Africa VC needs to transform great companies into great investments
A few weeks ago, I had the pleasure of co hosting a roundtable on Africa Venture Capital at the Counder conference in Cape Town, with John McDermot, the Chief Africa Correspondent of The Economist. The global investors in attendance spanned from corporate VCs to family offices from Europe and South Africa, all having global capital allocation choices in terms of investment themes, geography and risk. Interestingly, they were interested in one fundamental question: is it a good idea to gain exposure to the upside and risk associated with Africa technology via Africa VC?
The reason for the growing interest in Africa VC is the increasing evidence of venture backed fast growth profitable companies leveraging technology to win large undeserved markets and reaching critical mass, and an initial stream of exits in the hundreds of millions (USD). Not only investors, but leading capital markets in the form of London Stock Exchange, are roaming the continent to capture the high potential companies on their way to material value generation. So why the question? The reason for the hesitation is that there is still limited evidence of return from this asset class (i.e. the ecosystem has not yet produced a steady flow of high value exits in the form of IPOs and corporate or private equity acquisitions), and an overestimated and dated perception of risk that obfuscates the massive magnitude of the upside.
In the end, the roundtable generated a data driven optimism and a few ideas to improve our collective ability to capture the upside.
Many data driven reasons for optimism
Optimism, meaning the view that Africa VC is in fact on its way to generate world class returns, is grounded in many facts.
The first is that all the major macro challenges of the continent create opportunities for entrepreneurs to leverage technology and private capital. Africa is known for its low level of productivity gap across all sectors. John Mc Dermot, in its 2025 Economist special report on Africa, reported research from the World Bank indicating that Total Factor Productivity, a proxy for the use of technology in the generation of GDP, has been “negligible” in Africa for the last 60 years. In other words, Africa has grown from increased labour, capital and natural resources, and is now ready to benefit from technology and AI driven solutions. A recent McKinsey study points to a potential of $61 to $101 billion USD of economic value that can be unlocked by AI across sectors in Africa. The high level of fragmentation of supply and demand in many SME and B2B verticals create opportunities for aggregation via technology driven, platform business models. Consumer markets are affected by low income demand that makes many sectors unprofitable to serve; these sectors are being disrupted by entrepreneurs who provide lower cost solutions based on more intense use of technology, that align the cost to serve to affordable pricing, opening profitability in unexpected ways. The historical and pervasive limited access to capital for SMEs is being addressed by secured and unsecured credit via fintech business models, and the low SME productivity via SME digital tools.
Another reason for optimism is the excessive risk perception on behalf of global providers of capital that can be addressed by refocusing the Africa technology narrative on the magnitude of the upside and returns. Beyond the favourable tech friendly young demographics, we need to remember the massive size of the currently underserved African markets (a $2.5 trillion consumer market and $4.2 trillion business demand in 2030), as well as the lack of legacy infrastructure and the lack of large incumbent players to disrupt, which makes it easier for technology based new entrants to fill vast market spaces screaming for access to products, efficient levels of services and affordable pricing.
Last but not least, the most significant basis for optimism is the world class entrepreneurs raising capital and building great companies on the continent, the initial evidence of exits, the growing interest from global corporate acquirers and international stock exchanges to secure the best emerging assets and provide liquidity to early investors.
Challenges and solutions
The key challenge to the above is the limited availability of private capital and the – to date – limited evidence of returns which drives investors interest. While the size of Africa VC moved from $100m in 2015 to $3+bn in 2025, this is still a fraction of the VC industry in other emerging markets such as India and Latin America, and less than 1% of global VC investments compared to the global weight of Africa (5% of global GDP and 18% of global population). The lack of capital comes from a simple reality. Global capital looks for evidence of returns, and the ecosystem – because it is still early (globally VC funds need 13 to 14 years to liquidate a fund and Africa VC was de facto non-existent 14 years ago) - has as expected produced to date a limited number of significant M&A exits and IPOs, although the pipeline of valuable companies that are ready for M&A or IPO is growing steadily in the portfolio of the major African VC players.
The main avenues to attract more private capital have to do with the need for better, more data driven education for global investors, and the realization that African VCs have a unique – more challenging and more rewarding role – to play on the continent. On the one end, the ecosystem needs to make sure that more providers of private capital – starting with local family offices and institutional investors - have visibility on the nature and magnitude of the upside in addition to the obvious VC related risks, and on the upcoming stream of successful exits. On the other hand, VCs must play a more proactive role in orchestrating the path to great exits. Recent TLCOM supported research conducted by SOAS University of London, found that Africa VC is crowded with different providers of capital (a larger variety of players compared to other emerging markets: VCs, private equity funds, impact investors, DFIs, providers of grants, etc.) each with different return and impact goals, which make the life of the entrepreneur more complex. The key here is that VCs are the only investors that are present at all stages of financing, which gives them the opportunity to “protect” the entrepreneur from the many contrasting voices, and keep the North Star of value generation along the life cycle of companies.
From great companies to great investments
Optimism in the value generation upside of Africa VC is grounded in data driven macro features and in the nature and performance of great VC backed companies that are leveraging technology and AI to serve massive consumer and business markets. In order to transform these great companies into great investments, the ecosystem needs more capital via better information on the upside and the assets to global and local investors, and VCs with an ability to walk with entrepreneurs on their scaling and fund raising journey, by keeping their focus on value generation strategies and leveraging the variety of contributions from a wide range of investors.
Read the key highlights on SEMAFOR
Maurizio Caio, Managing Partner of TLcom Capital