Re-imagining Seed Capital in Africa
At the start of the pandemic, Central Banks around the world responded by lowering rates – an action taken to stimulate economic growth. The rational is, when interest rates are lower, businesses and individuals will be more inclined to take loans and use it to expand their business, which helps to boast economic activities (more jobs are created, more services are paid for etc.) Also, when interest rates are lower, it creates an incentive for investors to look for higher returns elsewhere, such as the stock market, or investments in startups.
As businesses got access to cheaper capital in form of lower interest rates, and other forms of stimulus, we began to see phrases like “excess capital”, “too much capital”, “excess liquidity”. Companies were able to raise more capital. In 2020, a record-breaking total of $331 billion was raised through initial public offerings (IPOs) across the world. 46% of which was by North American companies and 42% by companies in Asia Pacific.
But was the “whole world” really awash with capital? The IPO breakdown shows that U.S and China dominated. So, we know that relative to the rest of the World, African businesses did not raise that much capital through IPOs. Raising capital through an IPO is usually for large companies with some track record, and some success. Early-stage startups typically can’t raise capital through an IPO, and the fact that they have less track record, makes it more difficult for them to raise capital through both Venture firms, and their direct network (friends & family). How about African startups, were they awash with capital in 2020? African startups raised a total of $1.4 billion in 2020 according to PartechAfrica. On the other hand, European startups raised $41 billion, while U.S startups raised a record breaking $156 billionin 2020 (that equates to $428 million for every day of 2020). Which means in 2020, businesses (both startups and mature businesses) in some parts of the world had less access to capital than their counterparts in other parts of the world.
Startups are important. They are fragile, risky, but important. They collectively represent the barometer for disruption and innovation in a society. Our goal at Squord is to expand access to capital for African startups. There are many people who want to invest or donate to startups and projects in Africa, but do not know how to go about it. With our platform, we will continue to educate our Squord Community, and help them find innovative ideas in Africa to support.