Venture capitalists are firms that provide the necessary funding for start-ups to begin their business. They are usually availed by technology based start-ups, as they won’t be able to gain loan from banks due to unavailability of hard assets. It is already well known that venture capital investments are rising globally.

There is also a marked increase in investment in Africa, as investors now consider Africa as less risky in terms of investment. Investment in start-ups is double as that of last year, as shown by venture finance for Africa report. This is an indication of growing trend of investment in Africa.

In reality the amount invested is larger than the projected amount as all the start-ups where not covered by the report. E-commerce companies received highest funding from such investors. No slowdown is visible in the coming years for the investments in Africa.

Source of venture capital money

Many start-ups have raised millions from venture capital firms. More than half of the investment is used for infrastructure. Growth in GDP and demographics are some of the reasons of increase in capital funding. Africa is described by economists to be the new economic frontline. Commercial hubs like Nigeria and South Africa have huge populations and an emergent middle class which boasts spending power. The increase in technological sophistication, branding and consumer awareness is turning Africa into investor’s delight.

Capital firms helps by mentoring and funding the growth of new companies to reach their potential. Investments come from many different sources like mobile operators and private firms in USA and Europe. They are looking to increase investment funds as they have announced large funds for start-ups. Individual investors are scarce in in Africa but are also increasing in number, especially in South Africa. Investment networks and clubs are also expanding in Africa which are made up of regional networks in countries like Egypt and Nigeria.

More opportunities

There is no place on earth that has more number of underprivileged or under-catered people. This vast untapped potential makes Africa a land of opportunities. Investors are more attracted to companies in clean technology, e-commerce, financial services and e-health. There are also many opportunities uncovered as investors are waking up the potential of them by investing money. Any growth sector which takes advantage from huge population and middle class is flourishing in Africa. Important factors which influence high investment are fair-priced valuations, strong management and large markets.

Risk of investments

There is a high risk for investment due to scarcity of business-friendly laws, high rate of crime and fluctuating currencies. Investments are usually hindered by bureaucratic and frustrating government policies, and lack of proper infrastructure. Corrupted government officials meddle with the company policies for monetary gain. But positive developments to counter them are seen in recent years which provide an optimistic future for investment in Africa.

There is some success nonetheless of various hurdles. The key mechanism to encourage investment must be the push to create some success. Large transfer of foreign currency into the region can be achieved by investment in Africa.

Written by Kenneth Hogrefe