Africa's Startup Ecosystem Finds Strength at Home as Foreign Capital Recedes

When global venture capital pulled back from African tech markets, something unexpected happened: the continent didn't collapse under the weight of declining foreign investment. Instead, a quiet transformation began taking shape one driven by investors who actually live and work on the ground.

Between 2023 and now, the proportion of startup funding coming from African-based investors has surged from roughly a quarter to nearly 40% of all capital deployed, according to research published this January by Briter, a technology analytics firm. This shift represents more than just numbers on a spreadsheet. It signals a fundamental recalibration in how African innovation gets financed.

When Foreign Money Dried Up, Local Capital Held Steady

The contrast is striking when you look at the trajectory. Back in 2022, international investors poured close to $5 billion into African startups, while local players contributed about $1.6 billion. Fast forward to recent figures, and foreign investment has plummeted to approximately $2.3 billion, a drop that could have devastated the ecosystem.

Yet African-headquartered investors, Briter's definition of local, have maintained relatively consistent investment levels throughout this turbulence. Their growing slice of the funding pie isn't because they suddenly discovered vast new pools of capital. Rather, they simply didn't flee when market conditions turned hostile, creating a foundation that's proving more durable than many anticipated.

The Home Field Advantage in Venture Capital

There's something intangible yet powerful about investors who navigate the same infrastructure challenges, regulatory environments, and market dynamics as the founders they back. Geographic proximity translates into pattern recognition that's difficult to replicate from Silicon Valley or London.

Consider Moniepoint's journey to unicorn status. The Nigerian fintech didn't just need money, it needed partners who understood the nuances of consumer financial behaviour in Lagos, the regulatory landscape in Abuja, and the operational realities of building payment infrastructure across diverse Nigerian markets. Local venture capital firms provided both capital and the contextual intelligence that helped the company achieve nationwide scale.

The key is having a healthy mix of local fund managers who understand the markets and can provide geographically relevant advice, which is hard to do from abroad, Kola Aina, who founded Lagos-based Ventures Platform, explained in a 2025 conversation.

This isn't romanticising proximity for its own sake. Fund managers based on the continent are better positioned to identify which products have genuine commercial viability within African markets, then provide the specific support needed to scale them. That creates a reinforcing cycle: local knowledge improves investment decisions, successful exits validate the model, and capital stays closer to where it's deployed.

How Development Finance Institutions Catalyzed Local Investment

The emergence of credible African fund managers didn't happen in a vacuum. Development finance institutions played a crucial role by backing local venture capital firms precisely when global investors were heading for the exits.

Organisations like the International Finance Corporation, through initiatives such as its Catalyst programme, alongside British International Investment, Proparco, and AfricaGrow, provided the capital and institutional credibility that helped African VCs establish themselves as serious players. This support came at a critical juncture, allowing local firms to build track records and develop the infrastructure needed to compete for deals.

Beyond institutional investors, wealthy individuals across the continent have also increased their direct participation. These aren't passive limited partners, they bring networks, operational experience, and a personal stake in building sustainable ecosystems.

As Marge Ntambi, a venture partner at Benue Capital, put it in 2025: "Local high-net-worth individuals bring not only capital but also strong local networks, business experience, and a real stake in the success of the ecosystem. When they invest, they're investing in their communities, their economy, and their legacy."

A Recovery That's Real but Fragile

African startups collectively raised $3.6 billion throughout 2025, a 25% increase over the previous year across 635 publicly disclosed transactions. Deal volume rebounded even more sharply, jumping 43%, which suggests investor interest is returning but with smaller average cheque sizes.

Yet calling this a full recovery would be premature. The funding landscape remains deeply uneven, concentrated in familiar markets and stages while leaving significant gaps elsewhere.

Nigeria, Kenya, Egypt, and South Africa, the so-called Big Four, continue to capture between 80% and 85% of all investment. This decade-long pattern persists not merely because these countries have more startups, but because they have the late-stage companies capable of absorbing larger funding rounds. When investors write seven- or eight-figure cheques, they need companies with the scale to deploy that capital effectively.

Meanwhile, Francophone Africa and smaller Anglophone markets are seeing growth in deal activity but struggle with round sizes. Countries like Senegal, Côte d'Ivoire, Rwanda, and Benin are producing interesting early-stage companies and sector specialists, yet most rounds stay below $5 million, insufficient to consistently bridge companies to regional or pan-African operations.

The Missing Middle, Growth Capital Hasn't Returned

Here's where the picture gets more concerning. While seed and Series A activity remains robust by transaction count, growth-stage capital hasn't recovered to pre-2022 levels. Briter's analysis shows that mega-deals, those large late-stage rounds, accounted for just 1% of all transactions but represented roughly a quarter of total dollar value. Translation a handful of companies are capturing massive rounds while most others struggle to secure follow-on funding.

This creates a cohort of startups that can successfully raise initial capital but then hit a wall when trying to scale. Increasingly, founders are turning to debt financing and hybrid instruments to extend their runway a pragmatic response, but one that introduces different risks and constraints.

Read More: 20 African Startups to Watch in 2026

Exit Activity, Progress Without Transformation

The acquisition landscape showed improvement in 2025, with Briter tracking over 60 known deals spanning fintech, software, logistics, mobility, and renewable energy sectors. Most of these were corporate acquisitions or consolidation plays within Africa rather than the venture-scale exits that generate substantial returns.

Fintech led merger activity with 27 transactions, reflecting both the sector's maturity and pressure to consolidate amid tighter funding conditions. Interestingly, climate, energy, and infrastructure-related startups are increasingly appearing as acquisition targets, particularly those with asset-backed models or recurring revenue streams characteristics that appeal to strategic buyers navigating uncertain markets.

What's notably absent are large public offerings or cross-border exits capable of recycling significant capital back into the ecosystem. Without these liquidity events, African venture capital depends primarily on secondary sales, partial exits, and mergers for returns. This limits how quickly capital can flow back into the next generation of companies, creating a bottleneck in ecosystem development.

What This Means for Africa's Tech Future

The growing dominance of local investors isn't just a statistical curiosity, it's reshaping the fundamental dynamics of African innovation financing. When capital comes from people who share context with founders, investment decisions tend to reflect deeper market understanding and longer-term commitment.

This doesn't mean foreign capital is unwelcome or unnecessary. International investors bring valuable expertise, global networks, and the large cheque sizes needed for continental expansion. But an ecosystem overly dependent on foreign capital is vulnerable to external shocks, as the past few years demonstrated.

The challenge now is building on this foundation while addressing persistent gaps: insufficient growth-stage capital, geographic concentration, and limited exit opportunities. African venture capital has proven it can weather turbulence, but true maturity requires pathways for capital to recycle efficiently through successful exits, creating the momentum for sustained growth across the continent.