Summary:
Only 1% of global venture capital is deployed in Africa, highlighting the challenges for tech founders.
Investors are looking for novel African tech solutions, favoring them over established models.
Customer revenue is a key source of capital in low liquidity markets.
Building trust through warm introductions is crucial for new founders seeking investment.
Utilizing SAFEs can help founders close funding rounds more efficiently.
By Marie Nielsen
Venture capital has grown out of Silicon Valley and become global by default, primarily benefiting the tech industry. While fund managers in the U.S. and Europe dominate the headlines, emerging markets are increasingly developing their own investment strategies. Currently, only 1% of global venture capital is deployed in Africa, prompting a pressing question: How can tech founders on the continent successfully raise capital in a low liquidity market?
Early-stage competition
As of 2024, the venture capital landscape in Africa is witnessing more liquidity than ever before; however, fund deployment rates remain surprisingly slow post-capital downturn. Investors are now favoring novel African tech solutions over tried-and-true business models, leading to the unfortunate winding down of several mature companies in East Africa. The competition for Series A deals is fierce, while pre-seed and seed funding remain scarce due to a lowered investor risk appetite.
Capital sources
At Antler, I advise founders to consider customer revenue as their cheapest source of capital. In a tighter funding environment, focusing on business models with strong unit economics and a quick path to profitability is crucial. Bootstrapping is a viable approach, emphasizing stability and long-term growth before venturing into experimentation. Additionally, exploring alternative capital sources such as grants can provide vital support.
Building trust
In lower-trust environments like East Africa, establishing connections with investors is paramount. Warm introductions from experienced founders can significantly enhance a new founder's chances. Given the smaller investor circles, face-to-face meetings can be impactful in pitching ideas. Closing seed funding rounds often takes longer, so utilizing Simple Agreements for Future Equity (SAFEs) allows founders to receive smaller investments incrementally. Inviting international investors can also accelerate local interest.
In 2021, a BCG analysis found that most deals in the African VC scene struggled to progress beyond the second stage. This context necessitates discipline and resilience from African founders to demonstrate their companies' long-term viability. Understanding the unique market context and adapting quickly is essential to ensure that startups not only survive but thrive amidst low liquidity realities.
Illustration: Dom Guzman
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