Why African AI Startups Are Poorly Funded Despite Global Boom

The story of modern technology would be incomplete without talking of the evolution of artificial intelligence (AI), which is quickly piercing into several strata of the digital space.

The creation of learning algorithms like deep learning, chatbots, and neural networks, which allow the software to learn from experience and upgrade themselves, has made AI increasingly important. The more AI has been embraced, the bigger the industry grew and consequently, investments in AI companies also surged.

According to a report by CB Insights, AI startups received a record funding of over $20 billion during the second quarter of 2021, more than double the $8 billion raised globally in Q2 last year.

However, this global growth has not been evident in Africa, as the continent's artificial intelligence sector is still very much in its baby stages, thanks to several problems including funding.

Of the over $700 million raised by African startups in 2020, the AI sector contributed just 2.5%. This shows that the sector is very low on investor preference. In comparison, the fintech sector, which is the current VC favourite, saw over 24% (a quarter) of the total investment.

Africa's AI sector has previously seen fundings here and there, such as South Africa's IoT.nxt which raised $7.7 million in 2017, as well as the presence of several pioneering startups like SA’s BrandsEye and the Egyptian startup, Affectiva (2009). However, beyond these, there was no significant growth to signify the emergence of the sector.

The year 2019 was however a pivotal one for AI in Africa, with funding into the sector leaping up significantly from earlier years. The sector raised $11.27 million, up a whopping 223% from the $3.6 million in 2018.

2020 was even better, with reports showing that funding rose to $11.63 million. Notably, four startups raised over the million-dollar mark, and the average raised was US$1,162,700.

This year is no different as AI startups participated in the record $1.19bn raked in the first half of the year.

However, compared to the huge funding attracted by other sectors and considering the huge potential of Artificial intelligence, these fundings have been severely very low and hardly well distributed, and here are some reasons.

Funding in the African AI space is still largely fuelled by individual startups closing big rounds. In 2019, 62% of total investment was closed by Tunisia’s Instadeep (US$7 million), while in 2020 it was the $6 million funding of SA’s DataProphet that accounted for more than half of the funding attracted to the continent.

Also, investment in AI is not evenly spread across the continent as some countries like SA see more AI funding than others.

For example, asides DataProphet, SA had two more notable rounds in 2020 — inQuba which raised an undisclosed amount, and LightWare which got US$1.5 million and one additional smaller raise. This makes South Africa significantly ahead of the rest of the continent in terms of AI funding.

Nigeria is however not completely left behind. Although it doesn’t have SA’s huge AI investments, the country has several AI-focused labs. The latest is the Data Science Nigeria, AI incubation lab which was funded by Main One, the Bill and Melinda Gates Foundation, UK-Nigeria Tech Hub, and Microsoft Nigeria.

Even as more AI or AI-enabled startups are being born, the funds and resources they readily need to survive are unavailable.

For example, Nigeria’s infrastructural problems are still a threat to the advancement of AI. Power, cost of the internet, and renegade government policies are some of the many infrastructural barriers the adoption of AI faces.

These, in turn, affect the confidence of venture capitalists who, in some cases, may not fully understand the tech. According to the report, Early-stage deal share which includes seed, angel, and Series A rounds declined to a low of 55% in Q2 2021.

Also, in order for AI companies to succeed, they need highly trained data scientists. These, however, are not very easy to find on African soil.

In advanced territories such as Europe and the U.S, nearly every university has established new departments, institutes, and degree programs for Data Science. Africa, on the other hand, is still grappling to close the gap in its education sector.

Although AI and machine learning have become hot tech jobs with the new norms of remote working and digitization, most schools that offer AI courses and certification are foreign e.g CISCO and Elev8.