The African tech venture capital scene is clearly in for a possible rebound next year, 2025. That resurgence will largely depend on a vigorous end to 2024 and increasing pent-up demand for more sustainable, more impactful investments. The market has recently begun to recover from a downturn. We are encouraged that key indicators show renewed investor confidence, with a clear return to quality over quantity. DreamingCrypto explores what’s fostering this renewed optimism and what it all means for startups continuing to courageously navigate the complex funding landscape.

Perhaps the most heartening sign is the outstanding news for Q4 2024. Thanks to several large fundings, Q3 2023 is on track to be the biggest quarter since the low of Q1 2023. It even peaked at an astounding US$975 million. This figure replicates the highs in Q4 2022, marking a recovery back to pre-downturn investment movement. Just in the last quarter, our projects brought in 44% of all the dollars raised for the year, and counting. This wave indicates an enormous growth of investor enthusiasm and deal completions. Of the four megadeals that closed during the quarter, three were from our own backyard—each of them exceeding US$100 million. This was a huge improvement that brought them very close to the 2023 funding levels.

Fortunately, funding took a favorable turn during the second half of 2022. This increase played a big part in keeping overall performance in Africa’s tech VC market stable. Yet in the face of such adversity, the market only experienced a modest 3% drop in equity deal counts. This uptick brought the overall investment up to US$2.2 billion, only slightly overshadowing this year’s total. This stability, most notably seen in Q4, is an early indication that the market is finding its footing after a rocky immediate downturn. The data tells a different story—a picture of a market thriving, recalibrating, innovating, and setting themselves up for long-term success.

Key Drivers of the Optimism

Three major factors are coming together to raise the optimism around the African VC market. These are macroeconomic factors, a new emphasis on quality investments and the increased prominence of industries such as healthtech.

Macroeconomic Improvements and Investor Confidence

First, the overall economic outlook for most African countries is positive, thus inflating investor confidence. Political stability in tandem with investments in human capital and diversification of the economy is leading to an improved political and economic environment for investment. Investors are increasingly considering Africa as a burgeoning region, filled with untapped potential for innovation and development.

Shift Towards Quality Investments

Yet, amid these concerns, there are positive and promising signs pointing toward quality investments across the African startup ecosystem. Seriously, investors are increasingly more focused on impact than on the sheer quantity of deals. Instead, they’re focusing on the startups that are working on smart business models, clear paths to profitability, and the ability to grow sustainably. This shift toward quality over quantity is a sign of a maturing ecosystem that prioritizes more impactful and lasting growth rather than focusing on short-term wins.

Focus on Impactful Sectors

There is a growing realization that the African startup ecosystem should be directed towards solving urgent problems like healthcare, food security, and climate change. This impact-focused approach is catching the attention of investors eager to do good in addition to doing well with their capital. For instance, investment in Africa’s booming healthtech sector is key to redefining healthcare access and service delivery on the continent. A focus on healthtech investment is vital to unlocking its promise and creating a lasting impact on healthcare systems in Africa. Prioritizing accountability on fuel subsidy removal in Nigeria and addressing food insecurity in the face of climate change represent serious strides toward responsible investing. These initiatives signal a new trend in sustainable economic development and practice.

Actionable Insights for Startups

Here are some actionable insights:

  • Focus on Unit Economics and Scalability: Successful scaling requires a deep understanding of unit economics. Many early-growth companies in Africa paid little attention to true unit economics, buying customers and revenue upfront with the expectation that the best customers would buy and finance many other goods in the future. However, premature scaling can lead to failure. International research studies have shown that 74% of high-growth startups fail due to premature scaling, emphasizing the importance of getting unit economics right before scaling.

  • Diversify Funding Sources: Don't rely solely on equity funding. Consider debt funding as an alternative, as it is becoming increasingly popular in Africa.

  • Prioritize Quality Deals: Focus on building a strong, sustainable business model that showcases traction and growth potential.

  • Explore Sector Diversification: Look beyond fintech to opportunities in healthcare, supply chains, and education.

  • Forge Strategic Partnerships: Collaborate with corporate-backed accelerators, incubators, and investors to access funding and expertise.

  • Target Early-Stage Funding: Focus on early-stage funding rounds, with ticket sizes ranging from $500,000 to $1 million, which are becoming more prevalent.

The Importance of Scalability

Scalability is critical in Africa. The economic opportunities in Africa are immense, but require specialized, targeted approaches to realize. However, without strong underpinnings such as leadership, culture, strategy, systems and human capital, a scaling undertaking just looks like a “house of cards.” It invites players to crash and burn, placing greater onus on luck than skill to avoid hurdles. If they want to take full advantage of the billions of opportunities in front of them, startups must prove they can scale their operations, fast and effectively.

Here’s a closer look at how the African VC market is preparing for an expected recovery in 2025. That new wave will be driven by macroeconomic headwinds, more focus on quality investments, and the increased significance of sectors such as healthtech. By knowing these trends, startups can increase their likelihood of getting funded. Doing so will set them on the path to ensuring sustainable, smart growth long into the future. Restoring the dream of a thriving, decentralized future in Africa is possible through applied imagination. DreamingCrypto is here to help you every step of the way!