Africa is not Silicon Valley: Investing in African startups

Investment growth in African startups

With investments in African startups increasing significantly year on year, many pundits are asking salient questions as to whether these models for funding African innovations are actually reaping the required benefits. In a mini rat race to become investment-worthy, many African startups seem to be on their toes in running quick market experiments and pivoting their startups in ways that show readiness for investments. However, the challenge of achieving product-market fit may actually be much more than the journey of a few months. These, in the long run, may bankrupt the investments of the early stages, at a time when priceless insights into the most assured ways of offering and securing investments in Africa would have been very useful. Tony Chen voices out clearly this impasse when he asks: What if I deployed large amounts of misdirected money today? In five years, I’d be very wise—and very broke.

African startups on the continent appear to be performing phenomenally when compared with counterparts globally in investment growth - Startup Lagos
Flutterwave is one of the big unicorns within the startup space in Africa. Sources: Flutterwave, 2020.

Africa is not Silicon Valley

As an earlier post had described, many African startups are failing even amidst venture funding. A report by Weetracker in collaboration with GreenTec Capital Africa Foundation, in 2020, ranked Nigeria at a seventh position on the continent in the top ten countries with the most number of startup shutdowns. This grim figure does not detract from the successes that certain startups are registering on the continent, especially with top performers like Interswitch, Flutterwave, Chippercash, and many other fintech startups in Africa. Their achievements have continued to attract funding and the interest of investors in the African continent with a proliferation of hubs, accelerators, and investment opportunities. Adopting the Silicon-valley model of investing, many investors are pushing funds into the African startup ecosystem. However, the relevant question to ask is: Is there a mismatch between Silicon Valley VC investing norms and African market realities? Are these realities duly taken note of?

The recent failure of KubitX, a crypto exchange startup reveals some of the individual and market challenges that startups in Africa struggle with. As a young startup with much potential, they had difficulties in having a focus on what products to drive into the market, moving from crypto exchanges to blockchain payments systems, before having to close shop in May 2021.

How is the African market different?

Some of the peculiarities of the African market are highlighted by Akinyemi & Osarumi (2021) in their report, Chasing Outliers: Why Context Matters for Early-Stage Investing in Africa:

Firstly, African markets are large, fragmented, and volatile. This differs considerably from markets outside the shores of Africa. African markets are at the mercy of many violent socio-economic and political forces. They also consist of customers with low purchasing power and economies that are prey to external shocks. Digital and mobile penetration is increasing significantly in Africa but is far from the level in other countries north of the globe. The realization is that startups must be agile enough to iterate and pivot accordingly, to avoid being swept by market currents. These realities are further worsened by government policy bottlenecks that make it difficult for startups to push their products successfully through the market.

Secondly, unlike it happens in Silicon Valley, where investment is generally targeted at high-growth startups, Africa’s market dynamics make it difficult for startups to register high-end growth within short time spans. This puts a lot of pressure on African startups when they secure investments to exit appropriately. Startups, therefore, have to live through deals, and their focus on majorly topline growth ensures that they are scaling fast towards exits. As such, startups in Africa need some time to consolidate within the market and establish their footprints before registering significant returns on investment.

Thirdly, in Africa, funding is not as abundant as it is in other parts of the world. With the pressure to scale, and little funding at arms reach, many of these startups soon cave in under the pressure bubble, and are unable to remain sustainable. While it may seem that Africa is now rife with investment opportunities, because of these market challenges, a lot of African startups fall short of the weighty requirements to qualify for and secure funding. As such, a considerably large number of startups are cut off from access to funding within this current model for Africa.

Startup funding has spiraled considerably from 2019 through to the present - Startup Lagos.
Investments in African startups have increased significantly from 2019 through to 2021. Sources: Maxime Bayen & Max Cuvellier, 2021.

Advocating for a more robust model

Yinka Adegoke (2021) echoes these pain points as well while advocating for a more inclusive and contextual model for investment opportunities for African startups. Context should not be sacrificed for content. While it is important to pay attention to the innovations that are churned out daily from Africa, and the ones that are most promising for providing capital returns, it is also crucial that investors are looking at the context. With eyes set on context, interests around how much drive and resilience founders and their teams have to squarely face the demands of the market, come to greater light. Also, concerns about how to utilize flexible structures that help these startup teams to succeed sustainably or fail fast are better framed and tackled. As Akinyemi & Osarumi (2021) suggest, alternative instruments and structures like debt or permanent capital vehicles (PCVs) can help especially with their open-ended time frame facility. This would avail startups enough time to optimize their growth potential. Also, focused investment approaches, such as a focus on B2B investments in more mature markets, or on impact initiatives, can help in better reaching out to unexploited markets within the African ecosystem.


Mentorship is also one important element in the growth of startups. However, mentors also need to be aware of the peculiarities of the African market and need to be likewise grounded in practical experiences navigating through these challenges themselves. Linking African startups with mentors who, while being experienced, are unexposed to Africa’s unique market realities, would hardly be helpful for these startups to find ways out of the crossroads that they face in daily business activities. Alongside all this, there is as well the question of white privilege that is seeing a bulk of investments in Africa going to non-black founders. Seyram Avle, an assistant professor in digital technology cultures and innovation at the University of Massachusetts, echoes this, saying that tech entrepreneurship is only amplifying pre-existing inequalities against Africans.

The realization, however, is that investors need to be more circumspect about the criteria and channels through which funds are reaching African startups. The extent to which investors and venture capital firms pay attention to the context in African markets would greatly influence the success stories of many African startups that are accessing funding now, many years later in the future. And these will serve as a well-defined playbook and strategy for Africa’s dynamic tech-driven future.

Related posts

DeHaat, an Indian agritech company, has raised $60 million at a value of more than $700 million.


Binance acquires Sakura Exchange to penetrate the Japanese market.


5000 entrepreneurs graduates from Google’s Hustle Academy the class of 2022.


Disney pays $900 million for MLB's remaining interest in BAMTech, a streaming firm.

Sign up for our Newsletter and
stay informed

Leave a Reply

Your email address will not be published.

Close Bitnami banner