When Stripe-subsidiary raised its seed round of $1.3 million in 2016, it was one of the largest disclosed rounds at that stage in Nigeria. At the time, seven-figure seed investments in were a rarity. But over the years, those same seed-stage rounds have become more common, with some very even raising eight-figure sums.
For example, Nigerian fintech startup Kuda, which bagged $10 million last year, comes to mind.
Also notable amidst the growth in seven and eight-figure African seed deals have been gains in pre-seed fundraising. Typically, is still in the product development phase to make revenue or discover product-market fit. These investments are usually made by third-party investors (friends and family) and range between $25,000-$150,000.
But the narrative as to how much an early-stage African startup can raise as pre-seed has changed.
Last year, African VCs who usually fund began partaking in pre-seed matches, and they don’t seem to be slowing down. Just a month into 2021, Egyptian fintech startup raised a led by VC firm in a bid to drive expansion within the country.
So why the sudden change in appetite from investors?
Andreata Muforo is a partner at TLcom Capital, a pan-African early-stage VC firm. She told TechCrunch that last year’s run of 23 pre-seed rounds (10 of which were $150,000+ deals) per was due to investors’ confidence in the market, especially fintech.
Startups building financial infrastructure got noticed.
While most African pre-seed investments in 2020 went to fintech, there were exceptions, including Egyptian edtech startup which raised $1.2 million; Nigerian automotive tech startup , which raised $3.4 million; and Nigerian talent startup , which raised $300,000.
Just as Paystack and Flutterwave built payment infrastructure for thousands of African businesses, these are trying to make their mark in the sweet spots of credit and banking.
“Fintech is compelling. But while most fintech the commodities side of fintech, it’s the companies building infrastructure around the market that got most of the pre-seed validation last year,” Muforo said. Her firm, TLcom, led the $1 in Okra.
is an API fintech startup. So are , , and Png. They build Africa’s API infrastructure that connects bank accounts with financial institutions and third-party companies for different purposes. Within the past 18 months, Mono and Pngme raised $500,000, while OnePipe raised $950,000 in pre-seed.
It is noteworthy that while these startups are clamoring to solve Africa’s open API banking issues, three of the four deals came after Visa’s last year in January.
Although the Visa-Plaid acquisition , it is safe to say some African investors developed FOMO, handing out sizable checks to fund “Africa’s Plaid” in the process.
Digital lenders remain one of their most important customers for fintech API startups. They can access customers’ financial accounts to understand their spending patterns and know who to loan to.
Egypt’s and Nigeria’s are fintech startups building credit infrastructure for their markets. Evolve Credit connects digital lenders to those who need loan services in Nigeria via its online loan marketplace. Shahry, on the other hand, employs an AI-based credit scoring engine so users in Egypt can apply for credit. The pair also secured impressive pre-seed funding — Evolve Credit, $325,000, and Shahry, $650,000.