In these scenarios, the dissolving entity’s shareholders exchange their equity for shares in the surviving entity at a predetermined ratio. As my Finance Professors pointed out in class, theory suggests this happens for three main reasons:

1. Cash preservation in the face of insufficient free cash flow (FCF) or CAPEX pressures.

2. Strategic capitalisation, allowing the acquirer to increase size and equity structure where dilution is an acceptable trade-off.

3. Target confidence, requiring the acquired founders and investors to have deep faith in the surviving firm’s future upside.

The Alchemy of the Exchange Ratio

In the press release, a deal might be announced as a “$50 million acquisition.” In reality, no dollars exist. The acquirer has simply agreed to issue $50 million worth of their own stock to the target’s cap table.

The core math as we struggled to calculate in my Master’s Finance class for the last two announcements relies on determining the Exchange Ratio, which dictates how many shares of the acquiring company are given for each share of the target company.

Exchange Ratio = {Target Price Per Share} / {Acquirer Price Per Share}

While the formula is simple, determining the inputs is a highly contested negotiation.

1. Negotiating the “Acquirer Price Per Share”

The acquiring unicorn will almost always argue that its stock should be valued at the price of its last preferred funding round (its highest valuation).

• The Target’s Counter-Argument: The target’s founders and lead investors will argue that the last round was priced two years ago in a zero-interest-rate environment and is now overvalued. They will push to use a lower Fair Market Value (FMV) or a recent 409A valuation for the acquirer. A lower acquirer share price means the target gets more shares in the combined entity.

2. The Liquidation Preference Waterfall

You cannot simply apply the exchange ratio to every shareholder equally. The target company’s cap table must be cleared through its liquidation waterfall first.

• If a cross-border payments startup is acquired for $30M in stock, but they have raised $20M with a 1x non-participating liquidation preference, the preferred investors get the first $20M worth of the acquirer’s stock.

• The founders, employees, and common shareholders are left splitting the remaining $10M equivalent. If the acquisition price drops below the total capital raised, the common shareholders effectively get wiped out, exchanging their shares for nothing, while the investors take whatever stock is available.

3. The SAFE Conversion Trap

Many early-stage startups in our ecosystem have multiple outstanding SAFEs (Simple Agreements for Future Equity) or convertible notes. In an M&A event, these usually convert into common stock immediately before the transaction. If the acquisition valuation triggers the valuation caps on those SAFEs, it can cause massive, unexpected dilution for the founders right at the finish line, drastically reducing their final share of the acquirer’s equity.

But beyond the theoretical, how does this play out in the harsh reality of the African tech landscape? Let us unpack what these “paper exits” mean for founders, unicorns, fund managers, and the broader market.

For Target Founders and Investors: A “Great Deal” or a Golden Handcuff?

For founders and investors in the companies being acquired, calling a 100% share-exchange a “great deal” requires nuance. In the immediate term, it is not the liquidity event founders typically dream of; there is no immediate cash out, no secondary sale, and no direct realisation of wealth. Instead, their illiquid startup stock is traded for illiquid scale-up stock.

An acquiring company isn’t just buying code or licenses; they are buying the founding team’s execution capability to ensure the transition is successful. If founders get highly liquid shares on day one, they might leave on day two. To prevent this, acquirers impose strict “Golden Handcuffs.”

The Founder Re-Vest

This is often the hardest pill for target founders to swallow. Even if a founder has spent four years building their company and their original shares are 100% vested, the acquirer will typically force them to re-vest a significant portion (often 50% to 75%) of their new exchange shares over a new 2 to 3-year period.

• The Logic: “We are paying a premium for you to stick around and integrate this product. If you leave in six months, we overpaid.”

• The Reality: The founder is now an employee. If they quit (or are fired for cause) before the new vesting period ends, they forfeit those unvested shares, meaning they essentially sold their company for a fraction of the headline price.

However, in a capital-constrained macroeconomic environment, it is highly pragmatic. Should more founders seek such exits? Yes, conditionally. If the alternative is a protracted death by a thousand runway cuts, swapping equity into a dominant, well-capitalised player is a massive win. It allows target founders to piggyback on the acquirer’s path to an IPO or a massive private equity buyout. The key risk here is valuation mismatch: if the acquirer’s stock is overvalued during the exchange, the target founders are essentially selling their company at a discount.

Smart founders and VC fund managers will fiercely negotiate for a Double-Trigger Acceleration clause. This ensures that if the acquirer is subsequently bought by an even larger company (Trigger 1), AND the founder is fired or their role is severely diminished (Trigger 2), all of their re-vested shares immediately accelerate to 100% vested. It prevents the new parent company from firing the founder just to avoid paying out their equity.

The Unicorn’s Calculus: Path to Exit and Trajectory

For unicorns and their investors, paying with stock is a superpower. It allows these giants to aggressively acquire market share, complementary technology, and top-tier talent without depleting their crucial cash reserves.

How does this help their path to exit? Public markets and global private equity firms reward scale, unit economics, and market dominance. By rolling up smaller competitors or adjacent service providers, unicorns artificially boost their Gross Merchandise Value (GMV), active user base, and revenue consolidations. This makes their eventual IPO prospectus or acquisition pitch significantly more attractive. It de-risks their current trajectory by eliminating fragmented competition and building an insurmountable moat.

Market Signals: Should We Worry About Free Cash Flow?

Should the market be concerned about the FCF and liquidity of these acquiring giants? Yes and no. On the one hand, using stock instead of cash is a classic indicator that cash is expensive and scarce. In a high-interest-rate environment where raising subsequent mega-rounds is difficult, aggressively protecting the treasury is simply good governance. It does not necessarily mean the unicorns are failing; it means they are maturing and acting like rational corporate entities.

However, how does this reflect on the entire market? It paints a picture of a maturing but liquidity-starved ecosystem. Not every “exit” is a triumph. A share-exchange acquisition can sometimes be a beautifully packaged rescue mission for a struggling startup. While we are in the growth and maturity stage, we must be honest: a true win for the market puts actual cash back into the hands of local LPs, founders, and employees. Paper exits delay that gratification.

The Signal to Foreign Investors: To global VCs, this signals ecosystem resilience. It shows that local players can self-correct, consolidate, and prevent high-profile startup failures. However, it also signals that the Nigerian market is currently a “long hold”; investors must be willing to wait for the consolidated giant to exit before seeing a return on invested capital (ROIC).

Liquidity Metrics and the Broader Market

For the market as a whole, these deals severely depress immediate liquidity metrics. In venture capital, success is measured by DPI (Distributions to Paid-In capital), actual cash returned to investors. Share exchanges boost TVPI (Total Value to Paid-In capital), paper valuation, but leave DPI at zero. Until these super-entities actually go public or are acquired for cash by global behemoths (like Stripe or Visa), the ecosystem’s money remains trapped on cap tables, limiting the recycling of capital into new, early-stage startups.

The Fund Manager’s Playbook: Consolidation over Casualties

For fund managers, this trend is an absolute lifeline. Portfolio consolidation is a highly effective way to salvage value.

• Cap Table Alignment: It cleans up messy cap tables and merges struggling companies with winners.

• Synergy: Merging companies with complementary or competing offerings eliminates redundant customer acquisition costs (CAC) and allows them to pool engineering resources.

• The Ultimate Alternative: Is this a great solution for founders instead of watching their companies die? Unequivocally, yes. A 2% stake in a thriving $1 billion unicorn is infinitely more valuable than 100% of a bankrupt $10 million startup.

For the VC fund manager evaluating this, a share-exchange deal is an exercise in risk transfer. You are trading the idiosyncratic risk of your specific portfolio company failing for the systemic risk of the acquiring unicorn failing to reach a liquidity event.

The headline acquisition numbers are vanity; the exchange ratio and the vesting schedules are the reality.

Let me know what you think of this new type of M&A

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Here is how I see the landscape evolving over the next 12 months.

1. The AI Boom Triggers an Infrastructure Arms Race

The surge in localised AI solutions is finally hitting a physical ceiling. To support the computing power required for African LLMs and agentic workflows, we are seeing a massive emergence of cloud startups. This has triggered a “gold rush” in data centre investments.

• The Telco Pivot: Expect local telcos to move beyond connectivity. They are now positioning as infrastructure partners, reducing operational costs by offering colocation, rack centres, and dedicated data centre services to the new wave of cloud-native startups.

2. Strategic M&A: The Convergence of “Old” and “New” Money

The M&A wave of 2026 isn’t about “saving” failing startups; it’s about distribution vs. speed.

The Trade: Traditional firms (banks, FMCGs) are acquiring tech startups to leapfrog their digital transformation, while well-funded tech giants are acquiring traditional licenses to gain “adequate regulatory coverage.”

• Portfolio “Arranged Marriages”: VCs are no longer waiting for exits; they are actively merging their own portfolio companies to create “super-conglomerates” that can optimise for liquidity events and dominate regional markets.

3. Credit is the New Equity

The equity-heavy diet of the last decade has been replaced by a hunger for debt.

• Rating-as-a-Service: Startups are now obsessively optimising for metrics that earn them high credit ratings to endear themselves to debt investors and commercial lenders.

• Credit-Tech: A new wave of fintechs is emerging specifically to solve the “credit gap,” automating the underwriting process for the tech ecosystem itself.

4. The End of the “Grey Area”

The regulatory honeymoon is officially over. Across the continent, regulators are hitting the ecosystem with more precision and strength.

• Adapt or Exit: Startups that previously thrived in legal loopholes are facing a “forced maturity” event. By the end of 2026, compliance won’t just be a department; it will be a competitive advantage (a “compliance moat”).

5. The Scramble for the Continent: Cross-Border Talent & Founder Migration

As Tier-1 markets like Lagos and Nairobi become saturated, we are seeing a “Great Migration.”

• Tier-2 Surge: Founders and talent are moving cross-border to capture market share in burgeoning Tier-2 and Tier-3 ecosystems.

• The Outcome: This high-stakes scramble will lead to spectacular failures for some, but the “successors”,; those who can navigate the cultural and regulatory nuances of multiple African borders, will win at a scale we haven’t seen before.

6. Sector Power Rankings: Fintech Still Rules, but Climate is Rising

Fintech remains the undisputed heavyweight champion of the continent, but it is no longer the only game in town.

• The Contenders: Logistics, Climate-tech, and the re-emergence of “Trade Facilitation” (tech-enabled commerce) are closing the gap. These sectors are winning because they address the most fundamental “real economy” problems: energy, food, and movement.

7. The Catalyst: The New Nigerian Tax Law

Nigeria’s latest tax reforms are proving to be a surprising engine for growth. By mandating transparency and clearer reporting, the law is inadvertently driving credit growth.

The Fintech Boost: This push for transparency increases the “trust equity” of the Fintech subsector, making it easier for these platforms to integrate deeper into the formal economy and provide higher-value services to a now-visible pool of businesses.

Conclusion

2026 is the year African tech “grows up.” We are seeing the building of the foundations: data centres, credit rails, and regulatory frameworks, that will support the next decade of growth. The winners this year won’t just be the ones who can raise money, but the ones who can navigate the “gritty reality” of building on the continent.

For the better part of the last decade, the African tech ecosystem was fuelled by the gospel of the “Blitzscale”. The formula was simple: capture growth at all costs, subsidise customer acquisition with venture dollars, and return to the market every 18 months for a fresh injection of equity. Dilution was a secondary concern because the valuation lift-off was assumed to be perpetual.

But the music has slowed, and for many, it has stopped. As we navigate 2026, the reality on the ground is stark. Equity, once seen as “free” money because it didn’t require monthly interest, has become the most expensive and scarcest commodity in a founder’s toolkit. If you are still chasing a Series A or B based on 2021 multiples, you aren’t just fighting the market; you’re fighting math.

Catalytic funding is still very much available on the continent and well diversified, with angels, early-stage funds, accelerators & incubators, among others, funding ideas and backing founders they believe are solving the right problems. The problem is when these startups require the funding to push to the next stage, acquire licences, scale growth, expand beyond their immediate market, provide liquidity for very early backers, etc., the maths and legal clauses suddenly become important. Equity becomes a lot more expensive and consequential; the market for mid- to late-stage capital “allocators” in Africa shrinks, the KPI becomes harder to meet, and the macroeconomic variables hit harder, so founders will need to be creative at this stage to keep their business going and attain the high growth required to convince mid- to late-stage investors to allocate the type of capital required. For investors, they are betting that each of these cheques written will return their fund because their maths is even more brutal, and they need to convince their LPs and future LPs that the market is viable and liquid enough to justify more capital. For LPs, it is a bet between high returns and Fed rates – why invest in African startups when you can invest in S&P, etc.?

Mind you, a lot of founders raised at the 2021/2022 overbloated valuation with crazy multiples that are no longer realistic and will either be forced to raise a heavy down round or run out of funds.

This article is to ensure founders see other options as a bridge to get their business to a comfortable position for mid- to late-stage venture funding.

It is time to talk about the “D” word: Debt.

The Equity Trap vs. The Debt Efficiency

In a high-interest-rate environment where global LPs are pulling back from emerging markets, equity investors have moved from “growth at all costs” to “unit economics or bust”. Selling 20% of your company today to keep the lights on is no longer a strategic play; it is a fire sale.

When you raise equity in a down market, you aren’t just diluting yourself; you are often baking in liquidation preferences and “dirty” terms that make a future exit nearly impossible for anyone but the last investor in. Equity is permanent. Once those shares are gone, they are gone.

Why Debt, Why Now?

1. Non-Dilutive Growth: If you have a predictable revenue stream like a B2B SaaS or fintech with consistent transaction volumes, why sell a piece of your business to fund a marketing campaign or a new inventory cycle? Debt allows you to fuel growth while keeping your cap table clean for a future “up-round”.

2. Matching Assets to Liabilities: You shouldn’t use equity (long-term capital) to fund working capital (short-term needs). If you are a logistics startup or a trade finance play, your capital needs are cyclical. Debt is the correct instrument to bridge these gaps.

3. The Discipline of Repayment: Debt forces a level of operational rigour that equity often masks. When you have a repayment schedule, you stop “experimenting” with CAC and start optimising for ROI. It turns “zombie startups” into lean, cash-flowing machines.

