Africa has seen exits since 1999 (Verisign buying Thawte). The ecosystem has also seen big-name IPO exits like Jumia (listed in 2019) and Paystack (acquired by Stripe). Whilst the continent has completed a healthy number of M&A deals, Africa's venture ecosystem exhibits a 50% lower exit rate than counterparts in the United States, Europe, and India. Most African countries now display a new-to-exit deal ratio of 20:1. 

African early-stage investor Abdul-Karim Mohamed notes the efficiency of Africa’s venture ecosystem in creating value also warrants scrutiny. In more efficient ecosystems, exits (i.e., outputs) yield returns of $0.9 to $3.1 annually for every dollar in new venture deals. By this measure, from 2015-2023, Africa’s venture ecosystem should have generated approximately $20.5 billion in exits between 2015-2023. Africa's most notable and disclosed exits total $2-3 billion to date, or less than 10% of the expected exit value.

General observations on African exits to date

• Of all the successful exits the continent has seen, 90% have been acquisitions.

• While fintech remains the most funded sector in Africa and has maintained this dominance in exits, representing 34% of the 100 exit deals between 2020 and 2022, other sectors, such as logistics, clean tech, and digital infrastructure, are steadily emerging as viable contenders.

• While major, high-profile exits garner significant media attention, the increasing prevalence of smaller exits (valued under $100 million) strongly indicates the evolving and maturing nature of the industry ecosystem.

• The correlation between funding activity and exit activity is not directly proportional. Despite leading the continent in securing funding deals, Nigeria falls behind South Africa and Egypt regarding successful exits.

• M&As on the continent are typically product-driven (Float acquiring Accounteer), expansion-driven (TradeDeot acquiring GreenLion), talent-driven (Savi acquiring Piggyvest), or consolidation-driven (Beyonic being acquired by MFS).

African exits – looking forward

We believe the market will grow in attractiveness for financially driven investors (particularly secondary market investors) when the market sees a higher volume of smaller exits. There is a risk that founders/VCs chase several funding rounds and hold on as long as possible within 12-year fund lives (which can be extended well beyond this). 

In practice, “unlocking” the ecosystem likely means many early-stage investors will need to accept lower valuations, which can be problematic for those who have underwritten early-stage companies at a high valuation (a systematic problem we see across emerging markets, not just in Africa). A VC’s drive to maximise DPI can significantly negatively affect overall fund-life IRRs, even if the target exit valuation is achieved – but at a later date.

A higher volume of smaller exits and the recycling of liquidity will act as a healthy valve and improve confidence in the ecosystem. It will be exits, not fundraises, that will drive new financially-/strategically driven inflows to the continent. This fact is reflected in recent AVCA research that found 76% of LPs consider “limited exit opportunities” to be the biggest challenge to investing in the region.

The African VC ecosystem reset may be painful for some, but it will be a healthy development for a region with immense promise. In the meantime, whilst investors in Africa’s secondary markets can find real gems, they should proceed cautiously.

Read more about the Indian exit environment here.