Venture capital is a high-stakes game and is never guaranteed. African entrepreneurs who rely on venture capital have to learn to thrive in fast-changing, often unpredictable environments.
Owning a tech startup requires sufficient funding to scale and manage. By leveraging VC funding, tech startups can receive the capital required to scale.
In this guide we look through VC funding and find out which VC firms are supporting startups in South Africa and Africa as a whole.
What is Venture Capital?
Venture capital is a type of financing received by innovative startups that display a lot of growth potential. This happens through investments from individuals or firms, known as venture capitalists.
These investments work on the basis of providing financing in exchange for equity, which is why venture capitalists invest in businesses with long-term growth potential, as they are essentially betting on them to succeed.
With this type of financing, because tech startups are in their early years, there’s still a high likelihood of failure. The startup world is quite risky.
The State of Venture Capital in Africa
The landscape of venture capital in Africa is continuously evolving. Although there’s been a recent downturn in 2024, the future of venture capital investment in Africa seems promising.
In 2024, Africa’s venture capital market showed stability, raising $3.2B across 534 deals—only a 7% dip in funding and 2% fewer deals than in 2023. This marks a significant recovery compared to the previous year's 46% drop in funding and 28% decline in deal activity. Despite challenges such as currency fluctuations and high inflation, the continent’s startup scene is holding its ground better than most.
Nigeria, South Africa, Egypt, and Kenya continued to dominate the market but to a lesser extent (67% of 2024 total vs. 79% in 2023). Nigeria reclaimed its position as Africa's top VC investment destination in 2024, leading in both equity funding and deal count. The country secured $520M in equity funding, driven by notable high-value deals.
South Africa raised $459M in equity last year, a 16% decrease compared to 2023 for a total of 67 deals, down 19% compared to 2023. South Africa was home to one megadeal that saved the market from a drop of 69% compared to 2023.
How to Prepare Your Tech Startup for Investment
In a tech startup’s search for funding, there are certain boxes it needs to check to qualify. Before you begin your search for an investor, here are 6 key boxes to tick:
A Clear Problem-Solution Fit in the Local Market
Investors want to back businesses that are driven by solutions for real problems, especially those that have an undeniable impact. Whether it’s in fintech, logistics, gaps in education and healthcare, or any other industry where your solution addresses a clear pain point with measurable demand.
A Scalable and Tested Revenue Model
Venture capitalists are interested in tech startups that demonstrate a clear path to profitability and scalability. This includes a revenue model that has been tested and proven to work and can generate increasing revenue with additional investment.
Strong Early-Stage Metrics
Metrics are essential to proving your traction. These include user or customer growth, retention rates, monthly recurring revenue (MRR), and customer acquisition cost (CAC). Your startup might still be in the pre-revenue stage, and if that’s the case, evidence of user engagement can still make a case.
Business Compliance
Compliance is extremely crucial in any business, but even more so when you have a startup that touches on privacy regulations like POPIA to licensing requirements in fintech or healthtech sectors.
Additionally, your startup needs to have its legal and regulatory ducks in a row. This includes company registration, IP protection, contracts, founder agreements, and more.
Technology Ownership and Documentation
Startups must demonstrate ownership and control of their core technology. This includes in-house development or clear IP assignments from outsourced teams, clean and documented codebases, and the ability to scale or iterate the product as needed. These are critical due diligence points for tech investors.
A Well-Rounded and Capable Founding Team
It’s important not to overlook how your team will be assessed. Investors have a close look at the team, as they would the product. The best founding teams have a mix of technical skills and business knowledge. If you're a solo founder, surrounding yourself with experienced advisors can boost your credibility and increase investor confidence.
The Stages of VC Funding
VC deals typically start with an introduction to an investor and a pitch (from the startup) explaining the company’s purpose and why the business is worth investing in.
When it comes to after the pitch, there are stages to VC funding, specifically five.
Pre-seed stage - This stage is the beginning and typically involves receiving capital from family, friends and angel investors.
Seed Stage - Funding from this round is typically used for research and development (R&D) to take an idea from concept to prototype or production. The capital can also be used for market research and to grow the team. Seed funding is usually a low amount.
Startup/early stage - After the initial product is finalised, the focus in this stage is to advertise and market the product/service to new customers. (Series A, B etc.)
Growth stage - In this stage, the startup will have a commercially viable product and funding will go towards manufacturing and production facilities, as well as sales and marketing.
Expansion stage - Funding at this stage is meant to accelerate the growth of the startup - which is generating significant revenue. With this investment, the startup can expand to other markets or on new product development.
Bridge/mezzanine stage - This is the final funding round before an IPO or other exit strategy. The financing can be a mix of debt and equity and is often used for acquisitions or major projects.
Top Venture Capital Firms Investing in Africa
1. Future Africa
Future Africa invests in early-stage African startups that offer solutions to the hard problems Africans face. Their primary focus is in the financial services, fintech, and IT sectors, with a focus on Africa, particularly Nigeria, Kenya, and South Africa.
2. Flat6Labs
Flat6Labs provides funding for over 100 innovative tech startups annually, empowering numerous driven entrepreneurs. Flat6Lab’s African footprint is predominantly in Egypt and Tunisia, while the rest of their footprint extends to Saudi Arabia, United Arab Emirates, Jordan, Palestine, Lebanon, and Bahrain.
3. Norrsken22
Norrsken22 deeply supports the African tech ecosystem and has decades of experience supporting African entrepreneurs. The firm is based in Kenya, Nigeria, and South Africa. Their typical focus is on fintech, market enablement, edtech, and medtech.
4. Partech Africa
Partech Africa invests in the continent's next generation of category leaders, supporting them from seed to growth stage. They partner with entrepreneurs who leverage technology and operational excellence to tackle large-scale opportunities. With a focus on tech-enabled businesses, the fund invests in companies from seed to series C funding rounds.
Omega is passionate about the entrepreneurial process and learning about entrepreneurial stories. When she's not working, she’s taking a short course, listening to jazz, or attending a live show.
