Why Africa had no unicorns last year despite record fundraising haul

In 2019, Africa saw its highest ever venture capital fundraising total, with over 8 billion USD invested in the African tech startup ecosystem. This was an enormous achievement, but it didn’t bring about the same success for African-based unicorns. While startups across the continent raised record amounts of funding, there were no new unicorns emerging in Africa last year.

So why did Africa not produce any new unicorns despite such a huge fundraising haul? To answer that question, we need to look at the whole market landscape. Firstly, there is the issue of market maturity: while the African tech scene is certainly growing, it is still comparatively young and many of the most successful and mature tech markets, such as the US and China, have been in existence for decades. This means that there is a large talent gap in the African market, and as such, it is much more difficult for African startups to reach the same level of success as their peers abroad.

Secondly, there is the matter of regulatory and legal frameworks. In comparison to many other countries, Africa’s regulatory shield is still far from perfect. Numerous African countries lack an integrated legal infrastructure for the protection of venture capitalists, investors and entrepreneurs. This creates a significant obstacle for venture capitalists who are considering investing in African startups.

Lastly, there is the issue of access to capital. Access to capital is one of the key ingredients of success for a startup and in Africa, many startups are still unable to access capital from traditional sources such as banks and private investors. This limits the potential for raising the large sums of capital necessary for creating a successful unicorn and additionally, the cost of capital is much higher than in other markets due to the lack of a formal financing system.

When it comes to African unicorns, the combination of these three factors means that the threshold to success is very high. Despite the record amounts of investment that have flowed into the continent in 2019, it is clear that African startups face a difficult journey if they are to reach the same levels of success as their peers abroad. As venture capitalists and investors continue to pour money into the African tech market, the hope is that these challenges can eventually be overcome and the trickle of unicorns from the continent can eventually become a flood.