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Over the past few years, a number of DFIs have announced the launch of venture capital investment programmes for Africa – initiatives that should help promote start-up activity across the continent, and drive the development of the African venture capital ecosystem, leading to job creation and economic growth.

This article is an excerpt from Issue 29 : Financing start-ups to build tomorrow’s african economies

In recent years a number of development finance institutions (DFIs) have announced new venture investment programmes for Africa. In 2016, European Investment Bank (EIB) and African Development Bank (AfDB) announced the Boost Africa Initiative, a joint venture that will see up to €150 million deployed in the African venture capital industry and is expected to support over 1,500 start-ups and SMEs across the continent.

More recently, in late 2017, CDC’s Intermediated Equity team secured approval to commence a programme of investing in African venture capital, which initially will entail deploying up to $75 million in 6-8 African venture funds over the next 3-4 years. Further capital is available from CDC’s Impact Fund, which will also continue to make select venture fund investments.

There are many reasons why DFIs are deploying capital in African venture capital. Investing in venture funds tends to be the most effective way of financing small tech-enabled companies and supporting entrepreneurship. Many of these start-ups are developing technology that can help formalise informal markets and/ or provide solutions to local problems in areas such as agriculture, healthcare, education and financial services.

More broadly, developed venture markets are proven to drive economic growth and promote job creation. It is estimated that just under 40% of new jobs created in the US in the past 40 years have been produced by venture-backed companies (Stanford, 2015). Whilst data is less readily available for emerging markets, initial indications suggest the impact of venture capital (VC) will be similarly significant; in China, a venture market which has developed in the past 15 years, venture-backed companies are already estimated to have created 10 million new jobs.


Venture capital has the potential to deliver strong returns, but investing in early-stage companies (whether directly or indirectly through funds) is inherently risky. In developing markets, the risk is further exacerbated, deterring all but the most experienced private institutional investors from participating in the asset class. Many established UK funds struggle to raise capital without support from the British Business Bank or European Investment Fund (EIF); given how immature venture capital is in Africa, African venture funds would likely be almost impossible to raise without the support of DFIs.

Venture capital has the potential to deliver strong returns, but investing in early-stage companies […] is inherently risky


In the 20 years, I’ve been investing in global VC funds I’ve had the privilege to follow the emergence of a number of new venture capital markets – first in Europe in the late 1990s, then in China in the early 2000s and India in the mid-2000s. Whilst the African venture capital market remains nascent it displays many of the same characteristics that Europe, China and India exhibited just prior to the maturation of their ecosystems:


Anecdotal evidence suggests an increase in returnee entrepreneurs like Iyinoluwa Aboyeji, who left Canada in 2013 to first found Andela and then, more recently, Flutterwave. We are also starting to see the emergence of companies like Movemeback, which are designed to help returnees find new jobs on the continent.


In the US a large proportion of venture-related activity takes place in Silicon Valley. In Asia, hubs have sprung up around key cities such as Beijing & Shanghai (China) and Bangalore & Mumbai (India). In Africa, regional hubs are emerging in North Africa (Cairo), East Africa (Nairobi), West Africa (Lagos) and South Africa (Cape Town).

PRO-Revue N29-UK-Five precursors that predict


In 2017 VCs deployed $560 million in 124 African venture-backed start-ups, a 53% yearover- year increase in capital invested (Partech Ventures, 2018).

In 2017 VCs deployed $560 million in 124 African venture-backed start-ups [in Africa].


In China, it was the entry of US VCs that fuelled the development of the market. In the past two years, prominent US VCs have financed a number of African companies including Andela (Spark Capital), Flutterwave (Social Capital), Instabug (Accel) and Zipline (Andreessen Horowitz).


Venture firms entering the Africa market with new funds in recent years include local VCs that are raising institutional capital for the first time, established EU VCs launching their inaugural Africa-focused venture funds such as Partech Africa and TLCom, and even experienced US venture capitalists launching new funds to target the continent, such as Raba Capital. This is in addition to an increasing number of locally based impact venture funds such as Novastar Ventures and Energy Access Ventures.

Whilst Africa’s venture capital market is showing promising signs of growth it isn’t clear how long it will take the ecosystem to develop sufficiently to support domestic entrepreneurship and significant job creation. China’s venture capital market developed relatively quickly (within 15 years), but the European ecosystem has taken much longer to develop (20+ years). Africa shares characteristics of both regions and is likely to take at least 15 years to fully develop.



CDC’s new Intermediated Equity venture programme will initially focus exclusively on investments in venture funds. We believe this is the best approach for CDC to take at this time as it enables us to build a diversified portfolio to minimise risk and will enable us to leverage our existing skillset and team most effectively. In Phase 1 of the programme we plan to deploy up to $75 million in 6-8 seed and early-stage Africa-focused venture funds over the next 3-4 years. Given that it typically takes 6-8 years for early-stage investments to be exited, we envisage the programme will have at least two further phases, stretching out in total over a 10-year period. We chose to target seed and early-stage as this is where we felt there was the biggest gap in the market. We plan to minimise risk by diversifying the portfolio by geography, with exposure to the four key hubs in North, East, West and South Africa.

Investing in venture funds is similar, but different, to investing in private equity (PE) funds, and we have introduced new processes and procedures to execute the programme; we have tweaked our due diligence to be more qualitative (to reflect the importance of relationships and lack of data in venture); we have developed a customised approach to ESG (to reflect the lean management teams and limited bandwidth); and we have amended our standard term sheet (to reflect the need for significant follow-on capital).

We are also pro-actively working with the broader DFI community to share learnings and expertise as well as due diligence on specific funds. As a first step to greater collaboration, in December 2017 we organised the inaugural DFI Venture Capital Forum.

DFIs can plug market gaps and anchor key venture funds, ensuring that there is sufficient capital to fund start-ups across the whole continent.


We believe there is an opportunity for the DFI community to help shape the development of the Africa venture market. DFIs can plug market gaps and anchor key venture funds, ensuring that there is sufficient capital to fund start-ups across the whole continent. We can mobilise capital from within the DFI community and from institutional investors to ensure that fund managers are able to meet their target fund sizes.

“Whilst there are experienced individual VCs in Africa, few managers have experience of building a venture firm, constructing a portfolio and dealing with institutional investors.

We believe there is also a significant  opportunity for value additionality. Whilst there are experienced individual VCs in Africa, few managers have experience of building a venture firm, constructing a portfolio and dealing with institutional investors. This is clearly an area in which DFIs can help provide guidance. We can help install high standards of governance within funds, and their underlying portfolio companies. We think there is also potential to leverage our networks in Africa to help identify future employees, advisors and board members.

Will Gornall, Ilya A. Strebulaev, The Economic Impact of Venture Capital: Evidence from Public Companies, Stanford, 2015. Available here:
Cyril Collon, “In another recordbreaking year, African Tech Start-ups Raised US$ 560 Million in VC funding in 2017, a 53% YoY Growth”, Partech Ventures, 2018. Available here: