The unfortunate reality on a global basis  is that it is harder to raise capital and scale a startup in smaller markets. This is even more true in heterogeneous Africa where it is often harder to scale across regions and countries. The “big 4” countries in Africa accounted for 94% of Fintech financings in 2023.

Investors, of course, love large, homogenous geographical markets like the US or China, where the model can simple scale once product/market fit is achieved.

We have just received the latest Afridigest Fintech Transactions Database for 2023, which shows how the 94% of $1.55 Bn of equity and debt capital raised is broken down: Egypt ($541m), South Africa ($367m), Kenya ($301m) and Nigeria ($243m).

It is also interesting to note that whilst equity funding is down 43% YoY, debt funding is up by 34%. Debt is mainly applicable to the lending players such as through financial co-operatives, BNPL, SME lending and asset/micro-asset financing. This has been a  very active category  in 2023, where 97% of all Fintech debt raises were in the banking/lending category, also accounting for 63% of equity raises.

Broadening the big market discussion to all investment in Africa in 2023, we turn to the Africa: The Big Deal 2023 Deals Database, which includes equity and debt financing across all sectors. It features the same “big 4” countries, this time showing the percentage investment that the country received relative to its region. This has actually increased since 2022 in the 3  largest regions, with only Nigeria’s deal concentration in West Africa decreasing from 77% to 68%.

Kenya raised the most capital in 2023, punching above its weight. It will be interesting to see if this can be sustained.

We have experienced two successful growth strategies that can attract investors to startups in  smaller markets:

1. Demonstrate scalability across countries: The scaling in this case does not have to be to large markets, but proving the ability to successfully scale to even one other country changes the game for many (but not all) investors.
2. Move the company/business to a large market: The Israeli model. We have seen this work, moving to a large market in Africa, but also moving from a market in Africa to an external market, such as in Europe or the US. Once product/market fit is achieved in the local smaller market, establish in a large market. An accelerator can be very helpful in establishing in the new market. The local company typically become a subsidiary providing R&D/Engineering and/or other services to the new company.

We have had clients who have been successful in each of these strategies. In both cases, you would usually need to rely on your local investors to get you to the point where you have sufficient traction in your new market.

Starting from a smaller market can be a longer, but ultimately a more meaningful journey than simply “upping sticks” and starting from scratch in a large market, which of course is the route many technopreneurs do take.