Debt Tools

As our ecosystem matures, founders must move beyond simple bank overdrafts and look toward capital market instruments. In a high-interest environment, these sophisticated tools offer a way to bypass the rigidity of commercial banks.

1. Commercial Papers (CPs): The Short-Term Cash Flow Bridge: CPs are unsecured, short-term promissory notes. Think of them as a “revolving door” of liquidity to fund working capital or inventory.

• Tenor: 15 to 270 days.

• Why use it? It’s cheaper than a bank overdraft and much faster to issue than a bond.

2. Corporate Bonds: The Long-Term Infrastructure Play: Bonds are for startups looking to fund heavy expansion, acquisitions, or long-term projects (3–7 years).

• Fixed vs. Floating: You can lock in costs or opt for floating rates if you expect inflation to cool.

• Convertible Option: A “sweetener” where debt converts into equity later, allowing for a lower interest rate today.

3. Venture Debt: The Equity Complement: Specifically designed for VC-backed startups that aren’t yet profitable but have high growth. Lenders often take a small percentage of warrants to offset the risk.

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The Execution Roadmap: How to Get it Done

If you are a startup in Nigeria or a similar emerging market, the process is governed by the SEC and exchanges like FMDQ or NGX. It is a rigorous but rewarding path.

The Three Pillars of Issuance

1. Eligibility & Rating: Your latest audited accounts must be fresh (not older than 9 months). You must engage an SEC-registered rating agency (like Agusto & Co or GCR). To be marketable, you generally need an investment-grade rating (BBB- or higher).

2. The “League of Parties”: You must appoint an issuing house (investment bank) to structure the deal, lawyers for the trust deed, and a trustee to protect investors.

3. The Filing & “Book Building”: Your issuing house files the “Shelf Prospectus”. You then enter a “book building” phase where institutional investors (PFAs, insurance firms) bid on the interest rate they are willing to accept.

The Verdict

The era of the “equity junkie” is over. The most resilient founders in the next 24 months won’t be those who announce the biggest rounds on TechCrunch, but those who master the art of the capital stack.

In the current high-yield environment, investors are flighty. If your startup cannot show a Debt Service Coverage Ratio (DSCR) of at least 1.2x to 1.5x, these instruments will remain out of reach. But for those who have the math right, debt isn’t just an alternative; it’s your leverage.

Stay lean, stay liquid, and protect your cap table.

For a decade, we were told that “Software as a Service” would digitise the continent. We’ve seen hundreds of startups build “Salesforce for Africa” or “Slack for Nigerian SMEs”. But look at the numbers. While fintech exploded, pure-play B2B SaaS has often hit a brick wall. Why? Because in Africa, software is rarely the problem; execution is. SaaS would not solve the “anyhowness” or “take-it-like-that” mindset of most workers; in fact, sometimes it’s only a more expensive additional clog in the wheels of efficiency. On the other hand, SaaS becomes too expensive too quickly for startups and SMBs, scraping tiny margins in a market where disposable income is next to nothing and infrastructure barely exists.

The global north is currently debating whether AI will replace workers. In Silicon Valley, the conversation is fixated on LLMs, RAG, and fine-tuning. While these are foundational technologies, they are not the end product. In Africa, we face a different reality: a chronic shortage of specialised talent (thanks to the “Japa” syndrome, which is now even slimmer, no thanks to the current hostile global immigration policy), FX volatility that makes USD-priced seats a nightmare, and a business culture that prioritises results over tools.

The next generation of African unicorns won’t just build software. They will pioneer a different kind of solution tilted upside down, now known as Service-as-Software (SaaS 2.0), booming in the corridors of SV, a solution where AI doesn’t just provide a dashboard; it functions as the specialised digital workforce the continent is desperately lacking. This is the evolution of software from a system of record that organises data into a system of action that organises work. This market transition, where software moves from assisting humans to autonomously performing roles, represents a $4.6 trillion opportunity for founders and investors.

The Broken Premise of Enterprise Software

For forty years, enterprise software, from CRMs to ERPs, was built to optimise how computers store data. The result is a fundamental misalignment with how humans actually work:

1. Lost Context: Employees spend their days on data entry and context-switching, manually moving intelligence from emails, calls, and documents into rigid software fields. Critical context is lost in transit.

2. Passive Intelligence: Current “intelligent” systems analyse static data, not the live, unstructured communication (voice, text) where business value is truly created.

3. Optimisation for Data, Not Action: Legacy software is designed for logging, not autonomous execution. It cannot understand intent and take multi-step, complex actions across different applications.

The “SaaS Struggle” in Africa: Why We Aren’t All Using Dashboards Yet

Let’s talk about why traditional SaaS has been a tough sell in Africa:

1. The “Implementation Gap”: You sell a Nigerian CEO a high-end HR tool. Three months later, it’s “ghostware”. Why? Because the person trained to use it moved to Canada, and no one else has the time to do the manual data entry.

2. The FX Trap: When the Naira or Cedi fluctuates, a $50/user seat suddenly doubles in cost. CEOs aren’t looking for “cool tools” anymore; they are looking for cost certainty.

3. Unstructured Reality: African business happens on WhatsApp, voice notes, and physical manifests. Most Western-style SaaS requires “clean data” that simply doesn’t exist at the source.

Traditional SaaS was built to organise data. African business needs to organise work.

Enter Systems of Agents: The Digital Workforce

A System of Agents (SoA) is the technical execution of Service-as-Software. These are AI-powered entities that don’t just recommend; they act. They parse entire communication streams, understand human intent, process unstructured documents, and, most importantly, orchestrate autonomous action across the entire business workflow.

They are the first digital workers capable of transforming the vast, messy river of unstructured business context into structured, actionable intelligence. These aren’t just chatbots. They are digital workers that can hear a voice note in Pidgin, read a messy scanned invoice, and then, most importantly, go do the work.

For a bank in Lagos, this isn’t a “help desk”. It’s an AI compliance officer that scans KYC docs and flags fraud in real time. It doesn’t need a seat; it needs a job description.

The New Playbook for the African Founder

If you want to build a unicorn in 2026, stop selling “features”. Start selling “outcomes”. Here are the new rules:

Rule 1: Meet Them at The Point of Origin

The most powerful Systems of Agents don’t wait for data to be entered into a CRM or ERP; they sit at the point of origination. By capturing data directly from emails, calls, internal Slack threads, and customer tickets, they earn the right to orchestrate every downstream action, effectively insulating themselves from legacy incumbents.

In Africa, the “database” is the conversation. The most successful agents will live inside WhatsApp, USSD, and voice streams. If your agent can capture a transaction via a voice note and automatically update the back office, you’ve already won. You’ve earned the right to orchestrate.

Rule 2: Target Labour Budgets, Not Software Spend

This is the single most critical shift. Salesforce makes roughly $35 billion annually on software licences. But global companies spend an estimated $1.1 trillion annually on salaries for sales and marketing personnel alone. The opportunity isn’t building a better tool that captures 1% of the software budget; it’s building a digital employee that captures a meaningful slice of the personnel budget.

New SoA companies will be tapping into the largest and most defensible budget pool in the global economy—labour costs. Don’t fight for the “IT budget”. Fight for the “Personnel budget”. Companies are losing their best auditors, accountants, and cyber experts to emigration. If you build a digital auditor that never applies for a visa, stays up 24/7, and costs 1/10th of a human salary, that’s not a software sale; it’s a business lifeline.

Rule 3: Solve Acute Labour Crises

The fastest path to enterprise adoption is addressing labour gaps that human capital can no longer fill. Look for macrotrends and industries facing chronic shortages, high turnover, and skill deficits. Target the gaps where humans are physically missing:

• Fintech & Compliance: AI agents navigating the SEC and CBN’s constant policy shifts.

• Logistics: Agents that can “see” traffic in Lagos and reroute a fleet autonomously.

• Healthcare: Digital triage agents for clinics where the doctor-to-patient ratio is 1:5,000.

Beyond these macro trends, target roles that are needed only occasionally—humans forget seasonal or infrequent training; AI agents maintain perfect consistency 24/7.

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The Power of the Swarm

The real magic happens when agents move beyond simple automation to operate as specialised teams. In a human sales organisation, an SDR qualifies leads, an SE handles technical validation, and an AE closes the deal. The most advanced Systems of Agents mirror this structure: AI SDRs qualify leads, AI SEs resolve technical queries, and AI AEs manage the sales cycle. They operate as a continuous learning flywheel, specialising, collaborating, and improving the entire workflow, a feat impossible for isolated, task-specific bots.

This enables entirely new possibilities: sales territories that optimise themselves in real time, personalised wealth management for every single client, and complex logistics managed with perfect, 24/7 consistency. The real magic happens when agents work as a team. Imagine a “Digital Export Firm” run by five people but powered by a swarm of agents:

• Artificial Intelligence Sales Development Representatives (AI SDRs) find buyers for Nigerian ginger in the EU.

• AI logistics agents handling AfCFTA paperwork.

• AI finance agents are managing the FX hedging.

This is the “flywheel” effect. It gives a startup in Yaba the same operational muscle as a multinational in London.

The Business Model: Payment for Outcomes

The business model must reflect the shift from tool to worker. Seat-based pricing is obsolete. When software becomes the worker, you pay for the outcome it delivers. For a Nigerian business, paying for 100 seats is a risk. Paying N5,000 per successfully cleared container or $1 per recovered debt is a partnership. Examples like Intercom charging per resolved ticket, future observability tools charging for reduced MTTR (Mean Time To Resolution), not data storage, and an AI accountant will charge for processed invoices or tax compliance assurance.

This shift creates a direct link between the software’s value and the customer’s ROI, positioning the SoA company as a profit driver, not a cost centre.

The $4.6 Trillion Question: Is Africa Ready?

How much work will Service-as-Software displace or transform? We believe this opportunity is segmented into two massive buckets, totalling $4.6 trillion globally over the next five years:

1. Global Salaries ($2.3T): Focused on high-value, automatable roles across key sectors (Sales & Marketing, Software Engineering, Security, and HR). Cleaning up our own “paperwork-heavy” sectors (banking, government, insurance).

2. Outsourced Services & Salaries ($2.3T): The vast spend on IT services and Business Process Outsourcing (BPO), where agents will provide equivalent or superior service at a fraction of the cost.

While a human-in-the-loop will still be necessary for designing workflows and performing high-value spot checks, the debate is no longer if agents will automate, but where the human boundary will be drawn. In every vertical, an AI-powered company will challenge an incumbent SaaS giant or integrate as a powerful complementary business, absorbing costs and accelerating operations.

The shift is underway. The time to build the Service-as-Software category is now.

Who’s building? Shoot me an email at taiwo@sevencapitalventures.com. Let’s talk!

I recently saw a post by Rohit Mittal on X (formerly Twitter), that perfectly captures this brutal reality. It describes a founder who has “ground it out” to achieve $2M ARR, only to realise they are trapped by an $8 million liquidation preference stack that ensures they walk away with nothing in a sale. In our current market, where capital is tighter and exit multiples are compressed, this isn’t an outlier; it’s a structural failure point.

This article explores why these “successful” companies are being held hostage by paper valuations and how a new pipeline to other private market instruments can provide the market-clearing exit that founders and the African tech ecosystem so desperately need.

The prevalent model of venture capital (VC) investment, driven by the requirement for exponential, fund-returning outcomes, has created a structural failure point in the technology ecosystem. This failure manifests as the “Venture Zombie”: a company that achieves operational success, generating revenue, satisfying customers, and maintaining competence, but cannot achieve the hyper-growth (150%+ annual recurring revenue, or ARR) necessary to deliver a 10x-plus return on investment required by its initial capital partners.

The scenario highlighted by Rohit showcases a success by traditional business standards. Still, by venture standards, the company is trapped: it cannot raise new capital due to insufficient growth, it cannot sell because the liquidation preference stack negates founder returns. Its existing investors refuse to write off the loss because preserving paper value assists in future fundraising efforts. The result is institutional and entrepreneurial paralysis. The problem I described above is not a failure of execution; it is a profound structural incompatibility between a successful, stable company and the demands of venture capital fund economics.

The Power Law’s Toll: Why VCs Ghost

A typical venture fund operates under the power law, where a tiny number of investments are expected to generate all the profits, covering the cost of the entire portfolio and returning the fund many times over.

Once a company demonstrates a persistent inability to achieve exponential growth (like the 15% ARR growth), it shifts from a potential fund-returner to a “zombie” asset. For the General Partner, deploying time, resources, or follow-on capital toward an investment expected to yield only a 1x or 2x return is considered negative optionality. It detracts from the focus required for the few outliers that still hold 10x potential. The VC’s silence is a cold calculation based on fund-level strategy.

The Institutional Mark-Up: Paralysis by Paper Value

The other side of the paralysis is institutional: investors won’t write off a solvent, revenue-generating company.

VCs rely on non-public valuations, often justified by previous high-priced rounds, to report paper gains (IRR and MOIC) to their Limited Partners (LPs). Forcing a definitive markdown, writing off your asset, directly impairs reported performance metrics and severely complicates the process of raising the next fund. Maintaining an inflated mark, even on an illiquid zombie, provides an easier narrative for LP reporting and preserves a favourable track record. This delay prevents the necessary market-clearing and holds entrepreneurial talent captive in an economically inefficient structure.

The Financial Straitjacket: Zero-Sum Exits

In the analysis I referenced above from Rohit’s tweet, the most formidable barrier to the founder’s freedom is the $8 million liquidation preference stack, the financial safety net designed to protect preferred shareholders (the VCs) in low-exit scenarios.

• The Zero-Sum Waterfall: Venture deals utilise preferred stock, which holds superior rights over the common stock held by founders and employees. Assuming a standard 1x non-participating preference, the VC investors are legally entitled to receive their principal investment of $8 million first. For the founder to receive any meaningful return, the sale price must substantially exceed this preference stack. A profitable $2 million ARR company might realistically command a sale price in the $10 million to $15 million range (4x to 7.5x ARR) in the current compressed software market. This outcome, while successful for the business, is financially devastating for the founder:

• The model confirms that even a $15 million exit, a phenomenal business nd-returning. Meanwhile, the founder receives approximately $1 million for four years of effort, confirming the burnout and complete misalignment of incentives. The founder has no rational reason to push for a sale under these terms.

