Over the past decade, Africa’s startup ecosystem has seen substantial growth, largely due to foreign funding. The continent’s young population, emerging digital infrastructure, and untapped markets have attracted global players, from USAID to Mastercard and major venture capital (VC) firms. These entities helped African startups scale in some cases without requiring ownership dilution by offering non-dilutive funding, grants, and loans.
However, the landscape is changing and we see the number of investors supporting African start-ups has been shrinking over the past few years. As global economic pressures mount, this influx of external funding is beginning to dwindle. Even those investors who used to be the most active, are reported to be making fewer deals.
In 2022, There were 28 investors who did 10+ deals, In 2024 that number was 8 investors.
USAID, for example, ended its Development Innovation Ventures (DIV) program under President Trump’s executive orders, cutting off essential funding for African startups. Mastercard Foundation recently severed ties with 54 Collective, one of Africa’s most influential VC firms, further underscoring the pullback. This shift signals a broader trend in which foreign philanthropic and venture capital support is being reconsidered.
Did you know that M-Pesa, widely regarded as the most successful fintech in Africa, was initially funded by a grant from the UK government through the UK’s Department for International Development (DFID). The grant helped kickstart the platform’s development, enabling it to scale its mobile money services across Kenya.
Everyone’s Scaling Back: The Pressure on Africa’s Startup Ecosystem
The retreat of foreign investors is a growing trend that spells trouble for Africa’s startup ecosystem. Companies that were once thriving due to external funding are now facing a serious financial crunch.
- USAID’s Withdrawal: USAID’s DIV program invested over $100 million in Kenyan startups, funding companies like Pula Advisors and Maisha Meds, which expanded regionally. With the program’s closure, these startups in agriculture, healthcare, and other sectors now face considerable uncertainty about their future funding prospects.
- Mastercard Foundation’s Exit: The Mastercard Foundation’s decision to end its partnership with 54 Collective, halting a planned $100 million investment which made that fund a top investor for 2023 and 2024, is big blow to the ecosystem. As global giants like Mastercard tighten their purse strings, it becomes evident that Africa is no longer a top priority.
- Venture Capital Pullback: Alongside this, major VCs such as Tiger Global and Y Combinator are scaling back their investments in African markets. Once a hotbed for innovation, Africa is struggling to secure the capital necessary to fuel its startup engine.
Even Visa and Mastercard, key players in the mobile money and fintech sectors, are probably reevaluating their roles. Should these companies retreat, the consequences for Africa’s fintech ecosystem could be dire.
What’s Next: The Gap Gets Bigger.
The withdrawal of USAID, Mastercard Foundation, and large venture capital firms has created a significant funding vacuum for African startups. As the flow of external capital dwindles, the void must be filled to avoid stalling or outright collapse of numerous ventures across the continent.
Some commentators see this slowdown in activity as a shift in focus and strategy, I see it differently. This isn’t just a pause—it’s a change in direction and, in many cases, a permanent exodus.
These investments, made by some of the world’s largest financial institutions, were not just philanthropic but strategic, aimed at unlocking massive potential in one of the fastest-growing consumer markets globally. If these entities decide the money hasn’t yielded the expected results or, worse, withdraw entirely, it would significantly cripple many of these essential services and startups. M-Pesa’s success in Kenya, for instance, might never have reached the heights it has without the initial support and the continued strategic backing of global investors. If companies like Airtel, MTN, or even local fintechs like Flutterwave and Paystack were to lose such crucial investment and support, the broader African digital ecosystem could experience a severe setback. The long-term growth and expansion of these companies, which have the potential to be major players in the global tech ecosystem, would be at risk.
Dependency on Foreign Aid and Grants:
African startups are still heavily dependent on foreign aid and non-dilutive funding sometimes called grants. While sectors like fintech have attracted private VC interest, other critical areas—such as agritech, climate tech, and health tech—still rely on grants and soft funding asking for impact. Without this support, many startups will struggle to survive or scale.
These companies are vital not only for financial inclusion but also for driving economic growth, innovation, and global competitiveness. Their success is crucial to the sustainability of Africa’s digital future, which is why African governments and the private sector need to recognize the importance of nurturing homegrown champions and creating an environment that can sustain these companies when foreign capital recedes.
