African startups face tougher scrutiny as investors seek returns

Samuel Ogbonyomi, CEO and co-founder of PipeOps, is upbeat about the prospect of striking up new funding conversations with potential investors when he speaks to African Business at the Nigerian startup’s exhibition booth at Expand North Star in Dubai – a side event to Gulf Information Technology Exhibition (GITEX) Global designed to link startups to investors.

Founded in 2021, PipeOps is an AI-powered platform that “automates complex cloud workflows for businesses and software developers so they can quickly transition to the cloud without any core cloud expertise in-house,” Ogbonyomi explains. He adds that it has validated its product and acquired customers with pre-seed backing from several angel investors, and is now preparing to seek further funding. “We will be looking to open a seed round towards the end of the year or early 2026. We want to partner with investors and institutions who actually understand what we are building,” he tells African Business.

It’s a well-timed move in view of the continued rebound in venture capital flows in Africa’s startup ecosystem. After a sharp downturn in 2024 – when African startups raised $2.8bn across 750 deals, down from $3.9bn across 930 deals in 2023 – investment activity is showing signs of recovery.

According to the Q2 2025 Venture Capital Report from the African Private Capital Association (AVCA), the first half of 2025 saw 239 deals, an 11% year-on-year increase. Seed-stage activity during the period surged, with seed funding climbing 40% to $171m across 82 reported early-stage transactions.

Investors return to basics

While investor sentiment is improving, African startups face tougher scrutiny in the current funding environment, Ogbonyomi notes. “After what happened in the past two years, investors are now gradually coming back. However, a lot of them have fallen back to the basics, which is, ‘if you want me to invest, what are your numbers like?’ The fundamentals are starting to matter a lot more than the story you tell investors.”

“In some ways it is unfortunate for the businesses that are just getting started. However, for us, who have already started and gotten to the point where we’re making revenue, what we just need to do is optimise for more revenue,” he says.

Kola Aina, founding partner at Ventures Platform, a $46m venture capital firm focused on early-stage startups, concurs with this assessment. “I would describe 2025 as a year of cautious recovery; one marked by more disciplined capital deployment and a return to fundamentals. Investors are now placing a premium on strong unit economics, capital efficiency, and clear paths to profitability,” he tells African Business.

“The ‘growth at all costs’ era is behind us. What we’re seeing instead is the emergence of more durable business models and investors who are increasingly long-term in orientation,” he continues.

“The reset of the past year has been healthy for the ecosystem, and I believe it’s paving the way for more meaningful exits and stronger companies in the decade ahead,” he adds. Since its launch in 2016, Ventures Platform has backed more than 90 African startups across diverse sectors, with at least one portfolio company in every region of Africa, Aina notes. He says that, given the improving sentiment, the fund is “doubling down on early-stage companies solving fundamental problems”.

Cleantech and AI drawing investor interest

Fintech continues to command the lion’s share of startup funding in Africa, accounting for roughly 30% of all deals and 59% of total capital raised in 2024. The continent’s top-funded ventures – spanning mobile payments, buy-now-pay-later (BNPL) platforms, and digital banking and lending solutions aimed at the unbanked – reflect this dominance. However, data from AVCA and TechCabal Insight shows that a shift is underway. Startups in cleantech and AI are securing a greater share of funding deals in 2025 relative to fintech.

“Fintech has been the backbone of Africa’s digital transformation, but what we’re seeing now is a healthy diversification of innovation. The rise of cleantech and AI reflects both necessity and opportunity – necessity because Africa faces urgent climate and productivity challenges, and opportunity because these technologies have reached a point where they can deliver scalable, locally relevant solutions,” Aina says.

“Over the next few years, I expect to see cleantech emerge as a critical driver of inclusive growth – from distributed energy solutions to climate-smart agriculture and sustainable mobility. In parallel, AI will increasingly underpin efficiency across sectors, powering financial inclusion, health diagnostics, logistics, and even governance,” he continues. The real value, he insists, will come from startups applying AI and cleantech within distinctly African contexts, solving problems others might overlook.

Another major shift in Africa’s startup ecosystem, Aina observes, is the increasingly prominent role played by African investors. He notes that more African general partners, family offices, and institutional players are stepping up to fill gaps left by retreating international capital.

“This local capital base brings not just funding but also contextual understanding, and that’s essential for market-creating innovation to thrive. We’re also seeing governments and DFIs [development finance institutions] playing a more catalytic role in de-risking investments and supporting innovation-friendly regulation,” he says.

Delivering returns and impact

Aina notes that, with the entry of DFIs into African venture capital, founders now have a dual mandate to deliver both returns and impact. The two are not mutually exclusive, he asserts. “Founders need to see impact and profit as two sides of the same coin. When impact is embedded in the core of the business, it becomes a growth engine rather than a constraint,” he says.

“The most successful founders don’t see impact and profit as competing priorities, they design their products, operations, and growth strategy so that solving real problems drives both outcomes.”

DFIs not only bring capital, but a different set of expectations, which is reshaping which startups and sectors get funded. “We’re seeing a stronger emphasis on business models that demonstrate both commercial viability and measurable impact. Companies that can scale responsibly, generate jobs, improve financial inclusion, or advance climate solutions are increasingly prioritised.”

For venture capitalists, the important lesson from these shifts is that supporting startups goes beyond providing capital, Aina contends. “Hands-on guidance, connecting founders to networks, and helping them navigate operational, regulatory, and market challenges is often what separates success from stagnation.”

So how can African startups stand out in the current environment and secure the capital needed to scale up? Aina believes that “for entrepreneurs, the takeaway is to focus on sustainable business models, unit economics, and resilience while addressing critical market gaps.”

Ogbonyomi, on his part, argues that beyond technical know-how and commercial acumen, African founders must cultivate soft skills such as resilience and patience. These are just as crucial for success. “Founders often imagine that their idea will quickly make them billionaires, but there are many difficult moments along the way. It’s never always up. There are many down days too, and you must be mentally prepared for that.”