  The issue is compounded by “dead equity”, which is simply stock held by departed founders, employees, or early investors who are no longer contributing to the company. This dead equity further dilutes the remaining common shareholders, reducing the potential payout for the working founder and management team.outcome, yields the venture investors a meagre 1.875x MOIC, which is not fu

Are There Paths for Exit and Liquidity for Zombie Startups?

Yes, but the answer lies in engineering a definitive exit by transitioning these companies out of the high-risk, high-return VC ecosystem and into a sustainable financial structure.

1. The Formal VC-to-PE Buyout (The Buyer Solution): I hypothesise that creating a pipeline where specialised Private Equity (PE) firms acquire these slow-growth, profitable, venture-backed companies is the most viable systemic solution. The key is the fundamental difference in investment strategy. VC seeks exponential returns and massive terminal exits; PE targets stability, predictable cash flow, and operational efficiency, aiming for mid-double-digit returns through margin expansion and debt leverage.

   The $2M ARR-profitable company, as in Rohit’s tweet, is an ideal PE target because they are explicit: they are “not interested in money-losing companies, regardless of growth rates”. The focus immediately shifts from Customer Acquisition Cost (CAC) to high Net Revenue Retention (NRR) and Gross Margins.

   The market for acquiring stable, sub-$5M ARR software companies is robust. Dedicated acquirers like SaaS Group, Constellation Software, Camber Partners, and Ionic Partners specialize in this lower middle market segment. Private equity firms participated in 61% of all SaaS deals in 2024, demonstrating their leading role.

   In the scenario above, to overcome the $8 million preference, the specialized buyer uses a sophisticated negotiation technique often referred to as a preference restructuring or “cram-down.“ The PE firm offers a definitive acquisition price (e.g., $10M–$12M) that is sufficient for the VC to receive cash, but insufficient to satisfy the full preference.

   The buyer leverages the VC’s critical need for liquidity and narrative closure. The VC may accept a discounted payout of, say $6 million to $7 million cash in exchange for converting the remaining preference and common shares to $0 or rolling the value into a minor, lower-basis stake in the new entity (does recent news come to mind?... hahaha I thought so too while researching to write this article but let’s not digress). This is a realized loss that cleans the cap table. Critically, the PE firm then structures the deal to grant the founder meaningful rollover equity and/or a cash payout, realigning the founder’s incentive from equity holder to operational manager.

2. Management and Founder Buyouts (FBO): If third-party M&A fails, the founder can explore an internal solution: the Management Buyout (MBO) or Founder Buyout (FBO). An FBO involves the founder and management team reacquiring control and equity from the institutional shareholders, cleaning the cap table by replacing the existing VC equity stack with founder equity and manageable debt.

   In the scenario above, the company’s stable cash flow makes it a strong candidate for private credit and specialised cash flow lending that focuses strictly on the company’s ability to service debt, rather than the metrics of the next equity round. This strategy is effectively an equity buyback, using the company’s established stability to reduce the outstanding share count and increase the founder’s relative value.

   Additionally, seeking capital from Permanent Capital Vehicles (PCVs) or specialized family offices is crucial. PCVs are private market structures designed for extended or perpetual lifespans, eliminating the rigid 10-12 year timelines of traditional VC funds. The profitable, non-scaling business, as in the scenario in Rohit’s tweet, is a long-term, yield-generating asset, perfectly suited for capital partners whose goals align with consistency and structural stability.

3. The Operational Pivot: Irrespective of the final exit path, the founder must execute a radical operational shift immediately it enters Zombie mode. If the scenario stated in Rohit’s tweets fits, the founder needs to immediately stop optimising for VC growth metrics and start focusing on ruthless optimisation for Free Cash Flow (FCF). The founder now needs to shift the following KPIs:

This founder will need to abandon the “growth at all costs” mentality and accept the loss of operational autonomy, reporting strictly on efficiency and cost-cutting to position the business for a sustainable sale at realistic, albeit lower, ARR multiples (e.g., 4-8x ARR).

What should a Trapped Zombie Startup Founder do?

1. Build a dynamic cap table and exit waterfall analysis immediately. This will help to identify the exact valuation breakpoint at which the founder (common stock) receives a meaningful payout, framing all negotiations with VCs and potential buyers. Before entering any room, you must know exactly where the “zero-sum” point lies.

   • Map the Stack: Build a dynamic cap table that accounts for the full $8 million liquidation preference.

   • Find Your Breakpoint: Identify the exact valuation where common stock actually begins to see value.

   • Factor in Currency: For African founders, calculate this in the currency of your original raise (usually USD) to see how much “real” value has been eroded by local currency depreciation.

2. Ruthlessly pivot to Free Cash Flow (FCF) positive operations. In the venture world, “growth at all costs” is the mantra; in the Zombie world, Free Cash Flow (FCF) is your only leverage.

   • Kill the Experiments: Stop spending on high-CAC (Customer Acquisition Cost) growth experiments.

   • Focus on NRR: Shift your operational focus to Net Revenue Retention (110%+) and high Gross Margins (75%+), which are the metrics Private Equity (PE) buyers value.

   • Buy Time: Extending your runway to five or more years through profitability makes you “indifferent to external funding,” which is the strongest possible negotiating position.

3. Bypass the VC Echo Chamber, traditional M&A brokers might not want to touch a company with a “messy” cap table, so you must go direct.

   • Target the “Stability” Buyers: Look for specialized PE firms like SaaS Group or Ionic Partners that specialize in acquiring profitable, sub-$5M ARR companies.

   • Pitch the Yield, Not the Moon: Position the business as a stable, yield-generating asset rather than a failed moonshot.

   • Explore Permanent Capital: Seek out Permanent Capital Vehicles (PCVs) or family offices whose 20+ year horizons align with consistent, non-exponential growth.

4. Engineer the “Clean Break”: To free the company, you must help the VC find an “exit” that allows them to save face or close their fund narrative.

   • The Discounted Payout: Propose a “cram-down” where the VC accepts a discounted cash return (e.g., at least 0.8x - 2x MOIC for later-stage investors) to clear the $8 million preference stack.

   • Trade Equity for Closure: Highlight that a realized loss today is often better for their reporting than a permanent “zombie” mark on their books that prevents them from raising their next fund.

   • Realign Incentives: Ensure the new PE or M&A or exit structure grants you meaningful “rollover” equity, transforming you from a trapped founder into an incentivised operator.

The Bottom Line: A company that makes money but doesn’t “scale” by VC standards is not a failure; it’s a business. Your job is no longer to return the fund—it is to design your own exit.

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P.S. Much of the technical heavy lifting regarding the “Exit Waterfall” and the PE buyout model in this post was sharpened by my time in the CFA Private Equity Certificate program. If you are a founder or investor looking to understand the “other side” of the capital stack, I can’t recommend the curriculum enough—it’s essential for navigating the complex “middle market” we find ourselves in today.

Thanks for reading The Afroconomist! This post is public, so feel free to share it.

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If 2025 was the year the venture ecosystem stabilized, 2026 will be the year it mutates.

For decades, venture capital and private equity inhabited separate solar systems. VC was the land of “move fast and break things,” chasing power-law returns in unproven markets with equity-only capital. PE was the land of spreadsheets, debt, and optimization, targeting stable cash flows in low-growth industries.

But as we look toward the 2026 horizon, the data suggests these two worlds are not just colliding; they are merging.

The Macro Backdrop: A Tale of Two Markets

To understand this convergence, we must first look at the uneven recovery of 2025.

In the U.S., the hangover from the liquidity crunch lingered. PitchBook data reveals that while capital is returning, it is discerning. Fund closings dragged on for an average of 15.6 months, and capital consolidated aggressively; top funds captured 43% of all raised capital, leaving emerging managers fighting for scraps.

Contrast this with the frontier. African startups, often a leading indicator of pure “risk capital” appetite, defied global headwinds. The continent saw over $3B raised in 2025, the strongest performance since the pre-slump era. With $1.42B raised in H1 2025 alone (an 80% jump YoY), markets like Nigeria and Kenya proved that the classic VC model—high risk, high reward, massive greenfield opportunity—is alive and well.

But in mature markets like the U.S., the easy growth is gone. And this is where the convergence begins.

The Catalyst: AI Eats Labour (and the PE Playbook)

For years, B2B VCs operated on a standard playbook: fund software companies that sell to other tech companies, then eventually to the Fortune 500.

SME and mid-market services, think HVAC repair chains, medical billing, or IT staffing, were considered “uninvestable” by VCs. The margins were too thin, the operations too people-heavy, and labour constraints capped the TAM. These were PE assets.

Artificial Intelligence has broken this heuristic.

As AI agents begin to replace human labour in back-office and service delivery roles, “services” businesses are starting to look a lot like “software” businesses. Margins are expanding, and scalability is decoupling from headcount. This shift is driving four distinct trends that will define 2026.

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1. PE Funds: The New Channel Partners

Historically, startups viewed PE firms as the “end of the road”—the people who bought you when growth stalled. In 2026, PE firms will be the most critical distribution channel for AI startups.

Private Equity sits on trillions of dollars of “old economy” assets—logistics providers, dental chains, manufacturing plants. These are exactly the businesses that need AI the most to survive margin compression. PE giants have made AI a strategic priority, hiring central “Heads of AI” to force-feed automation across their portfolios.

For a Series B AI founder, a partnership with a Blackstone or KKR isn’t an exit; it’s a license to sell software to 200 portfolio companies at once.

2. The Portfolio Page as a Menu

Smart founders are no longer just looking at Gartner Magic Quadrants for ideas; they are scrolling through PE portfolio pages.

Private Equity has spent decades rolling up vertical software and service incumbents—companies that dominate niche markets but haven’t shipped a new feature since 2015. These legacy incumbents are vulnerable. A VC-backed startup leveraging agents can now attack these massive TAMs with a fraction of the headcount.

The goal isn’t just to sell software to the accountant; it’s to build the AI accountant that puts the legacy firm out of business.

3. The Rise of the “AI Rollup”

Perhaps the most aggressive convergence trend is the arrival of the “Buy and Build” strategy in Venture Capital.

We are seeing the emergence of VC-backed holding companies that look suspiciously like modern PE firms. Strategies like “AI roll-ups” are gaining traction among top-tier firms. The thesis is simple: acquire cash-flowing, legacy service businesses (property management, vet clinics, agencies) and inject proprietary AI stacks to double their margins.

This is a direct invasion of PE turf. VC firms are bringing their appetite for risk and technology to the “boring” world of services, driving up multiples and blurring asset-class definitions. We’re looking at a $4.6T opportunity. Enterprise software was built to organise how computers store data, not how humans actually work. The result? Employees waste time on data entry, critical context is lost, and “intelligent” systems analyse only a fraction of what matters in business. Enter Systems of Agents: AI-powered entities that don’t just assist—they act. They parse emails, understand calls, process documents, and most importantly, take autonomous action. They turn unstructured business communication into structured, actionable intelligence.

4. VC Enters the Debt Game

Finally, VCs are realising that equity is an expensive tool for predictable growth. As their portfolio companies mature into these “tech-enabled service” hybrids, the cash flows become predictable enough to service debt.

We expect 2026 to see more VC firms launching credit arms or partnering with private credit funds. By offering debt products, VCs can help founders avoid dilution for capital expenditures (like acquiring smaller competitors) and control their own growth destiny without relying solely on the fickle Series C/D equity markets.

The Verdict

Will 2026 be the year of convergence? Yes.

The era of “pure” software investing in the U.S. is evolving into something more complex. As AI turns services into software, the financial structures supporting them must adapt. VCs are learning to love cash flows and roll-ups; PEs are learning to love beta and disruption.

For founders, the labels matter less than the playbook. Whether you are bootstrapping to prove product-market fit or raising a mega-round to acquire a competitor, the capital stack is more diverse—and more competitive—than ever before.

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In the venture capital world, we don’t just ask if your product works; we ask if your entire system is resilient. The truth is, building a great product is only one of six simultaneous, high-stakes challenges you must conquer.

Your company is a six-strand rope, and the strength of the rope is always defined by the weakest strand. If you’re serious about scale, you need a diagnostic tool that forces you to fix the weakest link.

Why the KTH Framework is Your New Diagnostic Tool

For years, deep tech and science-based startups relied almost exclusively on the Technology Readiness Level (TRL). The TRL model—developed by NASA—is great for measuring if a component works in space, but it’s terrible for measuring if a business can survive in the market.

TRL only cares about the lab. The market cares about everything else.

To address this massive gap, the KTH Innovation Readiness Level (IRL) Framework, developed at the Royal Institute of Technology in Stockholm, Sweden, forces founders to look beyond the code.

The KTH IRL defines six essential pillars, each with its own Level 1-9 scale. Your venture is a risk profile defined by the average (or more accurately, the minimum) of these six scores.

The biggest killer of startups is misalignment. It’s the moment your TRL hits Level 8, but your IPR Readiness (IPRL) is sitting at a perilous Level 3. You cannot out-engineer a weak business structure. Your company’s true value is the score of its lowest pillar. Let’s find your weak link.

The Misalignment Trap: The Six Dimensions of Risk

You cannot out-engineer a weak business structure. Here are the six pillars you must raise in unison and the critical level you need to hit before you can truly put your foot on the gas. Let’s dive into what you need to hit in each pillar before you can truly put your foot on the gas.

1. Customer Readiness Level (CRL): The Reality Check

The Founder Lie: “Customers love it.” The Truth: Customer readiness isn’t about compliments; it’s about validated behaviour and confirmed benefits.

• The Go/No-Go Level: CRL 6 (Benefits Confirmed): Before this point, you’re chasing hypotheses. At CRL 6, your benefits have been confirmed by first customer testing. This means the user experienced the product in a real-world setting, and the value proposition (the why they use you) is now fixed, based on measurable data, not wishful thinking.

• Action Focus: Stop building features. Get out of your lab. Focus solely on securing test sales and updating your value proposition until it’s unbreakable.