The Impact on Key Sectors:
The sectors most at risk are those that require long-term investment, like agritech, climate tech, and health tech. These ventures need patient capital, a commodity that is increasingly rare in the fast-paced VC world. If African startups cannot find new sources of funding, the continent risks losing out on solutions for its most pressing challenges.
These investments, made by some of the world’s largest financial institutions, were not just philanthropic but strategic, aimed at unlocking massive potential in one of the fastest-growing consumer markets globally. If these entities decide the money hasn’t yielded the expected results or, worse, withdraw entirely, it would significantly cripple many of these essential services and startups. If companies like Moniepoint or BasiGo were to lose such crucial investment and support, the broader African digital ecosystem could experience a severe setback.
The Way Forward: Africa Must Step Up In A Big Way:
In 2008, Warren Buffett made an investment in BYD, which was an early bet on the future of electric vehicles in China, what many did NOT know is that BYD has been a national champion to lead in EV, Batteries and Renewables.
Being a national champion means BYD benefited from government support, better policies, and incentives. China’s push for green energy, electric vehicles, and sustainability, has created a fertile environment for companies like BYD to thrive.
In 2024, BYD became the world’s largest EV maker, surpassing Tesla in total vehicle sales. This monumental achievement is a result of how being a national champion which allowed BYD to accumulate advantages that set it up for even greater success.
This means, Africa cannot wait for foreign investors to return. If the continent is serious about building a sustainable and resilient startup ecosystem, it must take control of its own destiny. Here is how!
- Building Local Venture Capital Networks: African investors must rise to the challenge. Governments, local investors, and private sector players need to create a robust ecosystem that nurtures startups from the ground up. Establishing local venture capital networks focused on patient capital will be crucial for supporting high-risk sectors like agritech and health tech, which require time to develop and scale.
- Regional Collaboration Is Key: Africa’s diverse landscape requires collaboration. To reduce reliance on foreign investment, African countries should pool their resources and create regional funds to support startups with pan-African ambitions. By fostering cross-border investment platforms, African nations can build a homegrown ecosystem that benefits the entire continent.
- Leveraging the African Diaspora: The African diaspora represents an untapped source of both capital and expertise. Many African entrepreneurs abroad have the financial resources and experience to invest in innovative solutions back home. Governments should create incentives to encourage diaspora investment, empowering them to contribute to the continent’s growth.
- Private Sector Leadership: African corporations hold substantial power and should play a leading role in the continent’s startup ecosystem. Companies with deep ties to African markets are well-positioned to invest in and support homegrown ventures. For Africa to thrive, the private sector must take the lead in funding and fostering innovation.
- National Champions: Just as countries like South Korea, China, and Japan strategically supported and developed their national champions—companies like Samsung, Toyota, Huawei, BYD, Alibaba, LG, and Nissan—Africa must identify and nurture its own national champions. Governments should provide support to large, tech-driven enterprises that can power the continent’s innovation ecosystem. These companies can serve as the backbone of the African startup ecosystem, providing leadership, funding, and an anchor for future ventures. National champions can help scale solutions across borders, integrate African markets, and ultimately generate the resources necessary to foster the next wave of African startups.
Conclusion: Africa Must Control Its Own Future
The withdrawal of foreign aid, grants, and venture capital is a wake-up call for Africa. It’s clear that the continent can no longer rely on foreign entities to drive its innovation. While the immediate impact may be painful, it offers an opportunity for Africa to build a more sustainable, locally-driven investment ecosystem.
The reality is simple: African startups must reduce their dependency on external funding. Now is the time for Africa to invest in itself—through local capital, regional collaboration, and the support of its private sector and diaspora. If Africa can create a self-sustaining ecosystem, it will not only survive this funding crisis but emerge stronger, more resilient, and better equipped to lead in the 21st century.
The future of African innovation rests in Africa’s hands, not in the hands of foreign investors who are retreating from the continent. The time to act is now, before the window of opportunity closes.
This article first appeared on Cofounders Notebook
Featured image: Edited by Fintech News Africa, based on images by WangXiNa and artemegorov via Freepik
