Category: ,

Date: 8 March 2024

Verdant Capital Survey: Assessing the African Fintech Landscape

Verdant Capital Survey

The past few years have seen the African fintech sector experience a remarkable surge in activity, with the number of tech start-ups in Africa tripling, nearly half of which were fintech ventures. This proliferation, often termed a “fintech eruption,” captured the attention of both local and international investors, prompting a comprehensive assessment of post-pandemic investor sentiment by Verdant Capital in December 2023.

The survey assessed investor sentiment regarding the target companies within their mandates, the position of the pre-money valuations in 2023, risk mitigating factors implemented to curb value erosion in their portfolios, challenges in the African Fintech landscape, and overall prospects of the African fintech landscape.

Key Insights from the Survey:

1. Valuation Correction: Notably, 67% of participants reported a decrease in pre-money valuations of their investments in 2023. This correction reflects a return to normalcy post-pandemic, as the extreme optimism on fintechs during challenging times has waned.
2. Economic Uncertainty and Risk Mitigation: Despite initial economic recovery, ongoing uncertainties such as supply chain disruptions, inflationary pressures, and geopolitical tensions have led to a cautious outlook among investors, contributing to a decline in fintech valuations. To mitigate risks and preserve portfolio value, investors have implemented measures such as downside protection on deals (36% of participants) and favouring liquidity preference (28% of participants).
3. Decrease in Exits:Economic uncertainty worldwide, coupled with higher interest, resulted in a significant decrease in exits. Of the exits executed, regional buyers accounted for 40%, with 32% attributed to private equity and global buyers. Notably, IPOs as an exit strategy were limited to 4% of cases, underscoring the challenges in listed markets.
4. Challenges in Capital Raising: Capital raising emerged as a significant issue for portfolio companies, cited by 33% of 5 participants, hindering growth opportunities. Additionally, uneven infrastructure across markets, limited total addressable market due to infrastructure constraints and a fragmented financial regulatory framework were identified as challenges by survey respondents.
5. Deal Onboarding and Declining: Factors such as valuation expectations, unconvincing prospects by management, and questionable product fit in target markets contributed to the decline of potential deals. Notably, 32% of participants cited valuation expectations, while 44% reported potential deal declines due to concerns over management prospects and product fit issues.
6. Prospects and Investment Focus: Despite challenges, the African fintech landscape holds significant potential, with underserved opportunities across all markets. Survey participants expressed intentions to increase funding towards specific subsectors, with 20% targeting payments and transfers, another 20% focusing on financial infrastructure (APIs and platforms), and 44% exhibiting no specific subsector bias.
7. Deal Size: Notably, 80% of Seed stage investors allocated USD 250,000 to USD 1 million towards seed capital in 2023, which is a decrease from USD 3 million that has been previously observed in prior years. 99% of Series A investors allocated USD 5 million or more to Series A capital raising, which is a decrease from USD 10 – 15 million from previous years. However, with 6 continued support and collaboration among stakeholders, the prospects for African fintech remain strong, paving the way for the emergence of the next phase of unicorns.

Outlook and Conclusion:

Despite the turbulence observed in the African fintech market post-pandemic, the survey results indicate a positive outlook, with 72% of participants expressing a willingness to increase exposure to the current African market in 2024, which has currently seen a decline.

Get in touch < Back to Knowledge