The Foreignness of Africa’s Startup Ecosystem

A new, continent-wide analysis by Emanuele Colonnelli, Marcio Cruz, Mariana Pereira-Lopez, Tommaso Porzio and Chun Zhao finds Africa’s startup financing market is highly concentrated, heavily foreign, and tilted toward founders with international education or work experience. The team combined a survey of 4,444 early-stage startups across 51 countries with an experiment on financing preferences and venture capital records covering 5,470 firms and 8,751 deals from 2010 to 2024. Their data show that in 2024 Egypt, Kenya, Nigeria and South Africa accounted for 72.2% of Africa’s VC deal value while representing 43.5% of the continent’s GDP, and that Cairo, Nairobi, Lagos and Cape Town together captured 46.3% of deal value despite representing roughly 10% of Africa’s GDP.

"Access to finance" remains the dominant obstacle for founders, the researchers report, with 78.2% of surveyed entrepreneurs identifying it as a barrier to growth.

Concentrated capital, large needs

The study highlights both demand- and supply-side features that shape the ecosystem. Founders in the survey sought on average roughly $730,000 in external capital, but over the preceding three years respondents secured only 32.1% of the amount they sought. Startups are concentrated in a handful of countries and urban hubs, and founders are disproportionately well educated: the vast majority of founders have some form of college education, and those who obtain funding are more likely to have studied or worked abroad.

• Sample and scope: 4,444 startups surveyed across 51 countries; VC dataset includes 5,470 firms and 8,751 deals (2010–2024).
• Geographic concentration: Egypt, Kenya, Nigeria and South Africa generated 72.2% of VC value in 2024; Cairo, Nairobi, Lagos and Cape Town accounted for 46.3% of deal value.
• Financing gap: average funding sought $730,000; only 32.1% of requested funds raised on average.

The researchers also ran an incentive-compatible experiment where founders evaluated realistic investment opportunities that varied by financing type, deal terms, investor characteristics and team composition. The strongest behavioural result was a clear preference for equity over debt: founders prefer equity financing, where investors buy part of the startup, to debt financing, which requires repayment with interest. Moreover, founders value switching from debt to equity as much as they would an 11 percentage point reduction in the interest rate on a loan, underscoring sensitivity to the structure and cost of capital as well as dilution concerns.

Outlook

The picture that emerges is of an ecosystem whose capital and successful entrepreneurs are largely foreign-facing: equity supply is dominated by investors based outside the continent, and the founders most likely to reach that capital tend to have international schooling or work experience. Addressing the financing gap will require expanding the pool of local investors and broadening access for domestically rooted founders, the authors imply, if the sector is to scale beyond its concentrated urban hubs and meet the substantial financing needs identified in the study.