The Trump administration’s abrupt halt to overseas assistance has given new urgency to a longstanding critique: that such grants and aid, well intentioned as they might be, can instill reliance.
As the aftershocks continue to ripple through Africa and other emerging markets, the freeze on aid has become a catalyst for local stakeholders to accelerate efforts to establish more resilient local financing ecosystems.
“It’s really up to us to figure out how we take responsibility for how we move forward as a continent,” Amma Gyampo of the Ghana Venture Capital and Private Equity Association told ImpactAlpha. “America is going to be more inward looking. I think Africa probably needs to do the same and this is the time for us to do that with more seriousness for long term benefits.”
Case in point: The African small and medium-sized entrepreneurship ecosystem has expanded over the years in size and geography, has a wider range of asset classes and more notably has diversified in leadership, according to Investisseurs et Partenaires or I&P, an impact firm focused on African small businesses.
African decision-makers with deep market knowledge are leading more funds that invest in small businesses and offer more localized support.
I&P mapped 135 small business and venture capital funds active in Africa, either already deploying capital or currently raising. The vast majority of fund managers, at least for small business funds, are now based in Africa. Out of 55 small business funds, 80% are led by African general partners, with 66% fully led by African general partners and another 13% are led by a mix of African and foreign general partners.
Additionally, 69% of the funds have raised capital from African public and private investors.
“It has become an African-led ecosystem,” writes I&P in a new report on mobilizing small business funding in Africa.
More is needed. The funds collectively are looking to raise and deploy a total of $9.3 billion – a drop in the bucket compared to Africa’s $330 billion funding gap for its small and mid-sized businesses.
Supporting the pioneers
Startups and small businesses represent the lifeblood of many economies and help create a pipeline of growth companies. It will take a robust ecosystem to address the yawning funding gap they face.
Development financial institutions still form the bulk of small business financing, though 60% of them invest in larger growth funds. As part of the Trump administration’s clamp down on overseas spending, investments from the US International Development Finance Corp. which committed over $12 billion to African ventures in 2024 ranging from food resilience to climate and financial inclusion solutions, have also been paused.
More pension funds and sovereign funds — for example, CNPS in Côte d’Ivoire, the Kenya Power Pension Fund in Kenya and Ghana’s sovereign minerals fund, the Minerals Income Investment Fund — are beginning to back early-stage funds. These funders are often pioneers in the market and the first institutional capital in their portfolio companies. The limited liquidity, relatively high transaction costs and macroeconomic risks in such investments can put them at odds with the high financial expectations of their limited partners.
One way for emerging funds to woo more private investors, I&P suggests, is to start out with smaller outfits to build a track record. That can mean starting with pilot funds, “warehousing” deals or leveraging catalytic capital.
Inua Capital, which backs small businesses in Uganda, exemplifies this. Kim Kamarebe, a first-time fund manager and Harvard and Princeton alumnus, struggled to get backing from development institutions and institutional investors despite a stellar investment record working at US private equity firm TPG Capital and Goldman Sachs. She opted to start off with a smaller financing facility backed by high net worth individuals, which helped build her credibility and secure Inua Capital’s first close after 12 years.
Senegal’s WIC Capital grew out of a local women’s angel network. I&P itself evolved from a first-time fund manager with a pilot fund in 2002 to a more diversified investment firm and LP in emerging managers.
Innovative fundraising
In addition to using catalytic capital to absorb early-stage risk, emerging fund managers are teaming up with fund accelerator platforms and sponsors – the larger investment funds anchoring these early-stage funds. This approach triples their chances of hitting their fundraising targets. From a wider sample of 135 funds, 61% of sponsor-backed emerging managers hit their funding goals compared to 20% of their counterparts who didn’t have any.
French private equity company LBO France acted as sponsor to invest $2 million in Switzerland-based emerging market investor Seedstars, which was raising $100 million for its early-stage fund, Seedstars Africa Ventures. The fund reached a $42 million first close last year from Boost Africa, a joint initiative between the African Development Bank and the European Investment Bank for first-time venture capital funds. Seedstars also secured $50 million in commitments.
TLG Capital, a UK private equity firm backing Africa’s small businesses, anchored and provided technical support to launch the East Africa Growth Impact Fund, which makes private credit investments with a gender lens.
Fund managers are also more targeted with their fundraising and are tailoring their fund structures and risk-mitigation strategies to specific investor pools, including African corporates and high net worth individuals to secure capital. To tap into them however, there’s a need for certain policy shifts.
“There’s so many taxes and these are all structural barriers,” said Gyampo. “Reducing the risk of investing and reducing the barriers to becoming an investor are things that can easily be done in terms of going through parliament and passing bills that would just make it easier for investors to set up and deploy capital or to raise capital in local markets, in local currency.”
Tapping into the dedicated impact pockets of development financial institutions and aligning with their mandates on climate, gender or job creation mandates is also a proven strategy. Janngo Capital for instance was anchored by Boost Africa. The pan-African venture capital firm reached an oversubscribed $78 million final close last year with additional investments from Mastercard Foundation Africa Growth Fund, ANAVA and others. The Green Climate Fund has also backed two Acumen Resilient Agriculture Funds.