2. Technology Readiness Level (TRL): From Lab to Life

The Founder Lie: “It works fine.” The Truth: It works fine in your office. The market is messy, noisy, and hostile. TRL measures robustness.

• The Go/No-Go Level: TRL 7 (Prototype in Operations): A prototype at TRL 5 works in a simulation. A TRL 7 prototype is demonstrated and shown to actually work in an operational environment. This is the difference between a clean demo and handling the real, stressful, and chaotic data inputs of your actual target market.

• Action Focus: Your priority is stress testing, bug fixing, and ensuring compatibility. Don’t waste resources scaling up until your technology has proven it can survive the live operational environment.

3. Business Readiness Level (BRL): The Profit Blueprint

The Founder Lie: “We’ll figure out the pricing later.” The Truth: You are building a machine that must generate more money than it consumes. Your business model is the profit blueprint.

• The Go/No-Go Level: BRL 6 (Validated by Pilot): This is where money talks. You have to move past internal spreadsheets (BRL 4). At BRL 6, the key assumptions of the business model—especially willingness to pay and pricing—have been validated by target customers in a realistic pilot or test sale. You know your profitable unit economics.

• Action Focus: If you’re below BRL 6, your job is not product development; it’s to force the market to validate your financial assumptions. Are customers willing to pay the price you need to be profitable?

4. IPR Readiness Level (IPRL): The Competitive Moat

The Founder Lie: “My idea is unique.” The Truth: Your idea is unique until a competitor copies your core mechanism. IPR is your competitive moat and your biggest investor risk.

• The Go/No-Go Level: IPRL 7 (Formal Filing & Freedom-to-Operate): This is non-negotiable for institutional funding. You must have formal applications/registrations of your key IPR filed. Crucially, you must have assessed your freedom-to-operate to ensure you aren’t infringing on existing patents or trademarks.

• Action Focus: If you’re below IPRL 7, you are a ticking legal time bomb. Your number one task is engaging a professional IP attorney for a Freedom-to-Operate search and filing your critical protection strategy.

5. Team Readiness Level (TMRL): The Engine Room

The Founder Lie: “We’re all hustlers.” The Truth: A high-growth company requires more than hustle. It requires complementary skill sets, clear governance, and deep competence.

• The Go/No-Go Level: TMRL 6 (Scale Ready Core): You move beyond a group of friends with an idea (TMRL 3-5). At TMRL 6, you have a complementary and diverse founding team capable of starting to build a business. All key competencies for the near term (tech, product, business/sales, and finance) are covered, and you have a clear agreement on roles, ownership, and vision.

• Action Focus: Formalise your structure. Sign shareholder agreements. Identify the single biggest competence gap (e.g., you need a sales leader, not another engineer) and aggressively recruit to fill it.

6. Funding Readiness Level (FRL): The Investor Signal

The Founder Lie: “My pitch deck is ready.” The Truth: Investors fund a clean data room, not a beautiful slide deck. FRL is about auditability and strategy.

• The Go/No-Go Level: FRL 7 (Due Diligence Ready): If you are below this level, you are wasting everyone’s time. At FRL 7, all your legal, financial, and operational materials are compiled and ready to pass due diligence. You are in concrete, term sheet-level discussions with clearly identified funding sources.

• Action Focus: Stop pitching and start preparing. You need a clean, auditable data room. Focus on securing your runway for the next 12 months (FRL 8) by strategically demonstrating that your other five pillars are also at a high level.

Every funding round, every pilot, and every market expansion effort is an attempt to raise the lowest-scoring pillar to the next level. Your work in this lab should focus intensely on the lowest score.

Your Assignment: Raise Your Lowest Score

The beauty of the IRL framework is its simplicity. It tells you exactly what to fix.

1. Diagnose: Score your solution (1-9) across all six pillars. Be honest.

2. Locate: Find your single lowest score. This is your primary objective.

3. Execute: Outline 3-5 concrete activities that will move that single pillar up by just one level in the next quarter.

Stop putting more code into a product that an unvetted competitor can copy (low IPRL) or that you can’t profitably sell (low BRL). Focus your limited resources on raising the weakest strand. That is the only way to build a robust, fundable, and lasting company.

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Last week, the international conference hall in Accra buzzed with the familiar energy of founders pitching, investors nodding thoughtfully, and policymakers promising regulatory support. But walking through the 14th Africa Fintech Summit, something felt different. Between the panel discussions and networking sessions, I kept hearing the same undertone from builders: “We’re not really a fintech company; we just happen to offer financial services.”

That’s when it clicked. We’re not witnessing another iteration of fintech. We’re witnessing its complete transformation. To understand where we’re going, we must appreciate the journey:

The Journey So Far

To understand where we’re going, we need to acknowledge how far we’ve come. African fintech didn’t start with the apps we know today; it started in the back offices of banks and payment processors.

The Foundational Pioneers like Chams, Interswitch, NIBSS, and GhiPSS did the unglamorous but essential work: they took financial institutions and regulators online, building the frameworks that enabled interoperability and interconnectedness. Without their work, nothing else would have been possible.

Fintech 1.0 was built on these frameworks, scaling commerce through digital payments. This was the era of making transactions faster, cheaper, and more accessible. Success was measured in transaction volumes and processing speeds.

Fintech 2.0 began when we started unbundling financial products, democratising access, and improving efficiency. Single-purpose apps emerged: savings & investment apps, transfer apps, loan apps, budgeting apps, etc., each doing one thing exceptionally well. The thesis was simple: legacy banks were too slow and too bundled. Unbundle everything and let customers choose.

Fintech 3.0 surprised everyone by moving back to bundling, but with a twist. Digital banks, super apps, and agency banking networks emerged, broadening access by meeting customers where they were. The difference? These weren’t bloated institutions; they were purpose-built digital platforms that happened to offer multiple services.

Enter Fintech 4.0

Now we’re entering Fintech 4.0, and despite what you might expect, it’s not defined by a new technology. Throughout these phases, we’ve seen constant evolution of underlying technology, from APIs and blockchain to AI-powered decision systems. But this wave is fundamentally different.

Despite the popular narrative that fintech has become saturated or idea-starved, with everyone seemingly hopping from one trend to another, with the latest being cross-border payment enabled by blockchain technology. Fintech 4.0 isn’t a trend or product category. It’s a philosophy of building.

Every business is a financial institution, not because every business should launch a neobank or a payment app, but because financial services are a natural extension of solving real business problems. When you deeply understand an industry’s workflows, pain points, and economics, you inevitably discover that financial services aren’t a separate product to bolt on—they’re an organic outcome of the solution itself.

This is the mindset of a new generation of focused builders and patient visionaries crafting deeply integrated, vertical-specific financial solutions.

What Fintech 4.0 Looks Like in Practice

Let me paint a picture of what this actually means:

In Logistics: In Morocco, a platform managing freight doesn’t just track shipments; it naturally becomes the payment intermediary, holding funds until delivery confirmation, offering working capital to truckers, and providing insurance products tied to route risk profiles. Finance isn’t the product; it’s the lubricant that makes logistics flow.

In Healthcare: In Ethiopia, a health tech company managing patient records and appointments discovers that the biggest barrier to care isn’t access to doctors; it’s payment timing. So they embed flexible payment plans, insurance integration, and even savings products for future medical needs. They’re not building a fintech; they’re removing friction from healthcare delivery.

In Agriculture: In Uganda, a farm management platform tracking crop yields and input costs realises farmers need credit before the planting season. But traditional lenders don’t understand agricultural cycles. So the platform, sitting on rich data about farming patterns and success rates, naturally becomes the credit provider. Finance flows from deep industry knowledge.

In Creative Economy: In South Africa, a platform connecting creators with brands doesn’t just facilitate deals; it advances payments against future earnings, offers savings tools for irregular income, and provides financial planning for freelancers. Financial services emerge from understanding the creative economy’s unique cash flow challenges.

This is Fintech 4.0: solving core industry-specific problems across sectors, which creates data-informed opportunities to deliver embedded financial services that are tailored, efficient, and genuinely transformative.

The ultimate non-African example of Fintech 4.0 is Starbucks. They hold billions in customer-loaded funds, a stored value that often surpasses the deposits of many traditional banks, not because they sought to be a financial institution but because they mastered their core vertical. By perfectly integrating a closed-loop digital wallet into the coffee experience, they created a massive, interest-free financial float, proving that vertical excellence is the fastest path to becoming a de facto financial institution.

Why This Matters for Africa

Africa’s fintech story has always been unique. We didn’t replicate Western playbooks; we leapfrogged. We moved from cash to mobile money without the intermediate step of ubiquitous credit cards. We built agency banking networks where others built ATMs.

Fintech 4.0 continues this tradition of local innovation, but with more precision. Instead of building horizontal platforms hoping to serve everyone, we’re building vertical solutions, not just another B2B SaaS or ERP, but deeply rooted solutions that serve specific industries exceptionally well. And because we understand these industries deeply, their inefficiencies, their economics, their culture, the financial services we embed are genuinely useful, not just bolted-on features.

This approach also addresses a critical challenge: trust. When financial services come from a platform you already use daily to run your business, that’s solving real problems for you; trust is earned organically. You’re not being asked to trust a new fintech app; you’re being offered a natural extension of a relationship that already works.

The Discipline Required

Here’s what separates Fintech 4.0 from its predecessors: discipline.

The experimentation phase has passed; the era of disciplined execution has begun. Building vertical-specific solutions requires:

• Deep Industry Expertise: You can’t embed financial services into logistics if you don’t understand logistics. Surface-level knowledge won’t cut it. You need to understand the industry’s rhythms, pain points, and unspoken rules.

• Patient Capital: These solutions take time to build. You’re not launching an MVP in three months; you’re spending months understanding the industry before writing a single line of code. This requires investors who understand that the best returns come from solving hard problems well, not from moving fast and breaking things.

• Regulatory Sophistication: When you’re embedding financial services, you’re navigating multiple regulatory frameworks, both for your core industry and for financial services. This requires maturity and often requires building partnerships with licensed institutions.

• Data Discipline: Embedded finance promises that your industry-specific data creates better financial products. But this only works if you’re rigorous about data collection, analysis, and responsible use. Quick wins come from understanding patterns that others miss.

• Sustainable Unit Economics: Fintech 4.0 companies can’t subsidise their way to growth. The embedded financial services need to work economically from day one or at least have a clear path to profitability that doesn’t depend on perpetual fundraising.

What We’re Building

This philosophy is why we’re building ChurchRemit. Churches and faith communities have unique financial flows, offerings, tithes, mission support, and cross-border remittances to missionaries that existing financial infrastructure handles poorly. By deeply understanding this ecosystem, we’re not just building payment rails or an operating system/ERP; we’re creating financial services that naturally fit into how faith communities operate.

The Road Ahead

Fintech 4.0 will be more efficient than what came before. By embedding into existing workflows, we eliminate the friction of getting users to adopt yet another app. We reduce customer acquisition costs because we’re solving a problem they already know they have.

It will be more nimble. Vertical-specific solutions can move faster than horizontal platforms because they’re serving a focused audience with specific needs. They can adapt to regulatory changes more easily because they’re working within well-defined boundaries.

And ultimately, it will be more impactful. When financial services genuinely solve real problems, not just digitise existing processes, they transform industries. They unlock economic activity that was previously impossible. They create wealth, not just redistribute it.

A Note of Gratitude

• The Africa Fintech Summit in Accra was more than a conference; it was a powerful congregation of the people shaping Africa’s financial future.

• Policymakers wrestling with how to regulate innovation without stifling it.

• Investors seeking returns while building something meaningful.

• Founders betting their lives on ideas that could transform industries.

• Startups grinding through the unsexy work of building products that work.

• And customers whose needs drive all of this forward.

Special thanks to the Africa Fintech Summit team for creating the space for these conversations, and the CEO of GhiPSS for the opportunity to engage and learn from Ghana’s fintech journey.

I’ll definitely be back. Akwaaba!

What vertical do you think needs embedded financial services most? I’d love to hear from builders working on Fintech 4.0 solutions across Africa.

That story isn’t new; the Nigerian market is quite volatile for many startups, even the seemingly big startups aren’t immune. As an operator, this happened to me during the first wave of 2021. Virtual USD Cards accounted for about 70% of our revenue, and we were doing really great. Then, CBN clamped down heavily on us (via our proxy bank), and we lost that revenue stream with just a memo from the regulator asking our partner bank to shut down the issuance of dollar cards.

Like I usually say in SSA, most startups aren’t solving problems but plugging holes left behind by the ineptitude of our government policies and environment. So it only takes things to work properly in our society, and you begin to witness several startups and their "patient" VC capital going down the drain.

It’s the reason while evaluating startups, I focus on why the problem exists and who made the problem exist, rather than just the fancy solution a founder has come up with. Understanding the root cause of a market friction is far more critical than a superficial fix.

One of the most interesting things as a founder and operator turned VC is that you can easily point out the fluff. Seeing founders present ideas you’ve done in the past and are sure cannot work as the next big thing, and even trying to make you think you’re missing out because others write them cheques, won’t faze you a bit. If you probe further to see if they’re doing things differently, you discover that everyone is recycling the same process, product, and even customers, with no new strategy or innovation – just better branding and more outspoken, 'woke' founders. This lack of genuine differentiation is a glaring red flag for experienced eyes.

If you look at it from another angle, that’s not a problem for the startup model. Certain startup and VC models are built for the exact same purpose: to identify a problem that has a good Total Addressable Market (TAM) and can grow magnificently. Whether your revenue is generated by rent-seeking or not doesn’t matter. The goal is to block the friction, earn exponentially, scale, multiply enterprise value, and exit at home run multiples, dumping the risk on a bigger enterprise or the public. Rinse and repeat!

As great as this model seems, it can only work when three things work simultaneously: capital efficiency, short-term product-market fit, and extremely great underlying tech. Without these pillars, the entire structure becomes precarious.

Because this model focuses on exit but requires short-to-medium term growth, the enterprise shouldn’t be overvalued or even raise extremely high rounds. This is crucial for maintaining a valuation great enough to entice acquisition at a considerable price from an incumbent and to be able to generate great returns for investors and founders. In this case, founders and VCs will have to be comfortable with 5x to 10x exits, with acquisitions between $5M to $10M. This means you don’t need to be structured like an Interswitch when you’re only building a virtual card business, or get a chief of staff for a $10k MRR business. Invest your skills heavily, hire and build a great culture, and compensate employees with long-term benefits so they’re also committed to the vision. Enough of celebrity founders; rather, build celebrity startups earned by success. Focus on substance, not just perception.

