Entrepreneurs, business leaders, and investors are increasingly questioning whether the traditional VC model - largely imported from the United States and Europe - is optimal in a specifically African context.
By 2019, VC funding in Africa had soared to over 2bn - with funding reaching a record high of 5.2bn in 2022, partly driven by the environment of ultra-low interest rates that freed up cheap capital for investment in both developed and emerging markets. The total raised last year amounted to around 3.6bn, but it remains the case that Africa has witnessed an extraordinary boom in this asset class in a short space of time.
Tarek Mouganie, founder and group CEO at Accra-based digital banking platform Affinity Africa, argues that the VC model has helped solve some fundamental issues in African markets but that it also needs to be better tailored to conditions on the continent.
Speaking to African Business from the Ibrahim Governance Weekend in Marrakech, Mouganie says VCs play a critical role in funding ventures that traditional investors, such as development finance institutions DFIs, would deem too risky. "I work in the space of financial inclusion. 60 of adults in Sub-Saharan Africa do not have bank accounts - that is over 400m adults. In Ghana, which is a developed, low-middle income country, there are still 11m adults without a bank account and transactions are still 90 cash based," he explains. "This is not a problem - it is a huge opportunity to build something that solves this."
"But to get a banking licence and prove this concept, you need deep pockets. In Ghana it costs between 3m and 60m depending on which type of licence you want - then you need additional funds to reach capital requirements," Mouganie adds.