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African startups face tougher investment scrutiny than their global counterparts, with investors demanding higher proof of traction, conducting deeper financial audits, and overestimating risks in the region.
Angel investors say the US Silicon Valley, which houses many of the world’s leading tech startups, remains the most founder-friendly region for raising capital compared to emerging economies like Africa.
“The process for African startups is frequently more about searching for reasons not to invest rather than evaluating their potential,” venture capital strategist Tayo Olowu said in a statement obtained by The PUNCH.
Olowu, who has conducted due diligence on more than 50 venture deals since 2020, said African founders often encounter stricter requirements than startups in Silicon Valley, London, or emerging markets like India and Brazil. “A US-based startup can raise millions on an idea and a strong founding team, while an African startup may need to show significant revenue before getting a serious look,” Olowu said.
Despite these challenges, African startups continue to attract investment, albeit at a slower pace. According to Africa: The Big Deal!, a platform that tracks startup funding on the continent, African startups raised nearly $300m in January 2025, with about 40 firms securing $289m in funding.
However, this comes against the backdrop of a 25 per cent drop in total startup funding in 2024, when African startups secured $2.2bn, compared to $2.9bn in 2023. The decline highlights growing investor caution and the increasing difficulty startups face in securing capital. Kenya, Nigeria, Egypt, and South Africa continue to dominate the continent’s investment scene, attracting 84 per cent of all startup funding in 2024, mirroring the trend from the previous year.
“Silicon Valley remains the most reliable place for startup fundraising, offering founder-friendly terms that other global startup hubs struggle to match,” General Partner at Andreessen Horowitz, Andrew Chen, said.
Andreessen Horowitz is a California-based venture capital firm that backs entrepreneurs building the future through technology and has committed about $45bn in capital across multiple funds. While cities like Austin, London, Miami, Paris, and Sydney are growing as startup ecosystems, Chen noted that they still lack the investor scale to guarantee successful fundraising rounds.
“In the last couple of years, it’s become popular to say that you can launch a startup from anywhere. But building a startup is a lot more than just launching—you need to land financing,” Chen said.
“I argue that the only logical place for founders to raise money is in Silicon Valley, particularly if you want the money with founder-friendly terms,” he wrote in a piece published on LinkedIn.
For Africa, the disparity stems from a mix of outdated risk perceptions, rigid financial scrutiny, and a lack of trust in African markets. Many investors perceive Africa as a high-risk environment due to political instability, currency volatility, and infrastructure deficiency, even though such challenges are not unique to the continent.
This heightened caution translates into excessive due diligence, with African founders subjected to intense financial audits, extensive legal verifications, and deeper background checks. “It sometimes feels like forensic investigations rather than standard investment evaluations,” Olowu noted.
He also called on African venture capitalists and angel investors to lead by example, backing local startups without reinforcing unnecessary hurdles. A show of confidence from African investors, he argued, would send a strong signal to international capital.
Citing the region’s lower capital availability compared to global markets, startup advisor Brandon Solomons said African venture capital firms remain highly risk-averse, a trend that limits early-stage startup funding.
“I’ve been trying to wrap my head around the sheer risk aversion for a while now, especially considering that African markets need a lot of early-stage support, even for pre-seed stage startups,” Solomons said.
He attributed the cautious approach to resource constraints, noting that the average African VC manages $50m in assets under management, significantly lower than the $324m average for Asian VCs.