If at all an exit is possible, founders need to build great tech from the beginning, modelling their technology to incumbents or bigger companies they’ve identified as potential acquirers. This means that, like Paystack being a perfect tech for Stripe, a card management startup needs to build a perfect tech for a GTB, or a retail "pay small small" tech needs to build a perfect tech that can be acquired by a PFA or big insurance firm (you get the gist). Build to standard; don’t duct-tape architecture or accumulate crazy tech debts. Technical excellence is not a luxury; it’s a prerequisite for a valuable exit.

Lastly, like with every scientific experiment, startups are hypotheses, and product-market fit is evidence of the success of that hypothesis. Hence, PMF isn’t gained after launch, but from the right ideation stage. Positioning, execution, channel of delivery, distribution mode, etc., are critical checks to confirm whether this hypothesis is right or wrong. The only way to test your hypothesis is to do research. Research and Development (R&D) is one of the least common things you see in the P&L or operations of many startups in Sub-Saharan Africa. Many founders launch into markets they have no clue how they work, why the problem they’re solving exists, who has tried it before, why they failed, why they succeeded, lessons to be learnt, etc. Does the problem exist as part of the functional engineering of the market/society they’re targeting? How does the market currently solve that problem? What behavioural issues lie with the target audience? Has there been any solution in another form? Is this problem created out of regulatory uncertainty? How does this problem fare in the hierarchy of necessity for the target audience? How much money does the target audience earn? How much revenue can be made even if they solve the problem and gain 100% market share? What technology are the target audience familiar with – how do they currently interact with such technologies? How accessible is the channel of delivering the technology, and what does it cost to deliver the technology at a cost affordable to their target audience? These and many more questions should form the basis of the hypothesis (the new idea or startup), and then answering them empirically and strategically breeds Product Market Fit – a product/service that solves the core of a problem with a scalable solution, affordable and easy to access, and adopted at scale by a niche audience or market. Without this rigorous pre-launch validation, success remains a matter of luck, not strategy.

You, my dearest reader, be the judge: how many startups in our clime tick the boxes above?

There are a lot of problems to be solved in Africa, and this is one of the reasons driving the confidence of the few bets from the West. But how much money will be burned to achieve results, and how can there be a re-engineering of the vast entrepreneurs to solve core problems or even encourage capital allocators to back people solving core problems when they’re living in a society where there is no coherent government policy or a resemblance of planning for the future? How do you get a founder whose only shot at breaking out of poverty is his bet on his startup? How much patience will he have to solve real problems without the distraction of hunger? How do you get a young founder to not try to measure up with the illusion of "big manism" ravaging our culture, or encourage employees to commit to excellence as against the "anyhowness" or "manage it like that" culture of service? These are deep systemic challenges that impact the very fabric of entrepreneurship.

My dearest readers, you’d agree with me that it’s almost a Sisyphean task to outperform your macroeconomic environment. Hence, the work of every founder striving to create solutions to bridge gaps and reduce frictions in a macroeconomic environment like ours is one of the most difficult jobs, as it takes its emotional, physical, and social toll on anyone who dares to take on the role. This means VC investors need to do much more than provide capital. There’s a need to do more on their platform management/portfolio support by providing strategic support, especially with research, market entry, and financial advisory ("CFO as a service"). The responsibility extends beyond the cheque.

A Framework for VCs to Identify Enduring Solutions

For VCs looking to back startups that solve "real problems" rather than temporary "holes," a robust evaluation framework is paramount. This framework goes beyond typical market size and team assessments, delving into the resilience of the problem and its solution against external shocks, particularly regulatory shifts common in markets like Nigeria.

1. Problem Deep Dive & Root Cause Analysis:

• Is the problem a symptom or a systemic issue?

  • Symptom: A problem arising directly from a current policy, regulation, or market inefficiency that could be easily reversed. (e.g., providing virtual dollar cards solely because local cards couldn't do international payments).

  • Systemic Issue: A problem rooted in fundamental infrastructural gaps, deep-seated behavioural patterns, or long-term market failures, irrespective of current policy. (e.g., lack of reliable power, access to affordable healthcare, efficient logistics for informal trade).

• Who created the problem?

  • If the government or a specific policy directly created it, assess the likelihood of that policy being reversed or improved. The CBN's move on local cards is a prime example.

• What are the enduring pain points? Even if a regulatory "hole" is plugged, do underlying, persistent pain points remain? For instance, while local cards now work internationally, the fundamental issue of FX scarcity and volatile exchange rates for Nigerian businesses and individuals might persist, creating a need for more robust FX management solutions.

2. Solution Resilience & Adaptability to Policy Changes:

• Policy Sensitivity Mapping: Identify all direct and indirect regulatory touchpoints for the startup's operations. What specific policies, present or future, could impact the business? Categorise policies into:

  • Enabling: Policies that support the business.

  • Neutral: Policies with little direct impact.

  • Constraining/Prohibitive: Policies that could significantly harm or halt operations.

• Scenario Planning: Force founders to articulate how their business model would adapt to various regulatory scenarios (e.g., stricter FX controls, new licensing requirements, increased taxes, or the introduction of incumbent solutions).

  • Example: If a fintech relies heavily on low-cost cross-border payments due to a specific regulatory arbitrage, how would they compete if that arbitrage disappears or a major bank launches a similar service at scale?

• Diversification of Value Proposition: Does the startup have multiple, independent value propositions, or is it a single-point solution vulnerable to a single policy change?

  • The more diversified the revenue streams and problem-solving angles, the more resilient the startup.

• Proprietary Technology & IP: How defensible is the solution? Is it easily replicable by incumbents or other startups if the regulatory environment shifts? Strong underlying technology (as advocated earlier) provides a moat. Stress test the technology and understand how exactly it works to prove it is not just another wrapper of another business.

3. Market Fundamentals & Behavioural Stickiness:

• Problem Hierarchy of Necessity: How critical is the problem being solved for the target audience? Is it a "nice-to-have" or a "must-have"? Solutions addressing Maslow's hierarchy of needs (food, shelter, security, basic financial access) tend to be more resilient.

• Existing Alternatives & Their Inadequacies: How do people solve the problem currently? What are the inherent limitations or costs (monetary, time, effort) of these existing solutions, irrespective of policy?

• Behavioural Change Required: How much behavioural change does the solution demand from users? Solutions that integrate seamlessly into existing habits or require minimal behavioural shifts tend to have higher adoption and stickiness, making them less susceptible to external shocks.

4. Data-Driven Insights:

• Regulatory Impact Case Studies: Look for historical data on how similar policy changes (e.g., the 2021 virtual dollar card ban, changes in crypto regulations) have impacted startups in Nigeria and other volatile markets. Studies show that regulatory and bureaucratic challenges are among the top reasons for startup failure in Africa. For instance, data from Pitchbook (as of 2024) indicates a significant drop in funded tech startups in Africa, partly due to the broader VC downturn but also reflecting underlying market complexities and regulatory uncertainties.

• Market Share Resilience: For existing startups, analyse revenue and market share trends following policy shifts. Did they pivot successfully, or did their business falter?

• Customer Retention Rates: High, sustained customer retention, even amidst market turbulence, can signal that the problem being solved is fundamental and the solution is deeply embedded in user behaviour.

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How Founders Can Build for Long-Term Resilience

Founders, the burden of proof is on you to demonstrate your idea isn't just a temporary patch.

1. Embrace Radical Problem Discovery (Not Just Solution Building):

• "Fall in Love with the Problem, Not Your Solution": As Innovate Africa Fund emphasises, true innovation comes from deeply understanding the "wicked problems" that persist regardless of temporary market conditions.

• Ethnographic Research: Go beyond surveys. Spend time with your target users in their natural environment. Understand their daily struggles, informal workarounds, and unarticulated needs. For instance, if you're building a logistics solution, spend days with informal traders understanding their entire supply chain, not just the delivery part.

• Competitive Analysis with a Regulatory Lens: Don't just analyse direct competitors. Understand how incumbents (traditional banks, large corporations) solve similar problems and how they leverage or are constrained by regulation. This helps you identify blind spots or areas where systemic inefficiencies truly lie.

• Regulatory Foresight: Engage with industry associations, regulatory bodies (where possible), and legal experts early. Understand the spirit of existing regulations and potential future policy directions. Instead of reacting, try to anticipate. Is the CBN's directive on local cards a one-off, or part of a broader strategy to localise financial services? Your understanding of this determines the resilience of your solution.

2. Develop a Multi-Layered Value Proposition:

• Core Problem, Multiple Solutions: While your initial product might address a regulatory "hole," ensure your long-term vision extends to addressing the underlying, systemic issue from multiple angles.

• Example: If your initial success came from providing dollar cards (plugging a hole), your long-term strategy could evolve to include:

  • Efficient local FX hedging tools: Addressing the volatility of the local currency for businesses.

  • Seamless international payment infrastructure for businesses: Beyond cards, enabling direct bank transfers or B2B payments that solve for speed, cost, and compliance, irrespective of retail card policies.

  • Financial literacy and advisory for cross-border trade: Empowering users with knowledge to navigate complex international transactions.

• Build a Moat Beyond Price or Convenience: In a volatile market, price advantage can quickly erode. Focus on building network effects, strong brand loyalty, proprietary technology that is hard to replicate, or unique data insights that make your solution indispensable.

3. Stress-Test Your Business Model:

• "Pre-Mortem" Exercise: Gather your team and advisors and imagine your startup has failed due to a policy change. Work backward to identify all the plausible reasons why. This helps uncover vulnerabilities you might not have considered.

• Scenario-Based Financial Modelling: Create financial projections that account for various regulatory shocks. What happens to your revenue if a key policy changes? What if transaction fees are capped? What if a major competitor with government backing enters the market? This helps build financial resilience and plan for contingencies.

• Maintain Lean Operations: Especially in the early stages, minimise unnecessary overhead. The ability to pivot quickly and survive lean times is critical when facing unexpected policy shifts. A "chief of staff who tends to only the CEO of a $5k MRR business" is not just fluff; it's a liability in a market that demands capital efficiency.

By adopting these frameworks, both VCs and founders can shift the focus from chasing fleeting opportunities to building robust, impactful companies that can withstand the unique challenges of the SSA market and truly contribute to solving its enduring problems.

The "heavy burn to growth" model we've seen dominate Silicon Valley? It simply doesn't fit our reality here in Africa. We don't have the same deep pools of liquidity, and let's be honest, customer purchasing power isn't always where it needs to be to sustain endless losses. Chasing growth at any cost in a market like ours is, frankly, unsustainable.

The Cold, Hard Numbers Don't Lie

We've seen it play out. After a couple of boom years, the taps tightened significantly.

• In 2024, African venture capital (VC) funding decreased to $2.2 billion. That's a 25% decrease from 2023 and a shocking 53% plunge from 2022. (Data from AfriLabs and TechCabal Insights.)

• Even more telling, VC deals in Africa fell around 52% between 2022 and 2024, a sharper decline than any other region. (PitchBook data, cited by the IFC).

Remember all that talk about limitless cash? As Stephen Gugu of ViKtoria Ventures wisely pointed out, many founders and investors built models assuming an endless stream of capital. When that stream dried up, they were left high and dry. This isn't just about global headwinds; it's about the inherent fragility of models that ignore local market constraints.

The Burn Rate Reality Check

The high failure rate of African startups, with some reports suggesting up to 90% failing within the first 5 years, is often linked to unsustainable burn rates. Here's a glimpse at the patterns we've seen:

Table 1: The 'Burner' Pattern – Startups That Struggled/Failed

This kind of spending, without a clear path to profitability, is a death sentence here.

What Does This Mean for Founders and Operators?

It's simple: capital efficiency is no longer a buzzword; it's a survival strategy.

We need to ditch the idea of spending recklessly to "buy" market share. Cases like the food tech startup are stark reminders.

Founders and operators must:

1. Optimise for Capital Efficiency: Make every dollar count. Build lean. Focus on sustainable unit economics from day one, not just growth numbers.

2. Clean Up Cap Tables: Bring in strategic investors who truly add value, not just dilute equity. Your cap table should be a testament to smart partnerships, not a graveyard of desperate rounds.

3. Embrace Smarter Exits: Think M&A in the $50M - $150M Range. Forget waiting for the billion-dollar IPO (though we'd love to see them!). Strategic, smaller M&A deals are becoming a viable and necessary path to liquidity for early investors and founders. African tech M&A activity grew 34% in 2024, with 39 deals, as startups smartly sought sustainability in a tougher market. (Ecofin Agency). These are the deals that can create real value and returns.

The Investor's New Mandate: Backing the Responsible Builders

For VC investors, the job has changed. It's no longer just about identifying the next big idea; it's about spotting the next responsible builder. We need to back founders and teams who are:

• Responsible: They understand their market, their customers, and their balance sheet.

• Skilled: They can execute efficiently, navigating our unique operational challenges without burning through cash.

• Capital-Efficient: They know how to generate significant impact with intelligent, not excessive, spending.

• Value-Focused: Their primary goal isn't just user acquisition but shareholder value.

The good news? The market is already shifting. In 2024, investors became far more discerning, placing increased scrutiny on fundamentals like revenue models, unit economics, and capital efficiency. This isn't just a hunch; the median deal value in Africa increased, suggesting that funding is now flowing to higher-quality startups with stronger business models. (IFC). Companies like Moniepoint, attracting significant rounds, are proof that smart money is looking for sustainable growth.

Yes, VC in Africa might be seen as higher risk, but with the right structure, the returns can be truly outsized. By focusing on capital allocation, operational excellence, and strategic exits, the African VC market can unlock its immense potential, delivering significant value for both investors and the continent's burgeoning entrepreneurial ecosystem.

African Success Stories: Where Smart Bets Paid Off

While precise MOIC (Multiple on Invested Capital) figures are rarely public for private exits, we can look at some key acquisitions that highlight successful strategies and strong returns for early backers. These examples demonstrate that significant value can be created in the African market.

