Monica Shupikai Simmons : “Africa continues to be a key contributor to global technological innovation”

ICON is a London based global tech investment bank founded in 1999 to serve fast growing tech companies across Europe. Over the years we have expanded our footprint to serve clients globally, illustrated most recently with the opening of our San Francisco office [in 2019]. I joined in 2018 to launch the Africa practice, marking a natural progression in ICON’s evolution as a global advisor, and in recognition of the growing prominence of African transactions on the global stage.

Today, Africa competes with Latin America as the frontier/emerging market destination for capital. In data provided by Max Cuvellier of ‘Africa: The Big Deal’, Africa raised US$1.3Bn in Q1-2023, beating all expectations and for the first time raising more funds than Latin America. Global macroeconomic challenges saw fund raises in all regions contract YoY in Q1-2023, most notably US -54%, Latin America -80%, and Africa -29%. However, Africa is doing better in withstanding the impact of the market instability.

For 2022, CB Insights’ report ‘State of Venture – Global, 2022 Recap’ highlighted Africa as the only region to record positive VC deal growth. Deal count and value in all other geographies contracted in 2022. Africa defied the global venture funding decline through large financing rounds that saw venture debt take a more prominent role, and deal concentration in FinTech and Energy sectors. In 2022, the largest deals in these sectors, US$100m by MFS Africa (FinTech) and $33m by Solarize Africa (Energy), both raised significant capital that included venture debt. This ‘debt + equity capital’ trend has accelerated in 2023, as illustrated by the $100m capital raise in Feb-2023 by Planet42 (Mobility), comprising both debt and equity funding.

The limited number of venture debt providers on the continent, in conjunction with the sharp increase in demand for venture debt, has created a significant opportunity for venture debt providers. It is a reminder that, even in the current climate, Africa as a region continues to offer one of the largest long-term growth opportunities to investors.

From a technology perspective, Africa continues to be a key contributor to global tech innovation, punching well above its weight. In our support of African tech companies to secure investment for growth, we come across some truly innovative businesses. We all know the origin story of mobile money in Kenya and how this M-Pesa offering has revolutionized the way that the world’s underbanked and unbanked can access money and financial services. But do we know that African tech companies are also leading global decarbonization and other ESG efforts; are at the forefront of identity verification and cybersecurity; are pioneering the use of blockchain tech in banking and other financial applications; and are global leaders in artificial intelligence (“AI”) and machine learning (“ML”)? These solutions, created to solve Africa-specific challenges, are often relevant to other emerging markets and beyond.

The return to basics is an opportunity for tech companies that are not in FinTech and not located in the Big Four countries

Africa’s Big Four, Nigeria, Egypt, Kenya and South Africa, remain the primary destination of investment on the continent. The prominence of the Big Four has in part been driven by a sector focus on FinTech by investors. These countries have the largest populations on the continent, enabling scalable businesses, like FinTech, to deliver high top line growth and ultimately high returns for investors.

A silver lining of the current market instability – and resulting caution by investors to deploy capital – has been a return to investor fundamentals, such as (1) the strength of the underlying technology and (2) the financial viability of the business, demonstrated by the current investor focus on a path to profitability. This return to basics is an opportunity for tech companies that are not in FinTech and not located in the Big Four countries.

An example of a successful non-Big Four deal is the largest transaction of the year to date: the US$448m acquisition of InstaDeep by BioNTech in Q1-2023. InstaDeep, a Tunisian deep-tech company, a global leader in AI and ML, was acquired by Nasdaq listed BioNTech, to support AI-driven drug discovery. That an African company is competing with global players in AI and ML demonstrates what Africa is capable of.

Another opportunity is the growing prominence of other sectors, including blockchain and ESG/Climate. ESG/Climate in particular poses a significant opportunity for Africa. Initiatives for Net Zero By 2050 have galvanized governments and institutions across the US and Europe to focus on decarbonization as the primary solution. As Bill Gates put it, “The game will be won or lost in the developing countries.” In research by Andrew Carruthers of Novastar Ventures, McKinsey estimates the demand for carbon credits could increase 15-fold by 2030 and 100-fold by 2050 as industries realize they can’t go net zero and so have to buy credits from elsewhere.

Africa has proven its leapfrog tech capabilities

Africa’s natural assets place it in a unique position to lead decarbonization efforts. Africa has proven its leapfrog tech capabilities: mobile tech leapfrogging fixed line infrastructure; mobile money leapfrogging financial infrastructure; telemedicine leapfrogging health infrastructure; and solar leapfrogging traditional energy infrastructure. Africa’s leapfrog capability can now be directed at carbon-down sectors with natural assets such as agriculture and mining. It is an opportunity for African entrepreneurs to develop clean technologies and for investors to back Africa’s clean mobility, recycling and other businesses that will yield carbon credits to offset.

My experience on the Fathom Global/Moody’s deal and on a couple of current engagements in this ESG sector is that tech companies remain attractive investment and acquisition targets, even in this difficult market. An argument can be made for an acceleration in investment in the ESG investment space. Further to this, we are seeing a very high caliber of potential investor and acquirer in the ESG sector – largely because ESG is being taken into consideration as part of their corporate governance goals, with commitments endorsed at Board level.