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BD Insider: Why African startups struggle to raise Series A funding

A struggle driven by the demands of investors

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🍔Quick Bite: Less than 5% of African startups that raised seed funding in 2022 have progressed to Series A by September 2024, highlighting a significant gap in the startup funding ecosystem. The gap is driven by investor demand for traction and scalability, which many startups struggle to meet.

🧠 The Breakdown

Raising funds for African startups, especially when transitioning from seed rounds to Series A, feels like playing a game on two different difficulty levels.

The harsh reality is that less than 5% of African startups that secure seed funding manage to progress to Series A. In 2022, for example, only 5 out of 105 seed-funded startups made it to the next level. That’s a staggering 95% that didn’t.

This stark contrast between seed and Series A raises questions about the state of the African startup ecosystem. Why is there such a significant drop-off, and what can be done to improve these numbers?

The challenges of raising Series A in Africa

Investors in seed stages are typically betting on the potential of an idea, the team behind it, and the overall market opportunity. At this stage, founders are often able to raise capital based on the promise of a compelling vision, innovative product, or untapped market.

Unlike seed rounds, Series A investors expect to see real traction, solid revenue, and a clear pathway to scalability. The difficulty is that many African startups struggle to meet these criteria, leading to the wide gap between seed and Series A funding.

In Africa, Series A rounds are typically large. In 2022, the average Series A funding was $87 million, dropping to $69 million in 2024. This means that startups need to show substantial potential to justify such an investment, often needing to operate across multiple markets to demonstrate the ability to scale beyond local borders.

For Series A investors, particularly those from outside Africa, a startup’s ability to scale across the continent is crucial. Startups that operate only in smaller African countries may find it difficult to raise Series A funding. On the other hand, those that have already expanded into larger markets, countries with significant populations, and growing tech ecosystems stand a better chance of attracting investors.

Another major factor limiting Series A investment in Africa is the lack of clear exit paths. In more developed markets, investors know they can exit their investment through an IPO or acquisition. In Africa, however, IPOs are rare, and large acquisitions are few and far between. As a result, Series A investors see African startups as riskier, especially when the path to returns isn’t clear.

Without the promise of a lucrative exit, investors are reluctant to pour large sums into African startups, further tightening the availability of Series A funding. For example, in 2023, Series A funding in Africa dropped by 59%, with only $69.7 million raised by mid-2024—a sharp decline that reflects investors’ growing caution.

The road ahead for African startups

The journey from seed to Series A is an uphill battle for African startups. While securing seed funding may offer a temporary sense of victory, the real challenge lies in building the traction, scale, and operational foundation needed to secure the larger sums required for Series A rounds.

For many startups, this means shifting their focus from ideas to execution, scaling across multiple markets, and finding ways to prove their value to increasingly cautious investors. Without addressing these hurdles, the gap between seed and Series A funding will remain a critical bottleneck for Africa’s tech ecosystem.

Dig Deeper: Read our report on this phenomenon

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