Africa Has Entrepreneurs but Lacks Funding
New data and a continent-wide survey capture what founders want and what funding looks like.
- By
- October 22, 2026
- CBR - Finance
Africa attracted just under 1 percent of global venture-capital deal value in 2022, despite generating about 3 percent of the world’s GDP. Startups are an engine of transformation, so how could Africa’s entrepreneurs attract more funding?
For starters, investors and startup founders would need to overcome a disconnect in expectations, suggests a continent-wide survey 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.
They ground their conclusions in two complementary datasets that provided a window into Africa’s VC environment. To capture the demand side of the market, they surveyed startup founders through the World Bank Group’s International Finance Corporation, which yielded nearly 4,500 respondents in all but three African countries. The survey contained an embedded experiment. Alongside questions about themselves, their companies, and the obstacles they faced, founders rated hypothetical investment offers whose deal terms and investor characteristics varied at random. The prospect of an introduction to real investors was used to elicit honest answers.
To map the supply side, the researchers combined VC deal records from 2010 to 2024, merging data from PitchBook, a company that provides data and insights on global capital markets, with information from two Africa-focused sources, Briter and Africa: The Big Deal. The researchers then matched the deals to founders’ education and work histories gathered from LinkedIn.
The picture that emerged is of a market that 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; just 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, less than half the size of deals in other emerging and developed markets. Meanwhile, the typical founder sought roughly $500,000 in outside capital but secured only about a quarter of that amount, and about three-quarters of respondents named access to finance as their biggest obstacle to growth.
Founders strongly preferred equity over debt, even though they tended to dislike giving up large stakes and ceding board seats. This preference was most pronounced among founders of more successful, established companies. Founders also placed a premium on investors with local teams, several years of experience in Africa, and a focus on the startup’s country or sector. They attached no extra value to an investor being foreign, meaning from another continent.
Foreign dominance
Despite founders’ preference for local funding, capital for African startups tends to come mostly from abroad, with the United States and Europe as the largest sources of funding. Investment from within Africa tends to be relatively limited and remains largely within investors’ own subregions.
Yet foreign funding is mostly what’s available. About 80 percent of African VC deals involved at least one foreign investor, most often from North America or Europe. This is a far higher share than in other emerging or developed markets, the researchers find. And funding tilted toward founders who had foreign connections themselves. About two-thirds had studied or worked outside Africa or were foreign themselves.
The effect of these connections was sizable. When an investor was from the same country where a founder had been educated, that founder’s startup was nearly 8 percentage points more likely to be funded by the investor, and at a higher amount. Connections from work experience produced similar patterns.
To explain the predominance of foreign funding, the researchers built a model that highlights three central, local forces: Equity capital is scarce, the pool of entrepreneurs able to seek startup finance is thin, and founders lacking ties abroad struggle to reach foreign investors. The model indicates that bringing Africa’s capital scarcity in line with a European benchmark would boost startup activity by 13 percent. Building the pool of entrepreneurs would boost it by nearly 30 percent, and giving unconnected founders the same access to foreign investors that more connected founders enjoy would raise activity by 17 percent.
When the researchers asked founders why they thought the African startup economy was so inclined toward foreign investment, the answers echoed the model’s findings: There was too little local capital and too much riding on networks and access; in short, founders intuited what the researchers found in the data.
Who supplies VC capital, and through which networks it flows, matters as much as the amount of money that arrives, the study suggests. “The policy challenge is therefore not only to attract venture capital to Africa,” the researchers write, “but to build the local supply of equity capital needed for a broader startup ecosystem that includes local entrepreneurs.”
Emanuele Colonnelli, Marcio Cruz, Mariana Pereira-Lopez, Tommaso Porzio, and Chun Zhao, “Startups in Africa,” NBER working paper, May 2026.
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