Alternative funding sources have long been essential for the growth of African startups. Given the continent’s relatively nascent tech ecosystem, there is less conviction about what strategies work, especially as customer behaviours continue to evolve.
This uncertainty creates room for experimentation. However, experimentation requires capital, and institutional investors—the gatekeepers of venture capital—have increasingly turned their attention to a select few tech-heavy startups demonstrating strong revenue traction (typically those generating $1 million or more).
In this context, alternative financing options have served as a form of “patient capital” that allowed these experiments to thrive, providing crucial support for startups. The recent shutdown of USAID funding has dealt a significant blow to Kenya’s startup ecosystem. This move has removed over $100 million in non-dilutive funding, which had been instrumental in scaling ideas and proof of concepts (PoCs) across critical sectors like healthcare, agriculture, and clean energy (climate tech).
For over a decade, USAID’s Development Innovation Ventures (DIV) provided grants of up to $6 million to over 30 Kenyan startups, including BasiGo (electric buses), Maisha Meds (medical supply distribution), and SolarGen Technologies (solar-powered water purification).
For many founders, especially those in impact-driven sectors that struggle to attract venture capital, this funding was a lifeline. Now, the funding gap created could push innovative startups into investment programmes that pressure them to scale prematurely, potentially setting Africa’s tech ecosystem back decades. USAID’s exit could stifle growth in sectors like climate tech, which had been attracting increased investment.
Some might argue that risky capital is better than none, but for Kenyan founders, the aid cut-off means a tougher fundraising environment and a need to explore new financing models, such as local investors, African-focused funds, or alternative lending.
The bigger question is: with USAID gone, who will fill its role in Africa’s tech ecosystem? Accelerators and tech hubs have tried, but recent exits, like Techstars, raise concerns.
