Building venture capital ecosystem for next-gen unicorns

AT this year’s World Economic Forum in Davos, Switzerland, a provocative question dominated conversations about Africa’s economic future: Why doesn’t the continent have more billion-dollar startups?

The answer, according to experts like Strive Masiyiwa, lies not in a shortage of talent or ambition but in a systemic gap — access to equity capital.

As global investors increasingly recognise Africa’s potential, venture capital (VC) is emerging as the powerful anchor for transforming local startups into global powerhouses.

However, the continent’s VC ecosystem remains in its infancy, demanding urgent collaboration to unlock its US$3 trillion economic potential.

The VC imperative: Beyond debt, towards equity

Venture capital — a model where investors exchange funding for equity in high-growth startups — has propelled Silicon Valley titans like Google, Tesla and Amazon.

Unlike bank loans, which saddle entrepreneurs with debt, VC provides risk-tolerant capital paired with mentorship, global networks and operational expertise.

This approach is critical for Africa, where startups face unique challenges, from fragmented markets to infrastructure gaps. But the continent’s VC landscape lags far behind global peers.

While US startups attracted US$170 billion in VC funding in 2023, African ventures secured just US$4,5 billion, according to the Africa Venture Capital Association (AVCA).

Worse, only 20 percent of this capital comes from domestic investors, leaving innovation dependent on foreign funds that often misalign with local needs. Africa’s “unicorn drought” is not due to a lack of brilliant ideas; it is about bridging the gap between capital and creativity.

Progress amid persistent challenges

The past decade has seen signs of progress. VC investments in Africa grew at an annual rate of 23 percent from 2014 to 2023, with fintech, healthtech and cleantech leading the charge.

Landmark successes include:

Flutterwave: The Nigerian fintech giant, now valued at over US$3 billion, processed US$12 billion in transactions in 2022.
Andela: This tech talent accelerator, which connects African developers with global firms, raised US$200 million in 2021.
M-Kopa: The Kenyan solar energy startup, serving over two million off-grid households, secured US$250 million in 2023.
These companies prove Africa’s startups can scale globally. But for every success, there are hundreds of ventures starved of early-stage funding.

Hurdles

Risk-averse policymakers: Many governments remain tethered to traditional banking models. Leaders see VC as a niche, not a necessity. Yet banks rarely fund unproven startups.
Regulatory fragmentation: Cross-border investments face hurdles like conflicting tax laws and licensing rules. A startup expanding from Nigeria to Kenya might navigate 10 plus regulatory bodies.
Infrastructure gaps: Only 43 percent of Africans have reliable electricity, and internet penetration hovers around 36 percent.
How do you scale a SaaS company (a business that provides software as a service, allowing customers to access applications over the internet) without power or broadband?

Domestic capital shortfalls: Pension funds and insurers — key VC players elsewhere — allocate less than 1 percent of assets to African startups.
Blueprint for a homegrown VC ecosystem

To cultivate a self-sustaining VC landscape, stakeholders must prioritise four pillars:

Mobilise domestic capital
Africa manages over US$1,1 trillion in pension and sovereign wealth funds, yet less than 0,5 percent flows into startups. South Africa’s Section 12J tax incentive, which offers deductions for VC investments, provides a template. Kenya’s government recently launched a US$50 million fund of funds to de-risk local investors. When African capital leads, solutions align with our realities.

Reform policies and stock exchanges
Streamlined regulations and startup-friendly stock markets are critical. Rwanda’s Capital Market Authority now allows small and medium enterprises (SMEs) to list on its stock exchange with simplified requirements. Nigeria’s SEC Startup Portal fast-tracks licensing for tech ventures. Exchanges must evolve beyond blue-chip listings.

Tech hubs, like Rwanda’s Kigali Innovation City and Kenya’s Konza Technopolis, offer startups reliable utilities, mentorship and R & D (research and development) labs. Ghana’s National Entrepreneurship Initiative pairs grants with business training for 10 000 youths annually.

Educate and collaborate
VC fluency remains low among entrepreneurs and policymakers.

Initiatives like AfriLabs, a network of 400 innovation hubs, train founders on pitching and governance.

The African Continental Free Trade Area (AfCFTA) could harmonise investment laws across 54 nations.

Case study: Nigeria’s fintech revolution

Nigeria, home to six of Africa’s seven unicorns, exemplifies VC’s transformative power. Startups like Interswitch and Opay thrived after early backing from firms like Tiger Global and SoftBank.

The central bank’s sandbox framework allowed fintechs to test products without full licensing, while the Startup Act 2023 offers tax holidays and easier foreign ownership.

Nigeria’s ecosystem is not perfect, but it shows what is possible.

The road ahead: From potential to prosperity

By 2030, Africa’s working-age population will exceed 600 million, demanding 15 million new jobs annually.

Startups, powered by VC, could fill this gap — but only with ecosystems that nurture growth.

Policymakers must shift from being bystanders to enablers, crafting incentives for pension funds to invest in VC.

Investors should prioritise sectors like climate tech and artificial intelligence (AI), where Africa holds unique advantages.

Entrepreneurs must adopt global standards in governance and transparency to attract capital.

This is not just about money — it is about rewriting Africa’s narrative.

We are done being “the future”.

The future is here.

The time to act is now.

Africa’s VC revolution is not a distant dream but an unfolding reality.

With homegrown unicorns rising and reforms gaining momentum, the continent stands at a historic inflection point.

The question is no longer if Africa can build a thriving VC ecosystem, but how fast.

Stephene Chikozho is the chief executive officer of Africa Business Inc, a network dedicated to fostering collaboration, innovation and success for businesses in Africa. He writes in his personal capacity. You can follow him on social media (Instagram, Facebook, X, LinkedIn, Threads) WhatsApp +263772409651 or email ceo@africabusinessinc.com-sndamail