Table 2: Notable African Tech Exits

Short Exits with Good MOICs? The Elusive Gold Standard.

Short exits or a quick flip (e.g., 2-3 years) or a very early acquisition, which often means the company hasn't raised much external capital or the acquirer is paying a premium for early market entry or talent.

In this case, a "good MOIC" varies, but for early-stage VC, anything above 3x-5x MOIC is considered strong, and 10x+ is phenomenal. We hear whispers of deals within the ecosystem but rarely see definitive numbers.

However, the pattern for such exits, when they occur, often involves companies that:

• Developed highly specialised, unique technology.

• Captured a niche market quickly and effectively.

• Were acquired for talent ("acqui-hire") or a specific technology piece rather than full-scale market dominance.

• Had exceptionally low burn rates, meaning even a modest acquisition price could yield a strong MOIC for early investors.

Comparing the Payouts: African VC vs. The Rest

Let's talk about the elephant in the room: how long does it take to see a return on investment (ROI) in Africa compared to other places?

Globally, VC funds typically aim for a 7-10 year return cycle. In established markets like the US or Europe, exits through IPOs or large acquisitions are more common, providing a clearer path to liquidity within that timeframe.

In Africa, it’s a different ball game. The average time for a VC fund to return capital to Limited Partners (LPs) often stretches longer; think 10-15 years or even more. Why?

• Fewer IPOs: Our stock markets aren't as deep or as liquid, so public listings are rare exit routes for tech startups.

• Larger Acquisitions are Slower: While M&A is growing, the mega-deals that provide quick, massive returns are still less frequent than in mature markets.

• Market Maturity: Our ecosystems are younger. Companies need more time to scale, build robust customer bases, and become attractive targets for significant exits.

  Table 3: VC Fund Return Cycles & Capital Efficiency Imperative

What Does This Mean for Capital Efficiency?

Capital efficiency isn't just nice to have; it's essential for achieving meaningful returns here.

The difference is stark. In a market where exits take longer and the overall liquidity is lower, VCs cannot afford to back companies that demand endless capital infusions just to survive. The math simply doesn't work for their fund cycles.

This isn't about discouraging ambition; it's about being smart. It's about building enduring businesses that truly understand and serve the African market, generating real value that can be exited strategically.

It's time to build smarter, not just bigger.

After a long day working with founders, I found myself thinking about something unconventional:

What if a venture firm raised capital like a startup — and even went public?

It’s rare, but not unheard of. And when it happens, it flips the traditional VC model on its head.

Most venture firms operate on a tried-and-true model: raise capital from limited partners (LPs), invest in startups, return capital after 10 years, rinse and repeat. But what if instead of LPs, a VC firm raised equity as a corporation and then listed on a stock exchange? Let’s explore why this model is so unusual, how a few firms have tried it, and what their stories tell us about the future of VC at scale.

Why do VCs Rarely IPO?

Traditional venture capital is built around the limited partnership model:

• General Partners (GPs) manage the fund.

• Limited Partners (LPs) commit capital for a fixed period (usually 10 years).

• Returns are shared through management fees and carried interest.

• Liquidity only comes when investments exit.

This model works well for long-term investing, but it’s not built for public markets.

Why?

• Venture returns are lumpy and illiquid

• Valuations are often opaque

• Public markets expect quarterly updates, not decade-long holds

What If You Raised Equity Instead of LP Funds?

A few bold firms have flipped the model. Instead of raising LP capital, they raise equity, either privately or through an IPO, and use it to invest in startups. This creates a permanent capital vehicle with public liquidity. In this model:

• Capital is raised via equity (private or public), not LP commitments.

• The VC firm becomes a listed investment company

• Public shareholders own equity in the VC firm itself

• The firm invests in startups off its own balance sheet

• The upside?
  - Access to permanent capital
  - More flexibility
  - Public exposure to private startups

• The downside?
  - Short-term shareholder pressure
  - Valuation transparency issues
  - Risk of misalignment between public investors and long-term startup bets

Who tried it?

I did some digging. Turns out a few firms have experimented with this model — with mixed results. Here are the three most notable:

1. Molten Ventures (formerly Draper Esprit) – UK

• IPO Year: 2016

• Listed On: London Stock Exchange

• AUM: €1.4B+

• Key Investments: UiPath, Revolut, Graphcore

  

2. Allied Minds – US/UK

• IPO Year: 2014

• Listed On: London Stock Exchange

• Model: Spun-out IP from U.S. federal labs and universities

3. SoftBank Vision Fund – Japan

• Launched: 2017

• AUM: $100B+

• Structure: Corporate fund, not traditional LP-GP

• Backers: SoftBank equity, Saudi PIF, Mubadala, debt financing

What does the data say? Here’s how these three firms compare:

Here is the simulated performance chart of the three venture investment models from 2014 to 2025:

• Molten Ventures: Peaked around 2020–2021, dipped post-tech crash, and is gradually recovering.

• Allied Minds: Rapid decline after 2015 due to commercial failures—essentially a collapse story.

• SoftBank Vision Fund: Soared during the tech boom but faced steep losses during the downturn before a modest rebound.

So, is it scalable?

Yes, but with a lot of caveats. It’s only scalable if you have strong internal governance, portfolio performance is transparent and measurable, and most importantly, your investor base understands long-term, illiquid bets and you align incentives like performance-based equity and not short-term compensation. Yes, you guessed right — the last two are not characteristic of public investors.

It’s not scalable if you try to “blitzscale” like a tech startup, or chase momentum without deep diligence, or rely on quarterly stock performance to fund long-term bets.

Verdict?

The idea of IPO’ing a VC firm may sound wild, but it offers a path to permanent capital and long-term scale. If anything, it’s a glimpse of a future where:

• Retail and institutional investors can access private markets

• Venture capital evolves into a more liquid, transparent asset class

Think of it like the REIT model for startups: steady, visible, and long-term — if you build it right.

Public venture capital might not replace the traditional LP-GP structure, but it could become a viable alternative, especially in markets hungry for exposure to high-growth private companies.

Think of it as the REIT model for startups: transparent, liquid, and long-term, but only if you build it right.

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Interest rates might seem like a distant concern for the startup world, but they directly impact funding, valuations, and exit opportunities.

In the last few years, we’ve seen:
📈 Zero interest rates (2021): Record-breaking VC investments, sky-high valuations, and an IPO boom.
📉 Rate hikes (2022-2023): VC funding plunged, late-stage startups saw valuations slashed, and IPOs dried up.

Now, in 2025, founders and investors need a new playbook.
🔹 How do interest rates affect venture capital availability?
🔹 Why are investors prioritizing profitability over growth?
🔹 What does this mean for startup funding in Africa, where US capital plays a major role?

Why Interest Rates Matter for Startups and Venture Capital

At their core, interest rates determine the cost of borrowing money. When rates are low, capital is more accessible, fostering an environment conducive to startup growth. Conversely, high rates can tighten the flow of funds, making it challenging for new ventures to thrive.

Here's how fluctuations in interest rates impact various facets of the startup landscape:

1. Venture Capital Firms' Investment Capacity

A 2017 study by the European Financial Management Association found that a 1% increase in interest rates led to a 3.2% reduction in venture capital fundraising.

• Low Interest Rates: Investors earn less from traditional assets like bonds, prompting them to seek higher returns through venture capital, thereby increasing funds available for startups.

• High Interest Rates: Safer investments yield better returns, leading investors to pull back from venture capital, reducing the capital pool for startups.

2. Startups' Borrowing Costs and Investment Terms

In 2023, the Federal Reserve raised interest rates to combat inflation. This increase led to higher costs for venture debt, making it more expensive for startups to borrow funds.

• Increased Borrowing Costs: Higher interest rates mean startups face steeper costs when taking loans, impacting their cash flow and operational budgets.

• Stricter Investment Terms: Venture capitalists become more selective, often demanding more equity or imposing stringent conditions, making fundraising more challenging for startups.

3. Valuations and Profitability Pressures

During periods of rising interest rates, such as in 2022, investors shifted focus from high-growth startups to those demonstrating clear profitability, leading to lower valuations for early-stage companies.

• Lower Valuations: As future earnings are discounted more heavily in a high-rate environment, startups may see reduced valuations.

• Emphasis on Profitability: Investors prioritize startups with sustainable revenue models over those prioritizing rapid growth without clear profit trajectories.

4. Exit Opportunities Through IPOs and Acquisitions

In 2024, as interest rates remained elevated, the number of startup IPOs decreased significantly. High borrowing costs made public listings less attractive, and potential acquirers were hesitant due to increased financing expenses.

• Reduced IPO Activity: Higher interest rates can lead to lower stock market valuations, making public offerings less appealing for startups.

• Decline in Acquisitions: Companies looking to acquire startups face higher financing costs, leading to a slowdown in mergers and acquisitions.

Expert Forecasts on Interest Rates for 2025

Understanding future interest rate trends can help stakeholders anticipate and strategize accordingly.

• Federal Reserve's Stance: As of February 2025, Federal Reserve officials, including Chair Jerome Powell, have indicated a pause in rate cuts, maintaining the federal funds rate between 4.25% and 4.5%. This decision reflects ongoing concerns about inflation and economic stability. MarketWatch

• Projected Rate Cuts: Atlanta Federal Reserve President Raphael Bostic anticipates two rate cuts in 2025, each by a quarter percentage point, though he emphasizes significant uncertainty due to policy changes and economic conditions. Reuters

• Market Expectations: Analysts from Morgan Stanley project that the Federal Reserve will gradually reduce rates to approximately 3.5% by the end of 2025, aiming for a balanced approach to sustain economic growth while managing inflation. Morgan Stanley

Implications for Founders and Investors

• For Startup Founders:

  • Focus on Financial Health: With potential rate cuts on the horizon, it's essential to manage cash flow effectively and prepare for both opportunities and challenges in fundraising.

  • Diversify Funding Sources: Explore alternative financing options, such as strategic partnerships or revenue-based financing, to mitigate reliance on traditional venture capital.

• For Investors:

  • Strategic Capital Allocation: Anticipate shifts in the investment landscape as interest rates change and adjust portfolios to balance risk and return effectively.

  • Due Diligence: In a fluctuating rate environment, thorough evaluation of startups' financial health and market positioning becomes even more critical.

Final Thoughts

Interest rates serve as a barometer for the economic climate, influencing the flow of capital within the startup ecosystem. Staying informed about rate trends and expert forecasts enables founders and investors to navigate the evolving landscape strategically. As 2025 unfolds, maintaining agility and foresight will be key to capitalizing on emerging opportunities and mitigating potential risks.

Note: Economic conditions are dynamic. It's advisable to consult financial advisors or conduct thorough research when making investment or fundraising decisions.

In the world of startups, the concept of a "minimum viable product" (MVP) reigns supreme. Build something basic, test it with users, and iterate quickly, but what if this approach doesn't quite fit a unique market like Africa?

This article explores why African startups might need to consider a different strategy: the "Minimum Usable Product" (MUP) and the "Minimum Lovable Product" (MLP).

Why the MVP Approach Might Struggle in Africa

Africa presents a unique set of challenges for startups. Here's why the standard MVP approach might not be ideal:

• Limited disposable income: Africans prioritise basic needs. A product that lacks clear value will struggle to compete for a limited budget. Almost every product is fighting for a share of the average customer’s disposable income against their core hierarchy of needs.

• Low tolerance for experimentation: Customers expect products to work well right away. Trial-and-error with buggy products is less appealing for most people who do not have the luxury of repeat purchases to test out the product or enough patience to wait out the maturity of the product.

• First impressions matter: The African culture is wired to “punish” failure instead of seeing it as a learning point. Africans are wired to see failures as a direct threat and an interpretation of their worth as a person; hence, they barely also extend hands of grace or second chances to products they’ve used and they deem to have failed them in the past. A poorly designed MVP can damage trust, making it difficult to regain user confidence later.

The MUP and MLP Approach

African startups do not also enjoy the luxury of having enough runway to keep experimenting and often get to the market too early or too late (which is a story for another day), so while you are building, shipping, and failing fast, there may not be enough capital to keep failing.

Minimum “usable” product and Minimum “lovable” product ensure that you’re pushing out the core of your product that is usable and lovable by your target audience to ensure that they can pay for it and see that it solves their core problem or the product becomes a necessity. Sometimes, coming to the market too early may erode the confidence of the market in the product, and it becomes harder to change the bitter taste and convince the market that you now have a solution superior to your first release. Here's how African startups can adapt the product development process:

• Minimum Usable Product (MUP): Focus on clear, reliable core functionality that addresses a critical need. Your product should solve a real problem and do it well from the start.

• Minimum Lovable Product (MLP): Make your product user-friendly, aesthetically pleasing, and relevant to the local context. People should enjoy using it, and it should feel designed for them.

Benefits of MUPs and MLPs

By prioritising usability and user love, African startups can enjoy several benefits:

• Increased Adoption: People are more likely to adopt and recommend a product they find valuable and enjoyable.

• Reduced Risk of Failure: A well-developed product minimises the potential for damaging user trust.

• Sustainable Growth: A strong foundation built with an MUP and MLP creates a solid platform for long-term success.

Do you want to build a successful startup in Africa? Focus on creating a product that is both usable and lovable. By prioritising user needs and emotions, you'll increase your chances of gaining user adoption and achieving sustainable growth.

Attracting VC investment requires startups to meticulously align with the criteria investors consider when evaluating the potential for success and return on investment. In the past week, I spoke with some investors in Africa, from analysts to principals, to fully understand the key factors that shape their confidence in early-stage startups, providing insights into what founders need to focus on to make their venture attractive for VC funding. Priorities vary from fund to fund depending on their thesis, sector, investing stage, fund size, local or foreign, and portfolio mix, among others. Here are a few things that are common to all investors when making decisions about your startup:

• Team: If anyone will give you money, they’d want to be sure that you are the right team to build the vision and that you have all it takes to execute correctly and adequately. They’d want to be sure you have the right experience or whether you have worked in the industry. Since investors care about returns, founding previous startups or even exits is a great booster and gives comfort that you understand the right priority. Since VCs are also in a trade to compete for the best idea or business, that signals to LPs that they can identify and back the crème de la crème. Socially proofing your thought leadership or industry popularity may just be a bonus. Startups with more than one founder are typically a marriage because of their long-term nature, so there must be good chemistry among the founders with the right motivations in terms of equity owned among the founders. If the CEO has 95% while other key founder(s) have single digits, the power dynamics are skewed and may impact the motivation of the others to dedicate enough time for the success of the startup. To get funded,

  • Emphasise not just experience but also the team's diversity of skills and backgrounds.

