Africa’s Investment Puzzle: What’s Holding Back Private Equity (PE) and Venture Capital (VC)?

Historically, Africa’s PE and VC have been relatively underdeveloped, primarily focused on traditional sectors such as agriculture, manufacturing, natural resources and infrastructure.

However, over the past decade, improved regulatory frameworks and the rise of localised entrepreneurial ecosystems, especially in countries like Nigeria, Kenya, South Africa, and Egypt, have caused a surge in equity and venture capital deployments. Between 2015 and 2021, total VC funding in African startups grew more than fourfold, reaching over USD 5 billion.¹ This growth can be attributed to Africa's young, tech-smart population, the influence of Africans living abroad, and a growing recognition among international investors of the high returns and potential for impact that African ventures offer.

Fintech remains the leading attraction among key industries, offering innovative mobile payment solutions and micro-lending platforms that address financial inclusion gaps. Meanwhile, agritech initiatives combat food insecurity and optimise supply chains, healthtech startups use telemedicine to reach remote populations, and e-commerce platforms expand market access for local businesses. Renewable energy solutions are also growing, with off-grid solar projects bringing electricity to rural communities. These sectors, fintech, agritech, e-commerce, healthtech, and energy, truly show how Africa can blend smart new ideas with positive social change. However, despite all these exciting opportunities, there is a complex regulatory environment, infrastructure limitations, currency challenges, and market fragmentation. Understanding these barriers isn't just important for investors trying to figure out risks and potential profits but also for governments aiming to create effective policies and entrepreneurs striving to secure funding needed to scale their solutions. Understanding how to navigate these hurdles, all stakeholders can unlock Africa’s vast potential for inclusive, sustainable growth.

The State of PEs and VCs in Africa Today

Africa’s venture capital landscape has matured rapidly yet unevenly: African startups drew US $3.2 billion in combined equity and debt funding across 457 equity deals in 2024, virtually flat on 2023 and signalling surprising resilience in a global downturn.2 Nevertheless, deal volume shrank 22 percent and aggregate deal value fell 28 percent year-on-year, a sharp contrast from other regions.³ Fintech continues to be the primary magnet for capital, capturing roughly 32 percent of all disclosed equity funding in 2024, while rising AI and climate-tech together accounted for a further 26 percent.⁴ Deep-pocketed generalist and specialist vehicles include Partech’s US $300 million Africa fund, TLcom Capital’s US $154 million Tide Africa II, and Norrsken22’s US $205 million growth vehicle, which anchor the continent’s investor pool alongside development-finance partners.⁵

Policy signals are increasingly supportive: Kenya’s newly passed Startup Bill offers tax incentives and a state-backed fund to co-invest with PEs and VCs, aiming to reduce the risk for early-stage investments,⁶ while Rwanda’s Kigali International Financial Centre couples zero-foreign-exchange controls with preferential tax treatment to position Kigali as a pan-African fund domicile.⁷ For founders, capital access is translating into scale: Nigeria’s Flutterwave is valued above US $3 billion and is weighing a public listing, exemplifying the growing exit pipeline;⁸ meanwhile, asset-backed lender M-KOPA raised US $255 million in debt-plus-equity to extend pay-as-you-go finance to millions of low-income customers, underscoring VC’s developmental spill-overs.⁹ Yet, with 67 percent of equity funding still concentrated in Nigeria, South Africa, Egypt, and Kenya, geographic concentration and fragile exit markets remain structural fault lines that investors and policymakers must keep addressing to unlock the continent’s full venture potential. 

The African VC & PE Maze: Challenges No One Talks About

Regulatory hurdles and political volatility

Starting a business in Sub-Saharan Africa still costs an average of 36 % of income per capita, more than ten times the 3 % OECD benchmark, and requires roughly twice as many procedures, according to the Doing Business 2020 regional profile.¹⁰ Such red tape is compounded by governance risk, with six of the ten most fragile states in the 2024 Fragile States Index being African (Somalia, Sudan, South Sudan, DRC, Central African Republic and Chad).¹¹ This reality adds a "political risk premium" to every investment deal. The combination of complicated rules and ongoing instability inflates legal costs, slows licensing and pushes required returns on African VC/PE to levels many global LPs deem uncompetitive.

