What African investors think about the funding squeeze killing early-stage startups

It's not just GoLemon, FoodCourt, and Gigbanc that are feeling the pinch. For Nneoma, a young entrepreneur who recently tried to raise funding for her startup, the reality is that securing capital has become an uphill battle. Her company, an e-commerce platform, has a promising user base and a solid revenue stream, but investors are increasingly hesitant to take the plunge. "It's like they're waiting for us to fail," Nneoma laments. As the number of deals and early-stage funding dry up, what has changed in what startups must demonstrate to raise their first cheque?

Samuel Frank, a seasoned investor, has seen a significant shift in the market's expectations. "In 2022, an early-stage African startup needed to show a promising idea, a decent team, and some traction to raise its first cheque," he notes. Today, the bar is much higher. Investors want to see a clear path to profitability, a scalable business model, and a demonstrated ability to execute. "It's no longer just about having a good idea, but about having a good business," Frank stresses. This new reality is a far cry from the days when a promising concept and a charismatic founder were enough to secure funding.

As funding for early-stage startups dries up, larger, later-stage businesses are reaping the benefits. The numbers are stark: funding for early-stage startups dropped from $25 million to $9 million in the first half of 2026, while the number of deals fell from 252 to 174. Africa: The Big Deal's findings paint a similar picture, with only 190 startups raising at least $100,000 in the first half of the year. The pipeline of smaller rounds has contracted sharply, leaving many startups in limbo. "It's like we're being left behind," says Nneoma, who is struggling to keep her company afloat.

So, who should step in to fill the funding gap? Samuel Frank believes that more investors need to take a chance on early-stage startups. "It's not just about the returns, but about the impact we can have on the ecosystem," he argues. However, others are more cautious. "We need to be careful not to throw good money after bad," says another investor, who prefers to remain anonymous. "We need to see a clear plan for how these startups will survive and thrive." The debate highlights the tension between risk and reward in the African startup ecosystem.

So, what would give more early-stage startups a better chance at surviving? Samuel Frank believes that a focus on capital efficiency, coupled with a clear path to profitability, would go a long way. "Startups need to be able to demonstrate that they can make the most of the funding they receive," he stresses. Others argue that a more collaborative approach between investors, startups, and government agencies would help to stimulate growth. Whatever the solution, one thing is clear: the African startup ecosystem needs a new recipe for survival.

The funding squeeze is not a new phenomenon, and it's unlikely to be resolved quickly. As Nneoma's story illustrates, the impact is being felt by real people, with real businesses on the line. While investors debate the best course of action, startups are struggling to stay afloat. It's time for a rethink, a new approach that prioritizes the needs of early-stage startups. Only then can we hope to see a resurgence in funding and growth in the African startup ecosystem.

The new rules of the game are clear: in a market where capital is scarce, only the most resilient startups will survive. As the stakes rise, it's time for investors to take a closer look at the African startup ecosystem and find a way to support the next generation of entrepreneurs.