African startups are rewriting their funding playbooks as the global artificial intelligence (AI) boom draws venture capital (VC) to the US, forcing emerging markets to compete for cash, according to a Bloomberg report.
AI-related VC investment doubled last year to $259 billion by 2023, with three-quarters of it flowing into US companies, the report said, adding that this is driving founders across Africa to turn to domestic sources such as development-finance institutions, pension funds, debt providers and local VCs.
The shift accelerates the reset of a startup ecosystem long dependent on foreign growth capital. Investors are now demanding clearer paths to profitability and greater resilience to shocks ranging from war-induced inflation to higher borrowing costs, according to Abkar Mahamat, founder of healthcare startup Telemedon in Chad.
“Previously, many investors were only excited by ‘Africa’s growth stories’ and the potential for expansion,” he said. “Today, most people want to see operational discipline, unit economics, partner ships and a path towards sustainability.
A lot of the conversations are about 'how fast can this scale?' 'How flexible is the model?'' According to the African Private Capital Association (AVCA), geopolitics coupled with the allure of AI will push foreign investors to be more selective on the continent.
“You obviously have a lot of homegrown AI in the U.S. that maybe isn't happening to the same extent in Africa,” Andrew Firman, Dallas-based managing partner of Kaleo Ventures, said on Bloomberg's Next Africa show.
“Naturally, I would expect the number of African investors to increase. American investors are just taking advantage of the domestic opportunity.”
A Bloomberg survey published last Thursday of 25 startups to watch on the continent found that local funders took 47% of commitments, while less than a quarter were from the US. According to AVCA, between 2022 and 2024, funding from African investors is expected to average 23%.
The rising cost of capital “is forcing domestic investors to say, 'Actually, maybe I should invest more of my money closer to home and less in these volatile geopolitical environments,'” said Tokunboh Ishmael at Lagos-based Alithea Capital.
According to AVCA, new companies on the continent raised $2.1 billion in equity funding last year, down 21 percent from a year earlier. They also raised $1.8 billion in debt – an increase of 91 percent compared to 2024.
The second edition of the startup survey also found that South Africa, Nigeria and Kenya each accounted for 16 percent of the 25 companies that were identified as companies to watch. The shift to finding local supporters could boost innovation in frontier markets, beyond Africa's major economies.
Angola is emerging as one of the continent's fastest growing technology hubs. According to StartupBlink's rankings, its startup ecosystem grew by 70.8 percent last year, reflecting growing startup activity, investor interest and international visibility. Uganda's area increased by 32.5 percent, while Algeria recorded an increase of 38.7 percent.
“Priorities remain focused on Africa's 'Big 4' economies,” AVCA said in a separate report, referring to South Africa, Nigeria, Kenya and Egypt. “The interest in frontier markets such as Uganda and Senegal indicates a broader expansion of investment opportunities.”
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