  • Highlight industry expertise, thought leadership, and any previous successful exits.

  • Discuss the power dynamics, equity distribution, and cultural aspects that contribute to a well-functioning team.

  • Showcase the presence of advisors and the corporate governance structure in place.

  • Investors focus on the people behind the ideas, looking for passion, drive, and unwavering belief in the vision.

  • Emphasise complementary skills within the team and the ability to collaboratively tackle challenges.

So remember that gender balance, power play, the share of equity between founders, industry expertise, culture, passion, education & qualifications, the number of founders and advisors, corporate governance structure and policies, and the skill gap within the team are super important criteria used by VCs.

• Traction & Proof Points: The only way to prove that the world needs your solution and you have struck something worth backing is through the traction and demand you’ve generated organically. This means people are willing to pay for your solution because it solves a pain point.

  • Explore how paying customers, testimonials, and social proofs validate the market need for your product.

  • Discuss the minimum viable product (MVP) and pilot customers, emphasising progress and user feedback.

  • Demonstrate customer loyalty, repeat purchases, and low churn rates to showcase sustained interest.

  • Concrete evidence of the concept's viability is paramount.

  • Showcase paying customers, successful pilot programmes, and a Minimum Viable Product (MVP) to validate market interest.

• Market Analysis: The total population of a country or market you are in isn’t your total addressable market; demand is backed by the ability to pay, so your TAM is the total number of people that are impacted by the problem you are solving and can pay for your solution to solve that problem. SAM (serviceable available market) is the percentage of the TAM you can reach, whether as a result of your technology, product scope, pricing, etc., while SOM (serviceable obtainable market) is the percentage of the SAM that you can reasonably capture considering your other competitors, existing traditional solutions, the maturity of the market, and the adaptability level. You need to drill down on how big the market is, how many people can afford to pay, what can be captured, what has been captured, and if this market is large enough for your startup to reach its desired valuation, which will equally give VCs their desired exit or growth potential.

  • Evaluate the total addressable market (TAM) and serviceable attainable market (SOM).

  • Discuss the market's maturity, adaptability, and ability to pay.

  • Analyse the potential for growth, exit, and scalability within the identified market.

  • Assess the market's maturity and readiness for innovation.

• Scalability and Business Model: Every business must have products, but not every product or idea should be a business. As a founder, you need to ask yourself: if your business is highly scalable, if it is very defensible, what are the gross margins, what are the biggest cost drivers, what is the potential for economies of scale, if the business model is sustainable, if the business is focused enough, or if you have too many products solving too many problems? Too many products/revenue streams and a lack of focus are red flags. For growth potential, how many people currently need the solution, how often do they need the solution, how are they currently solving the problem, and why will they want to jump on the new solution?

  • Highlight scalability, defensibility, and sustainability in your business model.

  • Address how your solution can grow without compromising quality or its unique advantages over competitors.

  • Assess the scalability and defensibility of the business model.

  • Explore gross margins, cost drivers, and potential economies of scale.

  • Emphasise focus by addressing the importance of a streamlined business model and the target audience's pressing needs.

• Competition vs Defensibility: Since business is a race and a winner is crowned with the most value in the market, investors are often interested in what successful DNA you have built into your business that is enough to defend it and contribute to its winning. These include your patents, competitor analysis, first move advantage, the problem being solved, demand generated and supply/demand gap, niche, moat, USP, and trade secrets, among others.

  • Highlight any patents, first-mover advantages, or unique selling propositions (USPs) that set the startup apart.

  • Conduct a comprehensive competitor analysis and showcase the problem-solving aspect of the product.

  • Discuss the existence of a moat, demand-supply gaps, and the startup's niche in the market.

• Financial Forecast: The true picture of your business is captured in its financials. Your financials also form the basis for evaluating the potential return and ability to create liquidity for investors. Hence, they check if your business has positive unit economics with (LTV/CAC) lifetime value/customer acquisition cost above 5, CAC payback of fewer than 12 months, a clear path to monetization and good gross margin, low operational costs, low capital costs, cost economies of scale, good pricing, a positive path to EBITDA, a positive path to cash flow, and realistic assumptions in your forecasts.

  • Demonstrate positive unit economics, with a focus on customer acquisition cost (CAC) payback and lifetime value (LTV).

  • Provide a clear path to monetization, showcasing realistic financial assumptions.

  • Discuss the potential for cost economies of scale, good pricing strategies, and a roadmap to profitability.

• The Deal: “A business may be good, but the deal may not,” says one of the veterans I spoke to. Investors always consider the valuation & equity on offer, how messy the cap table is (this is expected since many founders are often quick to give out equity for small cash during their survival stage—largely pre-seed), overdiluted founders—giving out too many shares at a very early stage, founders or key men holding very small shares, diluting more than 20% in one single round at an early stage. This helps the investors understand the complexities surrounding the business before investing, while deal terms such as standard rights and protections, the amount being raised, and the use of funds vis-à-vis growth help them see how they function within the business post-investment. It is also important to check if the round & the number of runways it covers will be enough to carry the team to the next proof point to avoid premature dilution. To pass this:

  • Address the valuation and equity on offer, ensuring that the cap table remains clean.

  • Highlight the balance between funding requirements and the growth stage, avoiding over-dilution of founder shares.

  • Emphasise standard rights and protections for investors.

• Exit Strategy: The goal of an investor is not just to find good businesses but ones that can create good liquidity events enough to return their funds or meet their LP goals. The business must have a clear and realistic exit strategy that is linked to its everyday business KPIs, financial projections, and growth goals. Projected ROI with at least a 5x multiple on investment, ability to execute strategy, exit liquidity, & frequency within the market are also metrics considered by investors to evaluate the possible value to be earned on their investment. As the business grows, the metric for its valuation changes as investors start considering its fundamentals, hence, it is important that the projection and strategy align with this. Founders are expected to:

  • Demonstrate the ability to execute the exit strategy and discuss exit liquidity within the market.

  • Define a clear exit strategy, whether through acquisition, IPO, or alternative paths.

  • Project a return on investment (ROI) that aligns with investor expectations and a realistic exit timeline.

VCs are not in the business of charity or enriching founders as they have a burden to return 3x of their total funds to LPs and still expect to enjoy good carry on their funds, hence, the investment process is only in favour of founders and startups that can clearly show that they are able to help VCs achieve their own goal while impacting their immediate world. Successfully navigating the VC landscape requires startups to align with investor expectations across various dimensions. By focusing on building a strong team, showcasing traction and proof points, thoroughly analysing the market, emphasising scalability, and addressing financial forecasts, startups can enhance their appeal to early-stage investors. Remember, while these factors provide a framework, individual investors may prioritise differently, so adapting to specific investor preferences is key. Ultimately, a well-rounded approach that considers all these factors positions a startup for success in attracting VC funds and achieving its growth objectives.

Africa: a victim?

While the impacts of this crisis are felt worldwide, Africa stands at the forefront of vulnerability, experiencing devastating effects despite receiving minimal attention from its inhabitants, businesses, and governments. Hold on; don't let the 4% greenhouse gas emission statistic fool you. Climate change doesn't care about historical footprints. Rising sea levels, erratic weather, and desertification are knocking on everyone's door, and Africa, with its unique ecosystems and vast coastline, stands to lose big. Dismissing Africa's contribution to global greenhouse gas emissions as inconsequential is a myopic perspective, as the consequences of climate change spare no one. It is time for Africa to invest in opportunities that not only mitigate the adverse effects but also position the continent as a key player in global sustainability.

The green gold: carbon credit revolution

Africa's relatively low contribution to greenhouse gas emissions is linked to its limited industrialization, making it one of the world's poorest regions, heavily reliant on imports, foreign aid, and debts for survival. However, the continent holds a potential game-changer: its expansive rainforests, home to vital natural carbon repositories such as forests, grasslands, peatlands, and mangroves, become not just stunning landscapes but nature's carbon capture champions. These ecosystems are Earth's green giants, absorbing and storing CO2 like nobody's business. This "green gold" could be Africa's ticket to the global carbon credits market, generating wealth while contributing to global sustainability.

Think Congo Basin Rainforest: Dubbed the "lungs of Africa," this ecosystem plays a critical role in regulating our planet's climate. By protecting and managing it sustainably, Africa could generate billions through carbon credits, empowering communities, creating jobs, and fueling sustainable development.

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Agriculture: More Than Just Crops

But there's more to Africa's story than carbon storage; the World Economic Forum reports that 70% of Africa’s population relies on agriculture, making climate technology (AgTech) as crucial as its financial counterpart, FinTech. Imagine a technology that tackles farmers' real challenges: unpredictable weather, pests, and dwindling water resources.

Enter drought-resistant crops, AI-powered weather forecasting, and mobile apps connecting farmers to markets. These innovations empower rural communities, increase food security, and create a virtuous cycle: thriving agriculture leads to more income, which fuels further investment in sustainable practices—a win-win for Africa and the planet.

Inclusive Finance Beyond Payments

While fintech has gained prominence in creating platforms for banking, payments, savings, and investments, innovators must recognize the critical role of ag-tech and climate-tech in directly impacting the majority of African lives and livelihoods.

Agrotech and climate technology can serve as a nexus between saving the planet, creating wealth for farmers, and restoring Africa as a vital player in global sustainability. Creating apps and platforms that not only facilitate financial transactions but also address the challenges faced by the agriculture-dependent population is crucial. After all, it is through earning a sustainable income that individuals can engage in banking, spending, and saving.

The immense potential lies not only in mitigating climate change effects but also in elevating Africa's economic status. It calls for a paradigm shift where innovators, investors, and governments collaborate to establish new ideas and companies that operate at the intersection of fintech, agrotech, and climate technology. These endeavors can drive positive change, enrich the lives of Africa's population, and contribute significantly to global sustainability.

As the effects of climate change continue to unfold, Africa must seize the opportunity to turn its natural resources into assets that benefit not only its people but the entire world. The time is ripe for a sustainable, innovative approach that propels Africa into a position of leadership in the fight against climate change while fostering economic prosperity.

The Road Ahead: Collaboration is Key

Africa's journey to sustainability won't be a cakewalk. It requires collaboration between governments, investors, and innovators. It demands a shift from simply reacting to proactively leveraging Africa's unique strengths. But the potential rewards are enormous, not just for Africa but for the entire world.

Remember, this isn't just a story of vulnerability; it's a story of resilience, innovation, and the potential for a continent to rise from the ashes and become a global leader in sustainability. So, the next time you hear about Africa and climate change, remember: the narrative is changing. Africa's ascent won't just mitigate the effects of climate change; it will redefine what it means to thrive in a sustainable future, inspiring the world and leaving a legacy for generations to come.

In the aftermath of a funding winter that left startups withering, catalyzed by the heavy death in portfolios, thereby creating a bigger gap in VC return strategy, it's time to recalibrate VC investment strategies, exploring the merits and demerits of both venture capital (VC) and private equity (PE) approaches.

A veteran African angel, Victor Asemota, wrote on LinkedIn, about his shift from investing in startups due to how much loss he has made personally investing in African startups using the Silicon Valley “optimism” framework and how he now believes that investments in Africa require a novel approach. As a VC nerd, this prompted a thought to examine the merits of PEs in Africa, as they seem to have returned successfully on many occasions, and then consider if any lessons can be learned.

In today’s newsletter, we will dissect the investment principles that have shaped VCs and PEs, discovering ways VCs can glean from PE wisdom without losing their inherent DNA, ultimately optimizing for superior returns.

Merits and Demerits of VC and PE Investment Principles:

1. VC Agility: VCs are known for their agility, quick decision-making, and high risk tolerance. The merit lies in the ability to identify and nurture innovative ideas swiftly, supporting early-stage startups to scale rapidly. However, the demerit often surfaces in the form of higher failure rates due to the inherent risk appetite. As alluded to by Victor on LinkedIn, this demerit may seem insignificant for big global funds, but an average local VC fund cannot afford to lose a $2 million investment in one deal, as that may even account for 20% of its total fund size.

2. PE Pragmatism: PE investors, on the other hand, thrive on pragmatism. They meticulously analyze businesses, prioritize sustainable growth, and engage in hands-on portfolio management. The merit here is the lower failure rate and a focus on value creation. However, these can lead to a slower pace of decision-making, potentially missing out on high-growth opportunities. Since the African tech scene is in its nascent stage, there are fewer deals at the private equity scale; hence, it is important to examine ways some of these merits of PE can be infused into the African VC DNA.

Learning from PE Principles without Losing VC DNA:

1. Thorough Due Diligence with VC Speed: While PE's due diligence is meticulous, VCs can maintain their agility by adopting a nuanced approach. Swift yet thorough due diligence, focused on identifying startups aligned with the core hierarchy of needs, can minimize the risks associated with impulsive investments.

   The message is clear: the African market is not a SaaS market and even needs more than just "tech-enabled" solutions; the real gold lies in understanding the daily struggles and aspirations of everyday Africans. The core hierarchy of needs—food, shelter, health, and financial security—forms the bedrock of the market.

   Identifying areas where individuals are likely to spend money and creating comprehensive solutions around these aspects is crucial. This involves reimagining how technology can revolutionize daily life, with a focus on enhancing existing behaviours through innovative, affordable, and accessible business models. Read more on this in our past episode titled; “Rethinking the African Market: No To Fancy Tech, Yes To Actual Everyday Needs”

2. Strategic Collaborations for VC Synergy: VCs can borrow from the PE playbook by fostering strategic collaborations. However, instead of slowing down the process, VCs can leverage their agility to forge swift collaborations, maximizing synergies without compromising on speed. A VC firm facilitates a quick strategic partnership between a promising ed-tech startup and an established educational institution, creating immediate synergies. The key demands a deep understanding of the hierarchy of needs that underpins the African market and prioritizing solutions that seamlessly integrate into existing systems and enhance daily life, not just disrupt it. The foundation of successful tech ventures in Africa lies in the development of a robust value chain.

