Africa needs $120m yearly for startup pipeline

Latest insight posted on Africa: The Big Deal has revealed a drop in pre-seed investors in Africa, saying that this is fast becoming a concern for the region.

It explained that pre-seed funding, the first formal capital startups receive to turn ideas into prototypes and build early teams, accounted for only 1.5 per cent of total venture investment on the continent. It said this is far below the four per cent to six per cent typical in the United States, highlighting a critical gap in Africa’s innovation pipeline.

Grégoire de Padirac of Digital Africa, the most active investor in Africa in the number of deals in 2025, who gave the insights, advocated for a renewed focus on pre-seed on the continent in the report.

De Padirac said pre-seed financing remains the backbone of African innovation, yet it is often overshadowed by the news of mega funding rounds. He said that as a startup’s first capital raise, it typically finances incomplete teams and rudimentary prototypes, precisely where capital is scarcest.

According to him, in other regions, founders often bridge this phase through personal savings and ‘love money’ (from friends, family and fools), but in Africa, however, such resources are far more limited.

Stressing that pre-seed remains marginal on the continent, De Padirac revealed that in 2025, 281 startups closed pre-seed rounds totalling $46.5 million. He said this figure is virtually unchanged from 2024, even as the rest of the African venture capital market grew by 40 per cent.

According to him, from a methodological standpoint, investments ranging from $100,000 to $500,000 were classified as pre-seed investments, reflecting typical cheque sizes at this stage in Africa. Of the 281 investments identified, 53 per cent were first-time investments, while the remainder were follow-on rounds executed at very early stages of maturity.

He revealed that the number of active pre-seed investors is declining sharply: 135 in 2025, down from 155 in 2024 and 200 in 2022. Investment velocity has also slowed significantly, averaging 3.6 deals per investor per year, compared to 5.9 in 2022.

To him, investments remained heavily concentrated in the “Big 4” (Nigeria, Kenya, South Africa, and Egypt), which together capture nearly 60 per cent of total pre-seed flows.

According to him, the sectoral distribution in 2025 showed a modest concentration in Fintech and Agriculture & Food, which together account for a significant share of pre-seed deal flow. He said this mirrors both the structural importance of financial inclusion and the outsized role of impact funds across African economies.

Healthcare, logistics and transport, and energy and water, De Padirac said, also attracted substantial pre-seed activity, reflecting growing interest in essential services and infrastructure-adjacent solutions.

By contrast, he said, sectors such as deeptech, waste management and housing remain underrepresented, underscoring their higher perceived risk, longer time horizons and greater capital intensity.

Lamenting, he disclosed that between 2019 and 2025, the withdrawal of historic players such as Techstars, Y Combinator, and the Google Black Founders Fund – combined with the repositioning of Loftyinc and Launch Africa – reduced private pre-seed investment capacity by more than 60 per cent. In response, European public actors stepped in to fill the vacuum, most notably Germany through its matching funding programme with DEG/GIZ, the United Kingdom through PREO, and France through AFD/Digital Africa.

According to him, African pre-seed equity investment stands at a crossroads, trapped in a blind spot: it is too small for state-level policies focused on large-scale projects, too risky for private investors, and somewhat anomalous within the international development landscape due to its business-driven, non-traditional approach.

He said the segment must scale both in volume and in durability. To build a robust ecosystem, he said, at least three per cent of total financing should flow to pre-seed. “Based on a projected $4 billion raised in 2026, this would require deploying roughly $120 million yearly across 800 startups. The gap is immense. Bridging it will require a hybrid architecture: catalytic public capital (first loss, evergreen, patient) to prime the pump, intermediated by specialised funds, managed with private-sector discipline, and explicitly designed to support startups toward stages attractive to private investors,” he stated.