Partners at early-stage African VC firms are advising their portfolio startups to focus on business fundamentals like sustainable growth and efficient cash management while building products that solve real market problems as they expect venture funding to increase in 2025.
2024 was tough for early-stage African startups as they were hit hardest by the funding downturn. Only 345 early-stage startups raised between $100,000 and $1 million—a 31.5% drop from 2023, according to The Big Deal, a database tracking African startup funding.
Growth-stage startups faced a milder impact, with the number raising over $1 million, dropping by just 10%. These startups captured the largest share of funding, leaving 345 early-stage startups with only $242 million.
As funding declines and increasingly concentrates among the largest startups, smaller players face growing competition for a shrinking pool of capital. But, with the Trump presidency set to pressure the US Fed to cut interest rates in 2025, international investors may seek out high-growth investment classes, translating to more funding for early-stage startups.
“I expect less aid and a shift toward a more commercial relationship (from the US), which could lead to increased U.S. VC activity in Africa,” said Matt Davis, the co-CEO of Renew Capital, Africa’s most active early-stage firm in 2024. “This transition would be a welcome change.”
If funding improves, opportunities like growth-stage funding, IPOs, and strategic M&A could increase. However, cautious of the growth at all-cost strategies and inflated valuations of the zero-interest-rate phenomenon (ZIRP) era, they are advising startups to stick with the strategy that helped them navigate last year’s funding downturn.
“We’re telling startups what we told them last year. Stick to fundamentals—recurring revenue, margins, and sustainable progressive growth,” said Olu Oyinsan, the managing partner of Oui Capital. He added that his firm told startups to monitor customer acquisition costs, predicting scarce capital in 2025.
Dotun Olowoporoku, managing partner of Venture Platforms, however, anticipates “a more favourable investment climate,” marked by increased growth-stage funding, a revival of the IPO market, the return of international investors, and a rise in mergers and acquisitions.
Olowoporoku advised his firm’s startups to maintain a runway of 18-24 months, invest in core product development and customer retention, and strengthen governance and compliance frameworks while developing clear paths to profitability in 2025.
Davis, the co-CEO of Renew Capital, has told portfolio startups to focus on building products the market loves and a strong company. “Founders at the pre-seed and seed stage must be involved in every aspect of their business. Weak company-building—not weak products—is often the cause of startup failures,” he said.
Will the funding downturn continue in 2025?
According to the Big Deal, venture funding for African startups fell from $4.7 billion in 2022 to $2.2 billion in 2024. Olowoporoku expects a reversal of this downward trend in 2025.
He based his prediction on 2024’s mega rounds like MNT-Halan and Moniepoint which suggested a shift towards larger deal sizes for startups with positive unit economics and sustainable business models, and expected lower rates in developed markets and increased investor appetite in Africa from international investors.
“While we may see fewer early-stage deals, I expect the average ticket size to increase significantly, particularly for Series B and above rounds,” Olowoporoku said. “This will be driven by growth-stage investors who raised significant Africa-focused funds in 2022-2024 but were cautious in deployment.”
Oyinsan, however, expects the downturn to continue in 2025. “Capital will continue to be largely concentrated with the 20% of companies that have demonstrated sustainable growth or those with new business models,” he said.
A rise in ‘blended’ capital for early-stage startups
Early-stage startups will likely have to raise “blended capital” funding as they face challenges in raising traditional venture capital, said Yewande Odumosu, general partner at HoaQ, Africa’s biggest startup investment community of angel investors.
She added that founders will increasingly rely on a mix of financing options, including convertible notes, grants, and venture capital, to sustain and grow their businesses in 2025.
Debt will also make a comeback this year, according to Oyinsan, given the reduced appetite for early-stage funding on the continent. The share of debt funding fell by 8% year-on-year in 2024.
Will climate and fintech startups continue to receive the most funding among early-stage startups?
This was the one question all partners agreed on: climate tech and fintech startups will continue to receive the most funding on the continent, they all told TechCabal. While unanimous on the top two, the partners also recommended emerging sectors expected to grow significantly.
Oyinsan believes there might be a “significant uptick” in investment in media and entertainment, but fintech and climate will continue to dominate funding. “I would like to see climate tech establish itself as a strong commercial business case this year, though,” he said.
While fintech—including cryptocurrencies, blockchain, and stablecoins—and climate tech will continue to attract attention, Davis told TechCabal that artificial intelligence startups will also receive a lot of funding in 2025.
Healthtech, particularly with the rise of telemedicine and digital health infrastructure, artificial intelligence, and machine learning applications focused on African-specific use cases, and enterprise software solutions targeting SMEs were the sectors that Olowoporoku recommended.
