African Startups Struggling to Attract Foreign Investment

African startups are finding it increasingly difficult to attract foreign investment due to heightened perceptions of risk, according to a new report by the International Finance Corporation (IFC), the investment arm of the World Bank.

The report, Venture Capital and the Rise of Africa’s Tech Startups, reveals that despite strong early growth, funding for African tech startups has plummeted since 2022. The number of funded African tech startups dropped by 52% between 2022 and 2024, falling from over 700 to fewer than 400.

This decline was more severe in Africa than in other global regions, underscoring the vulnerability of the continent’s startup ecosystem. Nairobi, alongside Lagos, Cairo, Cape Town, and Johannesburg, has been one of the leading hubs driving the continent’s early-stage innovation boom.

However, startups in these cities are now struggling to secure backing. The report points to several factors contributing to this investment decline, including macroeconomic volatility, weak infrastructure, unreliable internet, and electricity issues that particularly affect countries like Kenya. These structural challenges have heightened investor caution, causing many to view African startups as high-risk ventures.

A separate IFC study shows that only one-third of funded startups in Sub-Saharan Africa landed their first VC deal within their first five years. In contrast, more than half of similar firms in Latin America had reached that milestone within the same period. Additionally, investor preferences based on language or colonial history narrow the scope of investment further:

“Foreign investors are also more likely to work with firms in countries with which they share a colonial linkage or a common language, thereby limiting themselves to just a subset of possible opportunities.”

Despite these challenges, African startups continue to innovate, particularly in fintech and mobile-based services. Their progress is rooted in Africa’s mobile revolution. “Enabling the proliferation of startups was the rise of mobile telephones,” the report notes. “Barely two decades after they first appeared in the late 1990s, mobile phones had blanketed Africa.”

Sub-Saharan Africa now boasts around 90 mobile subscriptions per 100 people, demonstrating how the region has leapfrogged traditional infrastructure. The IFC notes that entrepreneurs continue to develop solutions for underserved communities, leveraging mobile technology to bridge access gaps in payments, healthcare, and agriculture.

While the perceived risk has slowed foreign capital inflow, the report suggests this period may present a long-term opportunity for investors willing to engage with high-impact startups at lower valuations.