Key Takeaways
- • Africa attracted just under 1 percent of global venture-capital deal value in 2022 despite generating about 3 percent of world GDP, according to a continent-wide study by University of Chicago Booth researchers.
- • Egypt, Kenya, Nigeria, and South Africa accounted for 72 percent of Africa's VC deal value in 2024, while four cities captured nearly half of deal value.
- • The median African VC deal was just under $1 million, less than half the size of deals in other emerging and developed markets.
- • Typical founders sought roughly $500,000 in outside capital but secured only about a quarter of that amount, and about three-quarters named access to finance as their biggest growth obstacle.
- • About 80 percent of African VC deals included at least one foreign investor, far above other emerging or developed markets, and founders with foreign ties were more likely to be funded.
Summary
A continent-wide study by Chicago Booth's Emanuele Colonnelli, the World Bank's Marcio Cruz and Mariana Pereira-López, Columbia's Tommaso Porzio, and Stanford PhD student Chun Zhao finds that African startups face a funding gap despite the continent's entrepreneurial base. Africa attracted just under 1 percent of global venture-capital deal value in 2022, even though it generates about 3 percent of world GDP. The researchers attribute this in part to a disconnect in expectations between investors and founders.
The study combined two datasets. The researchers surveyed nearly 4,500 startup founders through the World Bank Group's International Finance Corporation, covering all but three African countries, and embedded an experiment in which founders rated hypothetical investment offers with randomly varied terms and investor characteristics. On the supply side, they merged VC deal records from 2010 to 2024 from PitchBook with data from Briter and Africa: The Big Deal, matching deals to founders' education and work histories from LinkedIn.
The market is geographically concentrated and financially constrained. Egypt, Kenya, Nigeria, and South Africa accounted for 72 percent of Africa's VC deal value in 2024 while representing 42 percent of the continent's GDP. Four cities captured nearly half of deal value while producing about 10 percent of GDP. The median African deal was just shy of $1 million. The typical founder sought roughly $500,000 but secured only about a quarter of that, and about three-quarters of respondents cited access to finance as their largest obstacle.
Founders strongly preferred equity over debt, though they disliked giving up large stakes and ceding board seats, a preference most pronounced among more established companies. They valued investors with local teams, several years of African experience, and a focus on their country or sector, but attached no extra value to investors being foreign.
Despite that preference, capital tends to come largely from abroad, chiefly the United States and Europe, with intra-African investment relatively limited and mostly within subregions. About 80 percent of African VC deals involved at least one foreign investor, and about two-thirds of founders had studied or worked outside Africa or were foreign themselves. Shared educational ties with an investor raised the likelihood of funding by nearly 8 percentage points, with similar effects from work connections. The researchers' model identifies three local constraints: scarce equity capital, a thin pool of entrepreneurs seeking finance, and founders without foreign ties struggling to reach foreign investors. Modeled improvements suggest closing the capital scarcity gap to a European benchmark would lift startup activity 13 percent, building the entrepreneur pool nearly 30 percent, and equalizing investor access for unconnected founders 17 percent. The researchers conclude that policy must go beyond attracting venture capital to building local equity supply.
The study combined two datasets. The researchers surveyed nearly 4,500 startup founders through the World Bank Group's International Finance Corporation, covering all but three African countries, and embedded an experiment in which founders rated hypothetical investment offers with randomly varied terms and investor characteristics. On the supply side, they merged VC deal records from 2010 to 2024 from PitchBook with data from Briter and Africa: The Big Deal, matching deals to founders' education and work histories from LinkedIn.
The market is geographically concentrated and financially constrained. Egypt, Kenya, Nigeria, and South Africa accounted for 72 percent of Africa's VC deal value in 2024 while representing 42 percent of the continent's GDP. Four cities captured nearly half of deal value while producing about 10 percent of GDP. The median African deal was just shy of $1 million. The typical founder sought roughly $500,000 but secured only about a quarter of that, and about three-quarters of respondents cited access to finance as their largest obstacle.
Founders strongly preferred equity over debt, though they disliked giving up large stakes and ceding board seats, a preference most pronounced among more established companies. They valued investors with local teams, several years of African experience, and a focus on their country or sector, but attached no extra value to investors being foreign.
Despite that preference, capital tends to come largely from abroad, chiefly the United States and Europe, with intra-African investment relatively limited and mostly within subregions. About 80 percent of African VC deals involved at least one foreign investor, and about two-thirds of founders had studied or worked outside Africa or were foreign themselves. Shared educational ties with an investor raised the likelihood of funding by nearly 8 percentage points, with similar effects from work connections. The researchers' model identifies three local constraints: scarce equity capital, a thin pool of entrepreneurs seeking finance, and founders without foreign ties struggling to reach foreign investors. Modeled improvements suggest closing the capital scarcity gap to a European benchmark would lift startup activity 13 percent, building the entrepreneur pool nearly 30 percent, and equalizing investor access for unconnected founders 17 percent. The researchers conclude that policy must go beyond attracting venture capital to building local equity supply.
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