Fragmented markets and hard infrastructure gaps

African venture money still heavily favours just four main hubs: Nigeria, Kenya, South Africa and Egypt which captured 55 % of all 2024 deals and 64 % of invested capital.¹² For funds trying to operate across the continent, this fragmentation means they often have to duplicate compliance efforts, logistics, and even entire teams, instead of simply scaling up what they've already built. The lack of Physical and digital infrastructure magnifies the fragmentation: only 38 % of Africans are online and barely 18 % of adults use mobile internet,¹³ while the African Development Bank puts the continent’s annual infrastructure-financing gap at US $402 billion through 2030. These deficits raise cap-ex for portfolio companies and OPEX for funds running distributed offices and field due diligence trips.

Deal-flow scarcity and investor risk aversion

After two record years, 2024 delivered a reality check: VC deal volume fell 22 % and total money invested dropped 28 %, while the number of active investors significantly shrank by 21% from 774 to 614 (-21 %).¹⁴ Local investors did overtake foreign peers for the first time (31 % of participants), yet many focused on smaller investments; growth-stage cheques above US $20 million remain concentrated in a handful of pan-African or international funds. The result in a barbell market where seed cheques abound but Series A/B rounds take longer to close, reinforcing a perception that the continent offers too few “venture-backable” companies.

Information asymmetry and due diligence frictions

The World Bank’s 2024 B-READY pilot finds that only 27 % of sampled Sub-Saharan African economies give businesses full, searchable online access to their laws and regulations, while 33 % offer none.¹⁵ Sparse corporate registries, unreliable credit bureaus and inconsistent financial reporting oblige funds to run lengthy, on-the-ground checks that inflate transaction costs and can even derail promising deals when data gaps cannot be bridged in time to meet investment deadlines.

Talent and skills gap

Capital outpaces human capital: Reuters reported only 324,000 renewable energy jobs across Africa compared to 16.2 million globally, and developers report a critical lack of experienced engineers and project managers even in major economies like Nigeria and Egypt.¹⁶ Similar talent gaps plague fintech, AI and deep-tech verticals, prompting founders to pay a premium for diaspora hires or outsource core product work offshore, which dilutes local value capture and complicates fund-level impact narratives.

Exit strategies predicament in Africa

Exiting investments is ultimately how VCs and PEs prove their worth and provide expected returns to investors, when it comes to Africa, the scoreboard for this crucial metric remains noticeably lean. In 2024, African start-ups managed to pull in US $3.2 billion in venture equity-plus-debt, a decent sum by emerging market standards; but only 26 venture-backed exits materialised, and the continent’s exit-to-investment ratio languished at 0.13×, meaning just 13 cents returned for every US $1 deployed.¹⁷ By comparison, mature markets typically recycle 60-80 cents on the dollar within the same investment timeframe, underscoring Africa's significant liquidity gap.   

Underdeveloped exit markets

African venture capital still struggles to cash out: between 2019 and 2024, the continent logged just 138 venture-backed exits, and trade sales made up 84 percent of them, with the median holding period at 3.8 years.¹⁸ Public-market doors remain almost shut, only two African IPOs were recorded in 2024, together raising a modest US $500 million and led by South Africa’s Boxer Retail float. Compared with mature ecosystems, where funds can regularly get their capital back within five to seven years through buoyant public markets, African general partners often wait a decade or rely on secondary sales at lower valuations, creating a drag on internal rates of return and limiting limited partner appetite for follow-on vehicles.

Regulatory and policy uncertainty

Setting up and scaling a company continues to be expensive and unpredictable: the World Bank estimates it still costs 33.5 percent of income per capita to start a business in Sub-Saharan Africa, versus just 4 percent in high-income OECD economies. While Kenya, Nigeria, Tunisia and a handful of peers have enacted Startup Acts, the vast majority of Africa’s 54 jurisdictions lack harmonised venture-friendly statutes, forcing funds to navigate a patchwork of tax, licensing and capital-control rules that complicate long-term exit planning.¹⁹

Currency risk and repatriation frictions

Volatile exchange rates can wipe out paper gains overnight: Nigeria’s naira, for example, lost 40.9 percent of its value against the US dollar in 2024 alone as the currency band was liberalised.²⁰ Even when exits materialise, getting cash home can be slow or costly. Nigeria only cleared its backlog of trapped airline revenues in late 2024, and blocked funds across African markets still account for about US $1 billion of the global US $1.7 billion total.²¹ Such uncertainty forces investors to demand additional return premia or to structure deals in offshore currencies, limiting the pool of prospective acquirers. Also, changes in local laws requiring transactions to be in local currency only, whilst investment inflow and eventual outflow are in US$, or regulating the exchange rates as opposed to letting the market forces determine the exchange rate, create a financial gap and effectively lead to lower returns than anticipated.  

