Originally published Sep 29, 2021

Africa’s venture capital market is today[1], where Southeast Asia’s (SEA)[2] was, five or six years ago — right before it took off like a rocketship. The numbers are uncanny.


  • Africa 2018: $1.163 billion
  • Southeast Asia 2014: $1.163 billion

# of Deals:

  • Africa 2018: 164 rounds
  • Southeast Asia 2013: 165 rounds

2019 numbers aren’t in yet, but we’ve already seen over $1.2 billion invested across 92 deals over $1 million.

In mid-2013, a $10 million micro-fund raised by 500 Startups drove headlines in SEA venture capital. And it makes sense — total seed and early stage capitalbarely cracked $200 million in about 100 deals the year before. However, the driver for opportunity was clear: 600 million people were gaining access to internet-connected smartphones.

Today, SEA’s growth is headlined by several unicorns and it lays claim to a story that might have elements of China’s technological evolution, but is wholly its own. The proof is in the money — 500 Startups’ micro-fund increased in size to $22 million by 2015, growing into more of a complementary post-seed and Series A fund to augment other country-level micro-funds that were launched shortly afterwards. We know 500’s first SEA micro-fund has become one of its most successful.

Here’s how tech media described the region and its challenges during the 2013 time period:

Sound familiar? :D

Southeast Asia’s e-commerce story started to gain legs in early 2014. aCommerce raised a $10.7 million Series A round and GrabTaxi added $15 million in a Series B. Later in the year, the floodgates opened and the region, especially Indonesia, crossed an inflection point from which there would be no return. Tokopedia raised $100 million in a Series D and GrabTaxi added another $65 million in a Series C. Now, let’s take a look at some headline deals in Africa over the past few months:

Of course, we aren’t making the argument that the growth of Africa’s startup ecosystems will *exactly* mirror that of SEA post-2014 — our investment thesis is laid out in Chapter 4. What we are saying, though, is that the volume of capital flowing into the continent is flowing at a rate that mirrors other high-growth markets. What we are saying is that there are several other similarities including the focus on logistics and payments, with Chinese VCs participating in platform-oriented rounds. One difference, though, seems to be the prevalence of impact capital focused on Africa relative to markets elsewhere. The Global Impact Investing Network (GIIN) found 44% of its members surveyed had allocations for sub-Saharan Africa, second only to the US and Canada (47%), and higher than SEA (29%). In terms of AUM amounts reported by respondents, the difference is even more stark, with $18.3 billion allocated for SSA while the allocation for SEA stood at $7.8 billion.

All said, the mix of global / local or impact / profit-focused investors bring a patchwork of competencies to early-stage investing in African startups. We think there are four that help investors provide ‘quality capital’ on the continent:

  • An optimistic, but realistic roadmap of developing market growth — the ability to authentically put forth a thesis on how developing market TAMs will expand.
  • Operational experience building high-growth startup cultures — the ability to offer actionable advice to help startups build robust, growth-oriented cultures that inform early hiring, processes, and strategy.
  • Credible local expertise and ground-truthing — the ability to help startups spot and overcome the barriers within specific local ecosystems and verticals.
  • An understanding of low-income informal market needs — the ability to provide practical insight into mass market business models with a considered view on pricing, distribution, partnerships, and long-term pathways to profitability.

Each investor offers one or more of these competencies but few offer all of them. The gaps that exist are why we still see barriers in early-stage investments on the continent.

The Pre-Seed Gap

In 2015, a Harvard Business School professor worked with DocSend to study a sample of 200 US-based early-stage startups and found that the average seed round took 12 weeks to close, with their very longest successful seed round closed in 40 weeks (10 months).

In Africa, pre-seed rounds typically take 6 months, and seed rounds, 13 months! That means African founders have to bootstrap for 4 times longer than they should, while in search of product market fit.

The need to bootstrap for such an extended amount of time likely contributes to the majority of funding going to those with more privilege. This undoubtedly contributes to the fact that only 20% of the deals over $1 million in Africa have had female founders.

