Local vs International Capital: The Shifting Balance of Power in African Tech Funding

For many years, the conversations about funding the African tech space meant primarily that money was coming from somewhere else. We are talking about New York, San Francisco, Berlin, London, and sometimes Beijing. This international cash fly-in brings big names and oftentimes bigger expectations. But they are essential, powerful, and have built many of the continent’s initial tech success stories.

However, as of this moment, there is a different buzz, and it is the sound of money closer to home, Lagos, Nairobi, Cairo, and Johannesburg. This is the local capital, and while the international capital brings global scale and deep pockets, local capital brings that street-level understanding and commitment for the long term here.

The Challenges of International Funding

Historically, the African tech funding landscape leaned heavily on international venture capital (VC) firms, development finance institutions (DFIs), and impact funds headquartered overseas. These players provided the crucial early injections that proved African tech could generate real returns. They connected startups to global networks, best practices, and follow-on funding rounds. Their role remains vital, especially for later-stage growth requiring significant sums.

Yet, this dependence created dynamics that weren't always optimal. Investment theses sometimes mirrored Silicon Valley or European models, prioritising hyper-growth and rapid exit strategies above all, without considering our local context. Metrics and expectations could feel misaligned with local market realities, where customer acquisition costs differ, regulatory environments evolve uniquely, and paths to profitability demand different patience.

The Rise in Local Capital

Currently, we are witnessing a surge in activity from sources deeply embedded within African economies. Let’s break these sources down.

Local VCs

These firms founded and managed on the continent are starting to multiply. Typically, they possess inherent advantages with networks spanning local corporates and governments, an intuitive grasp of cultural nuances and consumer behaviour, and often, faster decision-making unburdened by multiple overseas committees.

Angel networks

These are groups of successful African entrepreneurs and executives who are actively writing checks for the next generation. They are not faceless capital syndicates, and their value extends beyond capital. They offer mentorship grounded in firsthand experience navigating the specific challenges of building a business here.

Angel networks are scattered across Africa, like the Lagos Angel Network (LAN) in Nigeria, with Founding members like Tomi Davies, who is a serial tech entrepreneur and ecosystem builder.
Kola Aina (Founder, Ventures Platform), though now running a VC firm, started out backing early-stage founders through LAN.

LAN has funded startups like Big Cabal Media, Printivo, CashEnvoy, and others.

Members of LAN are operators and business leaders who have built companies in Nigeria’s challenging market. They don’t just write checks; they coach founders on a local scale, team building, and navigating regulations.

Family offices

The wealth generated within Africa, often from traditional industries like manufacturing, real estate, or commodities, is increasingly seeking diversification and impact through tech investments. These investors frequently bring patient capital and strategic local connections crucial for navigating complex markets.

Corporate venture arms

As far as we know, major African corporations are setting up investment units, seeking innovation relevant to their core markets and future growth. This provides startups not just funding but also potential pilot customers, distribution channels, and industry expertise.

Safaricom Spark Fund (Kenya) is a typical corporate venture program that fits this segment of funding, with a $1 million initial fund launched to invest in early-stage Kenyan tech startups. Safaricom has funded startups like Sendy (a logistics and delivery platform) and iProcure (an agri-tech input distribution network).

They also provided access to their M-Pesa payment ecosystem and customer base.

Why the shift towards more localised investment strategies

Local investors often have a deep understanding of which problems truly need solving in their specific contexts. They're less likely to fund a carbon copy of a US model and more likely to back ventures addressing fundamental local pain points like logistics for broken informal retail, fintech solutions for the unbanked majority using feature phones, or agritech tailored to smallholder farmer realities. This leads to business models built for African markets and not just transplanted onto them.

In terms of returns, local investors would likely demonstrate greater patience. They seem to understand the timelines required to build trust, navigate regulatory shifts, and achieve sustainable scale in complex markets. This reduces the pressure for premature, unsustainable hypergrowth that can sacrifice long-term viability for short-term metrics attractive to distant or international investors.

Local investors would frequently offer more than money. Being closer to home allows for hands-on mentorship, troubleshooting, and strategic introductions within the local ecosystem with connections to potential clients, talent, regulatory bodies, or regional partners. This deep support network is invaluable for early-stage founders building out of Africa.

A healthy balance between local and international capital creates a more resilient funding landscape. When global markets tighten or investor sentiment shifts (as witnessed recently after Covid-19), a strong base of local investors provides a crucial protection, ensuring promising startups don't technically close down due to distant economic conditions. It encourages local ownership and authority over the technological future of the continent.

In conclusion,

The increasing importance of local capital signals a maturation of Africa's tech ecosystem. It reflects growing confidence in homegrown talent and solutions. Local investors are betting on their markets with their capital, a powerful vote of self-belief, and we love to see it. But this doesn't diminish the critical role of international investors. Their capital, global networks, and experience remain indispensable, particularly for scaling across borders and accessing later-stage funding. The future lies in partnership relationships where international capital provides scale and global reach, while local capital ensures grounding, relevance, and resilience.

We strongly believe that more African tech ventures will now be built with money that understands the ecosystem intimately, alongside capital that connects them to the world. The era where funding African tech automatically meant looking abroad is evolving.

Your next read: Inspiring Fundraising Journeys of African Startups