up OyaPay and Fara Ashiru Jituboh of Okra who also founded Shixels Studios.
Secondly, higher Returns on Investment (ROI). Paystack’s exit was highlighted by an exceptionally high ROI for early investors. Some angel investors had an ROI of more than 1,400% according to Jason Njoku in his blog post. Njoku, who took part in the round as an angel investor, is also the CEO of IROKO.
The recycling of funds within the same entrepreneurial cliques has also produced a low-risk atmosphere. Smaller investments go-to problem solving, low returns innovations and larger investments go to fintech and its related organisations who have a higher ROI.
Start-up’s building payment infrastructure is more noticeable because they cater to the need for advancements in credit and banking systems across the continent. However, further insight into how their actions are of benefit to more than the top 10% of society could help us understand how their services are enabling marginalised communities in Africa.
Lastly, investor ‘Fear of Missing Out’ (FOMO). Visa’s $5.3 billion acquisition of Plaid resulted in the knock-on effect of drawing other investors to the potential profits they could make in Africa. The term ‘raise entrepreneurs’ has been coined to represent entrepreneurs whose primary aim are building companies for sale without building sustainable businesses. This behaviour is enabled by VCs who tend to focus on funding start-ups who can raise capital and exploit financial markets. It is arguably more beneficial to the continent if VCs also funded start-ups with positive social impact.
At Spurt! we provide services that enable MSMEs and start-ups to raise adequate funds and establish exceptional businesses. We are passionate about building long term companies and upscaling African talent.
The economic development of the continent is at the forefront of what we do. Spurt! constantly pushes for the wealth and prosperity of all Africans not just a small section of the continent. We are genuinely excited about the increased funding for African entrepreneurs because more capital is good for everyone.
Spurt! will continue to work to ensure that African entrepreneurs get the attention they deserve and that our local companies become global giants.