Nascent secondary-sale ecosystem

Secondary buy-outs are slowly growing, but the pool is still shallow: AVCA logged just 20 “PE-to-PE” exits in 2024, 32 % of the continent’s 63 exits, whereas Bain’s global data show secondaries making up ≈45 % of all private-equity exits worldwide, underscoring Africa’s liquidity gap.²² Evercore estimates the global secondary market hit a record US $70 billion in H1 2024, more than twelve times Africa’s entire primary deal flow for the year.²³ Fewer than a dozen Africa-focused secondary vehicles operate on the continent, and the largest, Adenia Partners’ oversubscribed Fund V, closed at only US $470 million, a fraction of the multibillion-dollar funds raised in the US and Europe.²⁴

Conclusion 

Africa's startup and venture scene is still more promise than pay-off. Despite pulling in about US $3.2 billion in equity and debt funding in 2024, African venture financing remains a small fraction of global VC and is shrinking. Deal volume fell 22 percent and deal value slid 28 percent year-on-year, with participation shrinking to 614 active investors (-21 percent) and four major markets (Nigeria, Kenya, South Africa, Egypt) absorbing 64 percent of all capital.²⁵ Exiting investments are equally challenging: only 26 venture-backed exits were completed in 2024, and trade sales account for 84 percent of the 138 exits logged since 2019, highlighting how rare IPOs and secondary sales truly are.²⁶ Structural bottlenecks compound these market frictions, across Sub-Saharan Africa, only 27% of economies offer full online access to their legal and regulatory frameworks, impeding cost-effective due diligence,²⁷ while the continent must still close an annual US $402 billion infrastructure-financing gap through 2030 to unlock scale and efficiency. Until these deep-seated problems, like underdeveloped capital markets, confusing regulations, and outdated infrastructure, are addressed, private equity and venture capital won't reach their full potential, even as Africa’s entrepreneurial energy and demand for growth capital remain unmistakably vibrant.

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¹Partech Africa Tech VC Report 2024

²Partech Africa Tech VC Report 2024

³AVCA “2024 Venture Capital in Africa” Report

⁴Partech Africa Report (LinkedIn summary of 2024 funding shares).

⁵Financial Times coverage of TLcom, Partech and Norrsken22 fund-raises.

⁶IntelliNews article on Kenya Startup Bill 2022 tax incentives

⁷IFC Review feature on Kigali International Financial Centre incentives

⁸TechCrunch overview of Africa’s unicorn valuations (Flutterwave US $3 bn).

⁹Reuters report on M-KOPA’s US $255 million raise.

¹⁰World Bank, Doing Business 2020 regional profile for Sub-Saharan Africa.

¹¹Fund for Peace, Fragile States Index 2024.

¹²AVCA, 2024 Venture Capital in Africa Report (March 2025).

¹³The State of Mobile Internet Connectivity 2024

¹⁴AVCA, 2024 Venture Capital in Africa Report (March 2025).

¹⁵World Bank, Data-Driven Transparency: B-READY Blog (Dec 2024).

¹⁶Reuters, “How bridging the skills gap can boost Africa’s green energy transition” (19 Nov 2024).

¹⁷AVCA, 2024 Venture Capital in Africa Report

¹⁸World Bank, Doing Business 2020 press release

¹⁹Tech Africa News, “Growing Trend: Why African Startups Are Choosing to Incorporate Overseas”

²⁰VerivAfrica, “Navigating the Storm: Currency Devaluation and Nigeria’s Consumer-Goods Industry”

²¹IATA Removes Nigeria from List of Countries Blocking Foreign Airlines’ Revenue As CBN Clears Forex Backlog

²²Private Equity Outlook 2025: Is a Recovery Starting to Take Shape?

²³Evercore Private Capital Advisory, H1 2024 Secondary Market Review

²⁴Adenia Closes Fifth Flagship Fund Oversubscribed at $470M

²⁵Partech, Africa Tech Venture Capital Report 2024 – total funding and resilience data.

²⁶AVCA, 2024 Venture Capital in Africa Report – declines in volume/value, Big 4 dominance, investor count, and exit statistics.

²⁷World Bank Data Blog, “Data-driven transparency: The need for easy access to laws and regulations for businesses,” Dec 19 2024 – 27 percent regulatory-transparency figure.