There are many reasons why pre-seed takes much longer to raise in Africa but one key piece is the need to educate investors. There is a growing business angel network in Africa but the ecosystem is not yet experienced. As founders look outside the continent for early capital, they run into angels who may have investment experience, but know little about the market.

Founders must help investors understand the market opportunity, how they intend to pursue it, and why they are the best team to do so. In mature markets, early-stage investors can rely on their previous investments, diligence networks, and personal investment theses to get comfortable with the perceived risk in a new venture. Non-local angels typically cannot leverage any of those pieces when investing in new markets, however exciting the opportunity may be.

The Local Angel Ecosystem is Not Founder Driven

Not all angel capital is created equal. The best angels deploy capital quickly, but they’re also able to do two other things: crowd in later-stage capital and provide guidance. An African fintech startup creating the next Stripe or Plaid for the region, would find it incredibly valuable to have early contributors at those companies invest as angels. Not only would they write checks quickly, they would also bring like-minded investors, and provide first-hand advice.

The first generation of successful startup founders in Africa are not yet fully liquid, so simply cannot spend a large portion of their time or money angel investing. The angels who do invest are important to the health of the ecosystem, but largely come from non-startup and non-tech backgrounds which limits the type of guidance and network they’re able to provide.

Angels who are not versed in the startup business can also come with suboptimal expectations around early-stage dilution. We have heard anecdotes about pre-seed term sheets asking for a 30%+ ownership stake for around $20K. By selling so much of their companies early, founders are quickly diluted out of their own companies, alongside their long-term alignment with the business.

The Exit Question

One of our most asked questions is about exits. Much like we showed that TAM in developed markets will evolve as platform ecosystems solidify, the same dynamic applies to exits in the marketplace. That is, it’s not a question of if more exits will happen, it’s a question of who will be positioned to make those acquisitions.

In 2018, African startups saw 39 M&A deals worth $504 million with 24 of them in South Africa. In the aforementioned 2013 time period, SEA saw 51 acquisitions. SEA’s startup M&A activity ramped up in 2016 and 2017, with 133 and 151 acquisitions respectively. It’s no coincidence that Gojek’s 11 company acquisition spree started in 2016.

We are starting to see evidence of similar strategic acquisitions in Africa. In 2019, Nigerian online lender OneFi purchased digital payments processor Amplify in a move to become a comprehensive online consumer finance platform, eventually rebranding to ‘Carbon’. After Interswitch’s $200M investment from Visa, they acquired eClat Healthcare. In 2016, they acquired VANSO. Jiji, the online classified startups, purchased its competitor OLX in April. These were not market-shifting acquisitions for fintech in Africa but they signal the breaking of a strategic frontier on the continent, one where leading players reach new users and integrate new product offerings through acquisition.

Compared to IPOs or corporate acquisitions which will take longer to materialize in the ecosystem, strategic purchases by growth stage startups will reshape exit opportunities. As these growth stage startups morph into platforms and superapps, their appetites will grow exponentially, providing earlier stage startups an opportunity to position themselves as vital pieces needed to unlock new geographies and verticals.

Addressing These Barriers

Here’s a sample of some of the major investors in African fintech by the stages they support:

While we work with many of these investors, DFS Lab plays a unique role in the ecosystem. We aim to tackle the pre-seed funding gap in African fintech so we’ve developed an approach focused on speed and expertise. Here’s what we’re able to offer our founders and co-investors:

  1. Scout up-and-coming talent through the best fintech founders in Africa
  2. Decrease time to pre-seed and seed by 2X while increasing pipeline quality
  3. Build alongside teams in-person through our week-long bootcamp

We’ll explore this approach further with our epilogue, but if you’re interested in co-investing with us, please get in touch!

Thank you for reading.


  1. Partech Partners 2018 Funding Report
  2. CBInsights: The State Of Southeast Asia Tech