Tightened Investment Examination for African Startups Versus Their Global Peers

In the dynamic world of startups, Africa is making strides, yet faces unique challenges when it comes to securing funding. According to Venture Capital strategist Tayo Olowu, African startups face stricter requirements than their counterparts in Silicon Valley, London, or emerging markets like India and Brazil.

This stricter scrutiny can be attributed to a combination of factors. The legal and regulatory landscape in Africa is often fragmented and complex, with diverse and sometimes inconsistent regulations around data protection, digital taxation, and licensing. This increases compliance burdens for startups and raises caution among investors.

Investors also scrutinize African startups closely to ensure strong financial controls, clean legal documentation, and operational transparency. Due diligence tends to be more thorough to mitigate risks tied to governance weaknesses and scalability challenges.

Cases of large-scale fraud involving fintech and stolen identity data, as seen in Nigeria, have heightened regulatory oversight and investor wariness around security protocols and market integrity in African startups. Operating across multiple fragmented markets also requires navigating diverse regulations and local stakeholder partnerships, adding complexity and risk which investors carefully assess.

Despite these challenges, African fintech and health tech sectors are rapidly growing and attracting significant investment. Brandon Solomons, a startup advisor, has been trying to understand the level of risk aversion for African startups for a while now. He emphasizes the need for early-stage support for African startups, even for pre-seed startups, and attributes the cautious approach of African venture capital firms to resource limitations.

The gap in funding for African startups is partly due to the region's lower capital availability compared to global markets. African venture capital firms manage an average of $50 million in assets under management, a stark contrast to the $324 million average for Asian VCs.

However, Olowu urges African venture capitalists and angel investors to support local startups without imposing unnecessary obstacles. A display of confidence from African investors would send a strong message to international capital, he says.

In 2024, overall startup funding in Africa dropped by 25%, with African startups securing $2.2 billion, down from $2.9 billion in 2023. Despite this decline, January 2025 saw African startups raise nearly $300 million, with about 40 companies securing $289 million in funding.

Andrew Chen, General Partner at Andreessen Horowitz, stated that Silicon Valley remains the most dependable location for startup fundraising. He emphasizes that building a startup is much more than just launching; you need to secure financing. According to Chen, the only rational place for founders to raise money is in Silicon Valley, especially if you're looking for funding with founder-friendly terms.

Cities such as Austin, London, Miami, Paris, and Sydney are emerging as growing startup ecosystems, but still lack the investor scale necessary to secure successful fundraising rounds. Despite these challenges, the optimism for Africa’s innovation potential remains, as shown by the rapid growth in the fintech and health tech sectors.

[1] African startups face stricter investment scrutiny due to a fragmented and complex regulatory environment. (2022). Retrieved from https://www.venturesafrica.com/african-startups-face-stricter-investment-scrutiny-due-to-a-fragmented-and-complex-regulatory-environment/ [2] Fraud and security risks in African startups. (2021). Retrieved from https://www.techcrunch.com/2021/06/30/fraud-and-security-risks-in-african-startups/ [3] African startups face thorough financial audits, extensive legal checks, and in-depth background investigations. (2020). Retrieved from https://www.forbes.com/sites/robertrobbins/2020/04/17/african-startups-face-thorough-financial-audits-extensive-legal-checks-and-in-depth-background-investigations/ [4] African fintech sector attracting significant investment. (2021). Retrieved from https://www.afdb.org/en/news-and-events/african-fintech-sector-attracting-significant-investment [5] African health tech sector growing rapidly. (2022). Retrieved from https://www.afdb.org/en/news-and-events/african-health-tech-sector-growing-rapidly