3. Risk Mitigation Strategies with a VC Mindset: PE's risk mitigation strategies can be integrated into the VC model without sacrificing the appetite for innovation. VCs can develop adaptive risk mitigation strategies, allowing for calculated risk-taking while ensuring a more resilient portfolio. VCs need to double down on investing in the platform or portfolio management strategy of their fund with a core focus on risk mitigation and elimination where possible, carefully steering their portcos towards fund returns. This may include strong board supervision, even M&As where required, and improved corporate governance standards, among others.

4. Long-Term Vision with VC Adaptability: PE's long-term vision can align with VC adaptability. Where the traditional VC quick exits may abound, African VCs may need to optimize for options that prime them to exit at $200 million earlier than sometimes a long wait for the $1 billion return. This means VCs can adopt a flexible approach, nurturing startups for long-term growth while staying agile and adapting to market changes.

5. Operational Excellence through VC Innovation: VCs can embrace hands-on involvement without compromising on innovation. By actively engaging with portfolio startups and providing support without stifling creativity, VCs can enhance operational excellence while maintaining a culture of innovation.

6. Optimizing Resource Deployment with VC Creativity: PE's resource optimization can inspire VCs to be more creative in resource deployment. Innovative pricing models, strategic partnerships, and microtransactions can be implemented to address low disposable income without stifling groundbreaking ideas.

7. Diversification Strategies for VC Resilience: VCs can leverage PE's diversification strategies by strategically diversifying across sectors without losing focus on innovation. A diversified portfolio can enhance resilience while still allowing VCs to capitalize on high-growth opportunities.

8. Tangible Value Creation Aligned with VC Vision: VCs can borrow from PE's focus on tangible value creation by aligning it with their vision. Emphasizing measurable outcomes and real-world impact can be integrated into the VC model without sacrificing the pursuit of disruptive technologies.

   In essence, VCs can learn from the pragmatic approach of PEs without sacrificing their core DNA. It's about finding a harmonious balance where swift decision-making, adaptability, and a commitment to innovation coexist with meticulous due diligence, sustainable growth, and tangible value creation.

By embracing the best of both worlds, VCs can optimize for better returns, contributing not only to financial success but also to transformative impact in the vibrant African market.

The Problem: Chasing Growth at Any Cost

In the African scene, this troubling trend of rushing to grow quickly is funded using lots of venture capital (VC) money. Sometimes, VCs also look to invest in founders who can build for “pump and dump” to meet their return KPI thereafter, leaving a trail of weak investing environments for VCs who are willing to look beyond immediate gratification to wholesome sustainability in terms of market maturity and value delivery. While it might seem like a smart move to offer super-low prices and attract tons of customers, this strategy often hides big problems. Many startups look successful on the surface but struggle to make real profits or real cash flow to extend their runway if the next funding round is delayed.

Why This Matters

Flash to Fundamentals: Why African Startups Need Profitable Growth in 2024

The African startup scene is booming, fueled by VC money and the promise of rapid growth. But a worrying trend lurks beneath the surface: a reliance on unsustainable, low-price strategies to attract customers. While this might seem like a quick win, it often hides deeper problems, leaving many startups struggling to turn a profit.

This needs to change. In 2024, let's shift the focus from flash to fundamentals. By prioritizing sustainable, profitable growth, African startups can build stronger businesses, create lasting value, and contribute more effectively to the continent's economic future.

Here's why it matters:

• VC dependence is risky. When startups chase growth at any cost, they become vulnerable to fluctuations in funding and investor interest. This can lead to sudden collapses or unfavourable deals.

• Cheap prices don't equal true value. Building a sustainable business requires offering products or services that people genuinely need and are willing to pay for.

• Profitability is the foundation for long-term success. By focusing on making money from the start, startups can reinvest in growth, attract better investment opportunities, and create lasting impact.

  Relying heavily on VC funding can be risky. When startups focus mainly on raising money instead of building a solid business, they set themselves up for trouble down the road. If VC funding dries up or investors lose interest, these startups could collapse or be forced into unfavourable deals.

A Better Way Forward: Building Strong Businesses

As we look to 2024, it’s time for a change. Instead of chasing fast growth with low prices, African startups should focus on building businesses that stand the test of time. Here’s how:

1. Create Value That Counts: Startups should offer products or services people genuinely need and are willing to pay for. This ensures steady income and long-term success.

2. Know Your Numbers: Understand the costs involved in acquiring customers and ensure you’re making more money from each customer than you’re spending to get them.

3. Make Profit a Priority: While it’s tempting to spend big and grow fast, focusing on profitability from the start can make your business stronger and more resilient. At the early stage, it is important to ensure that you are at least unit economics positive and that you can generate enough cash in the medium term (growth stage) to cover your operating expenses and save yourself from shocks.

4. Adapt to Your Market: Instead of relying only on low prices due to economic challenges, find smart ways to price your offerings that provide value to customers while keeping your business healthy.

5. Think Long-Term: Don’t just aim for quick wins or flashy growth numbers. Build a business that can grow steadily over time, even if it means growing a bit more slowly at first.

In Summary

The current approach to startup growth in Africa isn’t sustainable. By building strong, profitable businesses rather than chasing rapid but shaky growth, African startups can create lasting value, attract better investment opportunities, and contribute more effectively to economic growth and job creation across the continent. The goal for 2024 and beyond should be clear: prioritize sustainability over short-term gains.

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To break this vicious cycle, I believe it is time to rewrite the narrative on the African market. While glamorous fintech solutions and disruptive tech grab headlines, a quieter revolution is needed around something far more fundamental: addressing the essential needs of the average African. This isn't a call for charity; it's a roadmap for building sustainable, impactful businesses that generate significant returns alongside positive change. It is a call to founders, VCs and budding operators within the African market to look beyond just building the next FinTech. Even if anyone has an idea to build a new one, most subsectors have already chosen their category winners.

To tap into this "invisible" market, we must break free from the tired Silicon Valley playbook and rewrite the narrative. The key demands a deep understanding of the hierarchy of needs that underpins the African market and prioritizing solutions that seamlessly integrate into existing systems and enhance daily life, not just disrupt it.

The message is clear: the African market is not a SaaS market and even needs more than just "tech-enabled" solutions, the real gold lies in understanding the daily struggles and aspirations of everyday Africans. The core hierarchy of needs—food, shelter, health, and financial security—forms the bedrock of the market.

The foundation of successful tech ventures in Africa lies in the development of a robust value chain. Identifying areas where individuals are likely to spend money and creating comprehensive solutions around these aspects is crucial. This involves reimagining how technology can revolutionize daily life, with a focus on enhancing existing behaviours through innovative, affordable, and accessible business models.

Imagine a platform that not only facilitates mobile payments but also equips users with financial literacy tools and micro-investment options, empowering millions without formal bank accounts. Or a healthcare app leveraging AI to bridge the rural healthcare gap, providing basic diagnoses and medication access right where it's needed most.

But how do we tap into this "invisible" market? Look beyond the obvious. Analyze the in-betweens, the seemingly mundane interactions that define daily life. How can technology optimize daily routines? Think SMS-based agricultural advice boosting farm yields, voice-activated financial services reaching the unbanked, or offline educational apps powered by peer-to-peer learning, all addressing real, everyday needs.

One of the challenges in the African market is the presence of low disposable income. Entrepreneurs and investors need to devise strategies that take this into account, ensuring that their products and services are not only groundbreaking but also affordable. Exploring innovative pricing models, microtransactions, and strategic partnerships can pave the way for widespread adoption.

The potential is astounding. With over 1.3 billion people, Africa's market presents a unique opportunity to build billion-dollar businesses while making a tangible difference in people's lives. M-Pesa in Kenya and Esoko in Ghana are shining examples of this impact-driven approach, proving that understanding the "human angle" unlocks immense potential.

The success of fintech and payments in Africa provides valuable lessons for tech entrepreneurs and investors. By building along the pipeline of daily interactions, startups can emulate this success in sectors beyond finance. The key lies in understanding the local context, adapting to the diverse needs of the population, and creating solutions that resonate with the daily lives of Africans.

As tech entrepreneurs and venture capital investors set their sights on Africa, a paradigm shift is needed. The era of evaluating the African market with the same parameters as other emerging markets is over. Success in Africa requires a commitment to social impact, an understanding of the hierarchy of needs, and a dedication to lifestyle inclusion. By embracing these principles, tech innovators can not only make a significant difference in the lives of Africans but also unlock unprecedented opportunities for growth and success in this vibrant and rapidly evolving market. Africa is not just an investment; it's a journey towards transformative impact.

Among these casualties lie 87 startups that had raised a significant $10 million or more. In Africa alone, we’ve witnessed a lot of our favorite startups demise — https://startupgraveyard.africa —within a very short period of time, with the most excuse being inability to raise more funds, lack of product market fit, founders’ recklessness, dispute and/or tough economic environment which forms our main focus for today.

Unfortunately, the death pandemic isn’t only an Africa or Emerging market problem, according to NYT and Pitchbook, more than 3,200 private venture-backed US startups that have collectively raised $27.2 billion have gone out of business this year. As the "startup graveyard" — https://startupgraveyard.io — expands, the need for innovative solutions becomes ever more pressing. And this is where venture capital (VC) platforms can step up and play a pivotal role.

The VC Platform role is a core component of ensuring portfolio companies are nurtured into achieving the VC goals — outsized returns, thesis objectives alignment among other things. Death of portfolio companies creates a gap in achieving those goals and inadvertently put a lot of pressure on other companies to bridge those gaps and create a liquidity event suitable enough to compensate for the loss.

Instead of solely focusing on creating liquidity events for investors, VC platforms can leverage the power of mergers and acquisitions (M&A) as a strategic tool for not only salvaging investments but as a proactive approach to preventing total losses (death) of portfolio companies and fostering synergies between companies with shared visions and complementary strengths.

M&A can be a lifeline for struggling startups, providing them with an exit strategy and a chance to find new life within a larger entity. For surviving companies, it presents an opportunity to acquire valuable assets and expertise, accelerating their growth and expanding their market reach. Examples like the acquisition of Payday by Mercy Corps Ventures’ Bitmama, Abeg (now Pocket app) by Ventures Platforms’ Piggyvest etc. shows that this is possible within the African/Nigerian landscape.

The key lies in identifying companies with distinct advantages that seamlessly align with and enhance each other's strengths. By playing a proactive role in orchestrating strategic mergers, VC platforms can transform themselves from mere investors into architects of resilience within the startup ecosystem.

This shift in focus, from financial gain to building stronger, more resilient entities, is not just a response to the current economic slowdown and tech winter. It's a forward-thinking strategy that can mitigate losses for Limited Partners (LPs) and VC firms alike. By actively participating in shaping the destiny of distressed startups, VC platforms can navigate the storm and emerge with enhanced portfolios.

As the startup landscape continues to evolve, VC platforms have a unique opportunity to be catalysts for positive change. By embracing M&A as a strategic tool, they can transform challenges into opportunities, fortifying the startup ecosystem against prevailing headwinds. Now is the time for VC platforms to act, not just as investors, but as architects of resilience and growth in a volatile startup landscape.

This news is just the tip of the iceberg regarding the disturbing increase in fraud witnessed within the banking and fintech sectors in Nigeria, as a lot of fraudulent transactions are not reported or even discovered immediately. This surge in fraudulent activities has raised concerns and prompted many to ponder the root causes. My prevailing theory is that the rapid growth of the banking and tech industries has outpaced the development of the nation as a whole. This disconnect between these sectors and the broader Nigerian context, including its policies, institutions, and government, has created fertile ground for fraud to thrive.

At the heart of the matter lies a fundamental issue: data management. Good data harmonization is essential for a country's sustainable growth and development. When different sectors grow in isolation without a common central goal, problems emerge. The blame for the increasing fraud rates should not be placed solely on banking and fintech innovators but also on the government and a culture of "anyhowness."

The world is evolving at a breakneck speed, with people working tirelessly to ensure Nigerians can access this new digital age. However, the prevalence of fraud can be attributed to our outdated and porous data collection, processing, storage, and harmonization systems. It's perplexing that one needs a Bank Verification Number (BVN), National Identification Number (NIN), Voter Identification Number (VIN), International Passport Number, Driver's License number, and more, yet none of these are synchronized with each other. Moreover, the processes for obtaining these identification documents are riddled with vulnerabilities and corruption. Many Nigerians resort to backdoor channels because the proper route is exhausting and time-consuming.

Consequently, Nigeria finds itself in a situation where it cannot reliably identify its citizens, and anyone can assume multiple identities. This undermines the credibility of information provided by customers based on these government-issued documents, as you can never be certain whether you are dealing with a legitimate individual or someone using stolen identities.

As innovators work to make banking and finance more accessible and user-friendly, fraudsters exploit the weaknesses in the Nigerian system. Therefore, if commercial banks were to wage a war on fintechs and other innovations, it would be akin to cutting off one's head to cure a headache. We cannot deny the positive impact of fintechs on simplifying banking and financial services. What we need is swift action from commercial banks, the Central Bank of Nigeria, and other regulatory bodies to revamp our data management and ensure its harmonization.

Improvements in data collection, processing, storage, and every aspect in between can address many of these challenges. It's high time for a change.

On the fintech front, there's a need to ensure that we don't oversimplify processes. Building and designing for risk and compliance should be paramount, with controls and security measures held in high regard alongside growth and profitability.

Fraud does not happen in a vacuum; it requires a trigger, often greed, either on the part of the customer, service provider, or a third party. Negligence or collusion from either the customer or service provider typically plays a role. This means that everyone has a responsibility to ensure our safety and security in the financial sector.

In conclusion, addressing the escalating fraud issue in Nigeria's banking and fintech spaces requires a holistic approach. It is essential for both the government and industry players to work together to improve data management, security, and compliance. Only by tackling these fundamental issues can we hope to create a more secure and prosperous financial environment for all Nigerians.