Why African VC Is Broken (And How to Fix It)

A new whitepaper reveals the structural mismatches killing African venture capital—and the fund models that could save it

If you’re a founder who’s raised VC money in Africa, you’ve probably felt it: the nagging sense that something doesn’t quite fit. Your investors push for hockey-stick growth when you’re still building basic infrastructure. They talk about exits when there are no natural buyers. They deployed equity when what you really needed was working capital.

You’re not imagining it. According to a new whitepaper titled “Rethinking Venture Capital for the African Market,” the traditional VC model is fundamentally misaligned with how businesses actually grow on the continent. And it’s not just hurting founders—it’s throttling the entire ecosystem.

The Research

The paper, compiled by a working group of 15+ fund managers and informed by a survey of over 50 African VCs, identifies four core structural misalignments that explain why so many African funds struggle to deliver returns despite backing solid businesses.

Let’s break them down.

Misalignment #1: The Timeline Trap

The Problem: 60% of African VC funds still operate on the standard 10(+1+1)-year model borrowed from Silicon Valley and private equity. But African companies take longer to mature. Founders must often build infrastructure from scratch, navigate fragmented markets, and serve customers with lower purchasing power. The result? Companies backed in Year 5 of a fund get only 4-5 years to grow before the fund’s scheduled end, while Year 1 investments get nearly double that time.

In practice, many funds end up extending to 15-17 years anyway—a clear signal the 10-year clock doesn’t match reality.

The Fix:

• Launch funds with 13-15 year lifespans from day one
• Use continuation funds to transfer illiquid but high-potential assets into new vehicles
• Experiment with evergreen structures that remove the artificial exit clock entirely

56% of surveyed fund managers said they’d adopt evergreen models if LPs would support them.

Misalignment #2: Wrong Type of Capital

The Problem: Equity and convertible notes dominate African VC (71% combined), but many African startups are “phygital”—they blend digital platforms with heavy physical operations like logistics, manufacturing, or agent networks. Think Moniepoint deploying thousands of POS terminals, or Moove managing vehicle fleets.

These businesses need working capital, asset financing, and inventory loans—not expensive equity that dilutes founders and inflates valuations round after round.

The Fix:

• Venture debt and asset-backed lending for operations
• Revenue-based financing for companies with steady cash flows
• Blended structures that pair equity (for growth) with debt (for operations)

Only 13% of funds currently use venture debt, but 62% are willing to adopt blended models if LPs allow it.

Misalignment #3: The Exit Desert

The Problem: This is the big one. 58% of fund managers say fewer than 25% of their portfolio companies have a clear exit path. M&A buyers are scarce, IPOs almost non-existent, and secondary markets underdeveloped. Meanwhile, 40% of funds report that 10-50% of their portfolios are “zombies”—companies surviving but not scaling or exiting.

Even strong companies can’t generate liquidity because there’s nowhere to sell them.

The Fix: The whitepaper argues that exits must be actively engineered, not passively hoped for:

• Secondaries: 36% of managers expect this to be their main exit route going forward (only 38% have done one so far)
• M&A: Investor-led processes with banks, not just waiting for acquirers to call
• Public listings: Building a pipeline of companies with $10M+ ARR ready to list on African exchanges
• Structured instruments: Redeemable equity, revenue-sharing agreements, dividend payouts

69% of respondents believe structured exit instruments should play a role in African VC.

Misalignment #4: Broken Incentives

The Problem: The 2/20 fee model (2% management fees, 20% carry) doesn’t work when funds are subscale. 64% of surveyed funds are under $50M, but 46% of managers say you need at least $50M for economic sustainability.

Worse, European-style waterfalls (common in DFI-backed funds) mean GPs only earn carry after the entire fund returns capital—often 15-17 years later. This punishes early wins and disincentivizes risk-taking.

The Fix:

• Declining fee structures: Higher fees (2.5-3%) during deployment years, lower later
• American waterfalls: Pay carry deal-by-deal to reward performance faster
• Performance-linked carry: Tiered rates based on DPI multiples achieved
• Operational budgets: Separate line items for intensive portfolio support

The Alternative Models Already Working

The whitepaper profiles four alternative structures proving there’s no single “right” model for Africa:

1. Evergreen Funds

No fixed end date. Capital recycles. Companies exit when ready, not when the fund clock runs out. Grounded Investment Company initially tried this but shifted to 13+1+1 after LP pushback on liquidity.

2. Venture Studios

Part investor, part operator. Catalyst Fund dedicates 400 hours per startup and reports 88% of its portfolio remains active—far above the regional average. They achieve 3-100x returns on 30-35% of companies.

3. ESO-Linked Funds

Accelerators like Flat6Labs use their programs as de-risking mechanisms, then deploy follow-on capital to graduates. Better prepared startups = better outcomes.

4. Corporate VCs

Groups like Axian Innovation Fund invest strategically, create commercial partnerships, and can eventually acquire companies—solving the exit problem built-in.

What Fund Managers Really Want

When surveyed fund managers were asked what they’d build if they had a guaranteed anchor LP, the responses were strikingly diverse:

• Evergreen holding vehicles
• Blended debt-equity structures
• Blind pool funds where each portfolio company is a separate legal vehicle
• Hybrid private credit funds
• Dual vehicles for secondaries
• Mutual fund-style structures with periodic redemptions

The message is clear: Africa doesn’t need one new VC model. It needs diversity.

The Bottom Line

The traditional VC model isn’t failing because African founders aren’t building valuable companies. It’s failing because the fund structures don’t match the market realities:

• Companies take longer to mature → funds need longer timelines
• Businesses are capital-intensive → they need debt, not just equity
• Exit markets are illiquid → exits must be engineered, not assumed
• Funds are subscale → incentives must reward efficiency, not just fund size

As one fund manager put it: “African markets need a portfolio of fund architectures that reflect business realities, liquidity constraints, time horizons, and operational intensity.”

The good news? Managers know what needs to change. The survey shows strong appetite for longer funds, blended instruments, structured exits, and alternative models.

The question is whether LPs—especially DFIs who dominate the investor base—will give them the flexibility to experiment.

For Founders: What This Means for You

If you’re raising capital, here’s what to watch for:

✅ Ask about fund timeline: When did they deploy? How much time is left? Are you Year 1 or Year 5?
✅ Ask about capital stack: Can they provide debt or working capital lines, or only equity?
✅ Ask about exit strategy: What’s their actual plan? Have they done secondaries before?
✅ Consider alternative structures: Studios, ESO-linked funds, and CVCs may offer better alignment

The best investors understand these misalignments and are actively building around them. Find those partners.

Read the full whitepaper: rethinkingafricavc.lovable.app

Authors: Alyune-Blondin Diop, Diego Arias Garcia, Desirée Pettersson, Kartik Sharma
Based on: Working group of 15+ fund managers, survey of 50+ VCs, interviews with ecosystem builders