Cracking the Code: Derisking VC in Africa’s Challenging Landscape

Cracking the Code: Derisking VC in Africa's Challenging Landscape

by Allan Ananura, Co-founder of iVenture Africa – an African Digital Innovation Hub

Derisking venture capital investment in Africa is one of iVenture Africa’s primary goals. It may seem like a utopian dream, but it is a logical and heartfelt aspiration. iVenture Africa aims to strike the right balance between logic and emotion to make investing in Africa as easy as ABC.

In 2015, when Maurizio Caio, a fund manager with over 20 years of experience in tech, began raising money for an African startup fund, he faced hesitation from investors. They advised him to choose between Africa and venture capital (VC)-  “There is an Africa risk and a VC risk,” was the message. “Don’t combine the two.” However, Mr Caio, who jointly runs Tlcom Capital, a fund focused on Africa, believed that combining the two risks was essential to achieve success.

Did you know that African start-ups make up only 0.2% of the $3.8 trillion in startup value worldwide? While startup events may look appealing and give the impression of prosperity, only two out of ten startups succeed. In other words, eight startups fail before their fifth year. As a startup ecosystem actor, one of my worst fears used to be startup mortality, especially in the African context.

The African startup ecosystem is characterized by several factors that inevitably lead to failure. These include a shortage of ready investment, investor readiness, corruption, unregulated markets, and a shortage of skilled teams. However, there is hope. Great things are happening in Africa. For instance, in July 2019, the Africa Free Trade Continental Agreement (AFTCA) entered its operational phase. Once all the countries that have signed the agreement ratify it, it will become the largest free trade area in the world and will drive the continent’s growth and transform economies. Also, rumour has it that AFTCA is one of the reasons China forgave the debt of 17 African countries, but that is a story for another day. The fact is that no sensible venture capitalist can ignore Africa because the numbers speak for themselves.

What are these numbers? Africa’s total population will reach a whopping 2.5 billion by 2050, which is a quarter of the world’s population. The continent has the largest youthful population globally, coupled with rapid advancements in technology and manufacturing, making it an opportunity that discerning investors might want to tap into.

The solution to part of this challenge lies in deliberately building an inclusive African ecosystem that empowers all its actors, including entrepreneur support organizations, venture capitalists, startups, and government bodies, to thrive and scale.

Here are some suggestions on how investment might be fast-tracked in Africa through entrepreneurship support organizations:

  1. Access to Mentorship and Expertise: These organizations provide invaluable mentorship and expertise to emerging entrepreneurs. Tailored programs help start-ups gain insights from seasoned industry professionals, equipping them with the knowledge to navigate the complexities of venture capital.
  2. Networking Opportunities: By organizing world-class networking events, workshops, and conferences, such as AfriLabs gathering, Sub-Saharan Africa Business and Investment Summit, Uganda Innovation Week, etc., these organizations connect African entrepreneurs with potential investors and strategic partners. This expanded network is essential in building trust and fostering collaboration between Africa’s dynamic start-up scene and global investors.
  3. Market Research and Validation: Entrepreneur support organizations grant start-ups access to critical market research and validation. This empowers entrepreneurs to refine their business models, products, and services to meet global standards, thereby reducing perceived risks for investors.
  4. Investment Readiness Programs: Many of these organizations offer investment readiness programs that assist start-ups in developing robust business plans, financial models, and compelling pitches. These tools are pivotal in convincing investors of the viability and potential of their ventures.
  5. Policy Advocacy: Entrepreneur support organizations also advocate for favourable policies and regulations that support innovation and entrepreneurship. An enabling regulatory environment can significantly de-risk investments.
  6. Showcasing Success Stories: By highlighting the achievements of successful African start-ups that have received venture capital funding and garnered global recognition, these organizations instil confidence in investors and underscore the continent’s growth potential.
  7. Diversifying Capital Sources: To further mitigate risks and ensure sustainable growth, African ecosystem builders can explore capital sources from African capital pools, African angel investment groups, and even East Asia, rather than solely relying on the West. Ecosystem actors may and should consider diversifying their capital sources as an alternative and potentially less risk-averse investment path.

The role of a concerted “inclusive ecosystem” can be instrumental in derisking venture capital investment in Africa. By working together, the actors in the African startup ecosystem can unlock the continent’s potential and achieve great success.

The AfriLabs Annual Gathering at Kigali from 11 – 13 October 2023 is all about bringing together key players like investors, government officials, hubs and so on from across the continent to forge ways to accelerate Africa’s Digital Economy and improve the health of the ecosystem. There will be deal rooms, roundtables and networking opportunities to encourage potential investment and funding for startups and innovation enablers. You can register at to attend physically or virtually.

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