Investments in African startups keep growing at a rapid pace, ever since data from the sub-sector was first collected in the mid-2010s. According to The Landscape for Social Investments: Sub-Saharan Africa Comparative Analysis report released by Intellecap Advisory Services in 2020, there were over 820 social investors active in East, West, and Southern Africa.
Compared to the amount of investment raised by high-growth US-based startups and unicorns, the amount is quite small. However, despite the disparity, the fact remains that more money is flowing into Africa.
The advent of the United Nations Sustainable Development Goals (UNSDGs) in 2015 has played a key role in directing the focus of investors in Africa away from solely profit-making, to having a broader, more sustainable impact on the lives of those that their portfolio companies are targeting.
Impact investing is now emerging as a new approach to international development, offering the promise of long-term sustainability. According to experts, it has the potential to transform philanthropy, as investors are looking to invest in socially responsible investments, which promote social good in addition to generating revenue. Investing in companies that provide for the social good allows impact investing to assist in bettering the livelihoods of members in a community, and facilitate self-sufficiency independent of aid.
Africa has been a major site for impact investing. The continent's growing and urbanizing population coupled with its wealth in resources are bound to make the region one of this century's economic trends. Despite this, however, there still exist gaps in the provision of basic services like access to clean potable water, education and adequate nutrition. The aforementioned factors have contributed to how impact investing has taken hold in Africa, with investors seeing opportunities to sustainably address social problems while meeting consumer needs.
According to the report, investors pumped over $50 billion in socially responsible investments and resources into the continent between 2015 and 2019, more than other emerging regions across the world.
Over the past few years, over half of venture capital deals recorded in Africa involved at least one impact investor. This shows that the desire to make a positive impact in Africa was there before the pandemic.
With the recent downturn in conventional ODAs, we can expect to see more impact-focused VCs making moves on the continent. They recognise that they can provide a lifeline to African startups who are in need of funding but are unable to source it from traditional sources such as commercial banks that are gradually consolidating their resources due to the prevailing economic conditions.
Impact-focused players such as ourselves will continue to make more investments in platforms that make use of technology to drive real change and shape concrete outcomes by combining our competencies in data analytics, systems thinking, human-centric approaches and convening multi-stakeholder gatherings.
Everyone working in the field today also understands the importance of technology, innovation and partnership in addressing the enormous challenges facing humanity. Yet even as those challenges grow ever larger and more daunting, the truth is that we have barely scraped the tip of the iceberg when it comes to harnessing new technologies to address these issues.
The writer, Karnika Yadav, is Partner & Director (Africa) at Intellecap Advisory Services.
