African business ecosystems need a lot of small checks. Investors often want to write a few big checks. This mismatch between capital needs and availability makes it difficult to bridge longstanding financing gaps.
Fund manager Aruwa Capital argues that if investors want returns, their odds are better with small checks.
“Larger vehicles create structural pressure to deploy into bigger deals, often requiring fewer but significantly larger exits to generate target returns,” says Adesuwa Okunbo Rhodes, founder of the Lagos-based growth equity fund. “In markets like Africa, where large-scale exits remain limited, this can narrow the path to outperformance. A smaller fund, by contrast, expands optionality, more viable exit routes, faster capital deployment, and tighter portfolio concentration.”
Global data on fund performance suggests that Aruwa is onto something. In “Why smaller funds outperform,” Aruwa reviewed data from Cambridge Associates, Pitchbook and CARTA, and found that small funds of up to $25 million and mid-sized funds of up to $100 million achieve rates of return nearly double that of $100 million-plus funds.
The argument works in favor of fund managers like Aruwa, which is in the process of raising its second fund with a target of $40 million. Many first and second-time fund managers on the continent have funds of $50 million or below. Nigeria and Kenya-based Chui Ventures closed its first fund last year at just over $17 million. Inua Capital raised $8 million for its first fund for small businesses in Uganda. South Africa-based Keyo Ventures is raising $10 million for its first fund for early-stage green companies in Southern Africa. First Circle Capital, an inclusive fintech fund in Morocco, is targeting $30 million; it was recently given a bump from the Dutch Good Growth Fund.
Larger fund managers have also taken note, and are designing smaller, often thematic fund strategies to complement larger vehicles. Africa-focused private equity firm Adenia Partners, which has about $1 billion in assets under management, is in the market with its Entrepreneurial Fund, a planned vehicle of $150 million to invest in roughly a dozen companies. That compares to $470 million raised for its most recent flagship fund in 2024, which follows Adenia’s established strategy of investing for a controlling stake in mid-sized African businesses.
London-based firm Development Partners International hit the market last year with its fourth African-focused fund – and a $1 billion fundraising target. It also manages Nclude, a $105 million fintech-focused fund in Egypt that it acquired last year to anchor DPI’s venture capital strategy.
Helios Investment Partners, with $3 billion billion in assets under management, modestly downsized its typical fund target to capture climate and energy opportunities in Africa. The London-based private equity firm’s Climate, Energy Access and Resilience fund, launched in 2024, has a $400 target. Its fifth flagship African growth equity fund, meanwhile, hit the market last year with a $750 million fundraising goal.
First-manager advantage
Aruwa’s analysis of small fund performance aligns with another global trend: a surge in small funds.
About 40% of venture funds that closed in 2024 and 2025 raised $10 million or less, compared to 25% in 2020, according to research firm Carta.
The difficult fundraising environment has no doubt played a role. “In part, this shift in the market is due to the growing presence of solo GPs and other emerging managers, who are more likely than established managers to raise smaller funds,” Carta found.
Newer funds are also responding to LP pressure to return capital more quickly. About 15% of funds raised in 2023 started generating returns within a year and a half. “That’s a higher percentage than any other vintage from 2017 through 2022,” Carta stated.
The broad picture of these trends bolsters the long-held argument that emerging fund managers outperform more established managers.
“Strategically, smaller funds enable disciplined pricing because they operate in less crowded segments, allowing managers to enter at more efficient valuations, while cherry picking investments,” Okunbo Rhodes says. “This capital efficiency reduces the need for outsized exits to generate strong returns.’
Smaller vehicles are also more agile and allow for deeper engagement with portfolio companies, she adds. “The combination of disciplined entry pricing, speed of execution, and operational intensity is what consistently drives superior risk-adjusted returns.”
Sizing up the market
First-time and small fund managers nevertheless have difficulty fundraising due to lack of track record or LPs investment minimums. Managers in Africa often have to thread a difficult needle of raising appropriately-sized vehicles for their local markets, while trying to meet the larger investment requirements of development finance institutions and other institutional investors.
A small but growing number of fund-of-funds, from Kuramo Capital, Ci-Gaba in Ghana and FSDAi’s Nyala Ventures, are trying to bridge the gap.
Managers are also tinkering with their strategies to find a sweet spot. Aruwa raised $20 million for its first fund in 2022, which Okunbo Rhodes acknowledges “was too small for some investors.”
Its second fund is sized at $40 million; the firm has raised $35 million.
“By right-sizing our fund, we ensured that our strategy was well-matched to the scale of businesses we wanted to support – large enough to be meaningful, but nimble enough to create impact where it’s needed most,” said Okumbo Rhodes. “Investors, both local and international, responded positively to this approach,” she said.
