Will African startups sustain funding momentum?

Startup funding in Africa is off to a strong start in 2022, with data insights from Africa, The Big Deal, revealing that 40 startups on the continent announced a total of $289 million in funding in the month of January. Equity financing has emerged as the dominant form of funding, indicating a significant boost for startups and the potential for growth and experimentation in the tech space. Oswald Osarantin Guobadia, Managing Partner at DigitA, expressed excitement at the funding distribution, noting that the investment landscape is expanding beyond fintech into other sectors. This diversification is crucial for fostering broad-scale growth across the continent. However, while external investment is flowing into African startups, there remains a notable absence of significant domestic capital contributions. Guobadia highlighted the importance of creating a conducive environment and implementing policies that stimulate local capital utilization. He emphasized the need for regulations and initiatives that support startups, citing recent developments such as the acceptance of the AFCTA digital trade protocol by African Union countries as a positive step towards harmonizing policies and creating a trustworthy investment environment. The conversation then shifted towards the evolving dynamics of funding options for African startups. While venture capital was once a popular choice, recent years have seen a decline in its prominence, with debt and equity emerging as key players. Guobadia predicted that equity financing will continue to dominate due to the nature of startup experimentation and the challenges associated with debt structures, particularly in a high-interest rate environment. As the year progresses, it will be interesting to see how the distribution of funding options evolves and which forms become more prominent. Looking ahead, the adoption of artificial intelligence (AI) is expected to drive significant disruption across various sectors in Africa. AI can either enable existing businesses or be developed as a core solution by startups. The versatility of AI in problem-solving presents opportunities for sectors such as energy, fintech, insurance tech, and edutech to leverage AI technologies for innovation and efficiency. Guobadia underscored the importance of investing in AI infrastructure to ensure Africa's self-reliance and advancement in the AI space. In conclusion, the funding activities in African startups reflect a promising start to 2022, with equity financing leading the way. The focus on diversification, stimulating local capital utilization, and harnessing AI technologies bodes well for the continued growth and innovation of the tech landscape in Africa.