Between 2020 and 2022, African startups experienced an unprecedented surge in funding, leading to the rise of unicorns like Wave and Flutterwave. However, the scenario has shifted significantly in the last year.
Funding for startups has decreased, leading to closures and layoffs, even among well-funded players such as Chipper Cash, mPharma, and Paystack. This downturn has prompted venture capitalists to reassess their strategies, with many international investors scaling back activity and placing greater emphasis on profitability.
Despite these challenges, TLcom Capital recently announced the final close of its $154 million TIDE Africa Fund II, one of the continent’s largest Africa-focused funds. In an interview, Maurizio Caio, the firm’s Founder and Managing Partner, shared insights on the current funding landscape and investors’ focus on profitability.
Perspectives on the African VC Landscape
When asked about the sentiment among investors, Caio acknowledged that while there’s less available capital, investments in promising companies remain consistent. “Capital is more selective now, but exceptional entrepreneurs will always attract funding,” he noted.
Reflecting on the evolution of Africa’s venture capital ecosystem, Caio recalled how their first fund faced skepticism. “When we raised our first fund, it was an unpopular idea. I remember a meeting where someone suggested we choose between Africa and VC—but not both,” he shared. Today, the outlook is far more positive, with African VC gaining recognition among development finance institutions (DFIs), private investors, banks, and asset managers.
Lessons from Fundraising Success
Closing the $154 million TIDE Africa Fund II in just two years demonstrates growing confidence in TLcom’s ability to deliver. Caio attributes this to their proven track record of identifying, supporting, and exiting investments successfully.
“DFIs now view African VC as a viable space. The question isn’t whether to invest but which funds to back,” he explained. Experienced managers with demonstrated results tend to attract more interest. According to Caio, the key to sustaining this momentum lies in achieving consistent returns and exits that validate the potential of African startups.
The Path to Exits
Exits, whether through acquisitions or public listings, remain a critical aspect of venture capital. Caio emphasized the importance of metrics like revenue growth, profitability, and management quality in achieving successful exits.
He pointed to initiatives like the London Stock Exchange’s drive to attract African tech firms, highlighting growing global interest. “The challenge for VCs is to help companies meet the criteria for exits, aligning founders and management teams toward common goals,” he said.
Balancing Profitability and Growth
In light of the funding slowdown, investors are urging startups to focus on profitability. While Caio agrees on the need for sustainable unit economics, he cautions against expecting early-stage companies to achieve full profitability too soon.
“Early-stage startups require time to invest in scaling and product development. The priority should be positive unit economics, ensuring the business model is profitable, even if the company itself isn’t immediately generating profits,” he explained.
By fostering a culture of alignment, strategic planning, and growth-oriented investments, Caio believes that the African venture capital space can continue to thrive. “We must prove to the world that investing in African VC is not just a good idea—it’s a great one,” he concluded.
