In the last decade, Africa’s startup ecosystem has seen a surge in venture capital (VC) investment, writes Afia Bobia Amanfo, business development director for Africa at Bridge for Billions.
Disrupt Africa’s report shows that in 2023 alone, African startups raised US$2.5 billion, remarkable growth from a few years ago. However, despite these numbers, over 80 per cent of the continent’s startups never access venture funding – not because they aren’t innovative, but because the funding models being promoted often don’t fit Africa’s realities.
The question we should be asking is: “Are we funding startups the right way, or are we simply replicating Silicon Valley models that don’t apply?”
For decades, African businesses – both formal and informal – have thrived on homegrown financial systems, leveraging community-based financing, cooperative savings, and revenue-first business models. Yet, most startup support programmes today still prioritise investment readiness for VC-style funding, when in reality, a different approach is needed.
Why VC is not the answer for most African startups
Venture capital is built for high-growth, high-risk, and scalable businesses – think tech startups that can expand rapidly across borders and generate exponential returns for investors. But Africa’s startup landscape is different:
The market is fragmented – Africa is made up of 54 diverse countries, each with its own regulatory environment, currency risks, and infrastructure challenges. Scaling across multiple markets is far more complex than in the US or Europe.
The customer base is different – many startups serve underserved or informal economies, where digital payment adoption and purchasing power are still evolving.
VC funding is highly concentrated – over 75 per cent of VC investment goes to just four countries: Nigeria, Kenya, South Africa, and Egypt. Meanwhile, entrepreneurs in other regions struggle to attract capital.
Many startups don’t fit the VC model – the majority of African businesses operate in retail, agriculture, health, and services, sectors that don’t always promise the rapid returns that VC investors expect.
So, if VC isn’t the right answer for most startups, what should we be focusing on instead?
Building on Africa’s own funding models
Rather than relying solely on external financing structures, Africa’s startup ecosystem should build on existing indigenous financial models that have supported businesses for generations. Here are some of the funding approaches that could be scaled:
- Rotating savings and credit associations (ROSCAs) and cooperatives
Known as esusu (Nigeria), stokvels (South Africa), and tontines (Francophone Africa), ROSCAs are informal community savings groups where members contribute money regularly and take turns receiving a lump sum.
Example: In Kenya, over 300,000 chamas (informal savings groups) collectively hold US$4 billion in assets – a testament to how grassroots finance can power entrepreneurship. Some fintech startups, like Chumz (Kenya) and Esusu (Nigeria), are now digitising these models to expand access to capital.
💡 Potential: ESOs and financial institutions can partner with these networks to create structured, low-cost lending models for small businesses.
- Revenue-based financing (RBF)
Unlike equity-based funding, RBF allows startups to repay investors as a percentage of their revenue, meaning no dilution of ownership and better alignment between investor and startup growth.
Example: Egyptian startup Gameball raised US$3.5 million through RBF, allowing it to scale its customer loyalty platform while maintaining control over its business.
💡 Potential: African banks and investment firms should expand revenue-sharing models for early-stage businesses with steady cash flow.
- Blended finance
Blended finance combines grants, concessional loans, and private capital to reduce investment risks and make startups more attractive to investors.
Example: the West Africa Initiative for Climate-Smart Agriculture (WAICA) blends public and private funding to support agri-tech startups, ensuring long-term sustainability.
💡 Potential: more incubators and development agencies should adopt blended finance models to fund early-stage ventures without burdening them with unsustainable debt.
- Crowdfunding and community-based funding
Platforms like Thundafund (South Africa), M-Changa (Kenya), and Kiva (global) allow startups to raise funds from a broad base of supporters.
Example: M-Changa has enabled over 300,000 Kenyans to fund personal and business projects through mobile money.
💡 Potential: With the right regulatory support, African governments can incentivise local crowdfunding initiatives to unlock more capital for small businesses.
- Corporate and government procurement contracts
Startups don’t always need investors – they need customers. One of the most sustainable ways to fund African startups is through large contracts with corporates and governments.
Example: Bridge for Billions partners with corporates to fund youth-led business development programmes which offers stronger support to develop market-ready businesses and connect to potential markets offering direct revenue instead of just grants.
💡 Potential: Startup support programmes should focus on helping entrepreneurs secure procurement contracts rather than just pitching investors.
De-risking angel investment: encouraging local investors to bet on startups
African investors – whether high-net-worth individuals or everyday business owners – tend to invest in low-risk assets such as real estate, land, cars, and established businesses. This is because these assets offer predictable returns and a sense of security.
💡 How do we replicate these behaviours to foster more homegrown startup investors?
- Create investment products that feel familiar
Investors prefer predictable cash flow – so let’s design startup investments that mimic traditional low-risk assets:
Revenue-sharing agreements – investors receive a percentage of startup profits, similar to rental income.
Convertible debt – structured like a low-interest loan, with an option to convert into equity later.
- Reduce perceived risk through group investing
Most African investors don’t want to take big risks alone, but they will invest in trusted networks.
Angel investment syndicates – encourage investors to co-invest in startups as a group.
Private equity-style investment clubs – similar to real estate syndicates, where members pool funds to back multiple businesses.
📌 Example: Nigeria’s Rising Tide Africa is a women-led angel network investing in African startups through shared due diligence and risk reduction.
- Show tangible value and exit paths
Traditional investors want clear exits – which startups don’t always offer.
Encourage mergers and acquisitions as exit strategies.
Structure buyback agreements, where startups can repurchase equity from early investors.
📌 Example: In Egypt, fintech startup Paymob offered early investors structured buyout options, giving them a clear return path.
Conclusion: a new era of Startup financing in Africa
Africa’s entrepreneurs deserve better than a copy-paste approach to startup funding. The models that have worked elsewhere won’t necessarily work here – and that’s okay.
If we build on existing financial behaviours and Indigenous investment models, we can create a thriving funding ecosystem where African investors back African businesses on terms that make sense for them.
