Africa's funding reset leaves early-stage tech founders behind

Africa's early-stage startups are facing a new funding squeeze as venture capital firms increasingly prioritize backing proven companies over riskier young ventures in a bid to deliver returns to investors. In the first half of the year, African startups raised around $1.4 billion, on par with the same period last year. But the number of deals fell sharply, according to separate fundraising tallies by Africa: The Big Deal, and TC Insights, raising average check sizes as a result. Beneficiaries of this trend tend to be later-stage companies with strong revenues, scale, and a firm handle on customer needs, rather than seed and series A startups that are still formulating their strategy, investors told Semafor. The focus away from the early stage is expected because "exit discipline has become a credential rather than a footnote" for African investors, said Ibrahim Sagna, executive chairman of Silverbacks Holdings, an investor in this week's $250 million round by Moove, the Lagos-born Waymo fleet manager. His firm banked its 10th exit earlier this year when Nigerian payments provider Flutterwave, in which it is an investor, acquired Mono, another Silverbacks portfolio company. "Fewer, better vetted bets" on growth-stage African tech companies will define the ongoing VC cycle, Sagna said, concentrating capital in businesses that are guaranteed to generate cash flow. African VC fund managers are "coming under a lot more scrutiny in terms of cash returns, not just paper performance," Justin Stanford, partner at South African early-stage investor 4Di Capital, said. Investors are being more discerning when assessing startups for realistic exit timelines, he said, "pushing managers to be more later stage" and dampening early-stage deals. 4Di, which backed AI-enabled agritech Aerobotics and Kenyan ecommerce logistics startup Wasoko in their earliest funding rounds, is preparing to raise a larger warchest that will succeed its current $20 million fund. But, as part of a revised thesis for better returns, the firm is considering taking up stakes in later-stage startups by buying out existing investors through secondaries, Stanford told Semafor. Secondaries "could be something that we have to look at," said Lexi Novitske, general partner at Norrsken22, a firm investing in middle-stage African startups out of a $205 million fund and on track to make seven investments this year. Norrsken22 could consider acquiring startup stakes from other investors to plug deal flow gaps, Novitske said.