IFC Study: Connecting Africa's Entrepreneurs

Background

Stronger connections between entrepreneurs and investors

Connecting Africa's Entrepreneurs is a comprehensive study aimed at establishing stronger connections between African entrepreneurs and investors, accelerators and incubators.

It addresses the challenges both sides face. Investors, accelerators and incubators often struggle to build a strong pipeline of high-growth entrepreneurs, while entrepreneurs find it hard to secure the capital and support needed to scale. Participants include thousands of startups from sectors and regions across Africa, alongside investors, accelerators and incubators worldwide.

Key challenges

Access to financing is the biggest barrier for startups

The biggest challenge startups face when trying to grow is access to financing. For investors and accelerators, the main barriers to finding high-quality startups are limited information, resource constraints and a shortage of high-quality startups.

Results · Eastern Africa

Deal terms matter more than investor characteristics

The study ranks the investment characteristics that most increase startup interest. For startups in Eastern Africa, the pattern is consistent across investors and accelerators.

1. 01

   Investors and deals

   Entrepreneurs prioritise deal terms over investor characteristics. There is a strong preference for equity investment while keeping ownership and control of the company, and entrepreneurs value investors with expertise in their region.

2. 02

   Accelerators, incubators and programmes

   Entrepreneurs prioritise the financial benefits of accelerator programmes. There is a strong preference for programmes that offer grants, especially those that let them keep full ownership and control, and international accelerators are particularly attractive.

Results · Finance and fintech

Local investors and smaller programmes stand out

1. 01

   Investors and deals

   Finance and fintech startups again prefer equity investment that keeps ownership and control with the founders. They also prefer to have local investors as limited partners.

2. 02

   Accelerators, incubators and programmes

   They prefer programmes that let them retain ownership and control, especially those that also provide grants. Smaller programmes are particularly attractive, and entrepreneurs value networking opportunities and mentorship.

Capital flows to Africa

Most startups depend on foreign financing

Eastern, Central and Western Africa are particularly reliant on investment from Europe and North America.

• Northern Africa primarily receives funding from development finance institutions.
• Southern Africa attracts the majority of its capital from within the region.

Investment partners

Support goes beyond the cheque

1. 01

   Investors

   Equity is the most favoured type of financing. Revenue-generating startups attract most investment, but many investors are open to backing pre-revenue ventures. Most investors say their role goes beyond providing capital, and emphasise helping startups scale their operations and grow strategically.

2. 02

   Accelerators and incubators

   These typically provide a comprehensive package of training, mentorship and networking. Most programmes focus on pre-revenue startups, and concentrate their support on scaling operations, fundraising and marketing.

Data and methodology

How the results were produced

The investment-characteristic results come from data collected from thousands of startups across Africa. Founders rated synthetic profiles of investors, accelerators and incubators, and the ratings were aggregated to show how much each characteristic raises or lowers interest on a scale of 1 to 7.

The capital-flow analysis draws on PitchBook and other sources to identify investment from angels, venture capital and growth-equity private equity investors into African startups. Only deals between 2010 and 2022 are included, and subregions follow the United Nations geoscheme for Africa.