Questioning the Status Quo — 2025
Africa's Venture Capital (VC) landscape is fast-evolving and maturing, yet the fund structures funding it are not. Most African funds still operate under assumptions borrowed from Silicon Valley and the Private Equity industry: decade-long fund cycles, equity-heavy capital stacks, liquidity assumptions tied to deep secondary and capital markets, and incentive structures built for large, liquid economies. African founders, however, build in environments defined by fragmented markets, lower purchasing power, scarce infrastructure, and often operationally intensive 'phygital' business models. The result is not a failure of venture capital as an asset class, but a failure of fit.
Drawing on the open discussions of a working group of 15+ fund managers, a survey of over 50 fund managers, and interviews with ecosystem builders, this whitepaper identifies four core structural misalignments constraining the development and impact of venture capital across the continent.
Firstly, timelines are fundamentally mismatched: 60% of funds surveyed still operate on a 10-year clock, not long enough to accommodate African businesses' longer maturation cycles. Secondly, capital types do not match business needs — founders often use expensive equity to finance working capital because alternatives remain scarce. Thirdly, liquidity pathways are severely constrained: 58% of fund managers report that fewer than a quarter of their portfolio companies have a visible exit route. Lastly, incentive and fee structures — the 2/20 model and European waterfalls — leave fund managers under-resourced and disincentivised, with carry crystallisation delayed 15–17 years.
This whitepaper discusses potential solutions and invites African fund managers to experiment with structures better suited to African growth dynamics: 13–15 year vehicles; continuation funds and spin-outs for illiquid but high-potential assets; permanent capital structures; and hybrid models that pair an evergreen core with SPVs for high-growth opportunities.
One of the clearest insights emerges when fund managers are asked what structures they would build if they had a guaranteed anchor LP. Their responses were remarkably diverse — from evergreen holding vehicles and blended debt-equity structures, to blind pool funds where each portfolio company is its own legally separate vehicle. The message is clear: Africa does not need one new VC model, it needs diversity.
The traditional Venture Capital (VC) fund model, developed in mature Western markets, faces several challenges when applied to the African continent. While the VC ecosystem in Africa is still young — 62% of our survey respondents are still managing their first fund — critics often attribute its failures to the VC model itself, arguing that the 'Silicon Valley model' is fundamentally unfit for African markets.
Trying to replicate today's Silicon Valley model in Africa disregards the structural conditions that make it a success. In much of Africa, the foundations remain nascent or unevenly developed: limited infrastructure, scarce risk capital, illiquid financial markets, and an underdeveloped industrial base. Startups must build many of the systems their US counterparts take for granted, from scratch.
Fund managers in Africa cannot copy-paste the Silicon Valley model but must think creatively about how capital is structured to reflect the realities on the ground. The objective of this paper is to move beyond simplistic criticism and instead shed light on practical solutions — by adjusting different bolts of the model, fund managers can increase the likelihood of success.
Africa's VC landscape is evolving, but a number of deep structural misalignments continue to constrain the effectiveness of capital. These tensions show up not only in how funds deploy money, but in how founders build, how investors respond, and how liquidity ultimately materialises.
It takes on average longer to build and scale a company in Africa compared to mature venture markets. Founders must often vertically integrate to compensate for missing infrastructure, build low-margin, high-volume businesses to reach consumers with limited purchasing power, and navigate fragmented regulatory and geographic markets that slow expansion.
Meanwhile, 60% of funds surveyed operate on the standard 10(+1+1)-year model. In practice, many African funds have had to extend their lifespan to 15–17 years after GPs file for several extensions — a clear signal that the market's operating tempo outlasts its capital model.
Over two-thirds of surveyed investment professionals identified 'misalignment with exit timelines' as one of their most prominent challenges, with several explicitly calling to reshape fund terms rather than relying on ad-hoc extensions. More staggering, 41% cited LP Requirements as their biggest challenge in current fund structures.
This misalignment is not only inefficient — it is structurally unfair to both founders and fund managers. Investments made in Years 4 or 5 have only four to five years left before the vehicle's scheduled end, leaving little time to grow and exit. The follow-on strategy becomes moot, not for lack of conviction but for lack of time.
The African innovation landscape is largely physical-digital (phygital), where digital platforms are inseparable from the physical systems that enable them. Andela succeeded only after investing heavily in training and human capital infrastructure. Moniepoint scaled financial inclusion by deploying thousands of point-of-sale terminals. Moove's fintech model is anchored in vehicle ownership and fleet logistics.
These models thrive precisely because they combine digital leverage with physical execution — but that combination takes longer and costs more to scale. Founders frequently use expensive equity to finance working capital or asset expansion due to the absence of cheaper, more appropriate alternative instruments, leading to eroded ownership and constrained follow-on capacity.
Our survey shows that equity (38%) and convertible notes (33%) dominate African VC transactions, while venture debt (13%) and revenue-based financing (7%) remain nascent. This concentration reflects both investor comfort with standard instruments and limited availability of structured finance expertise. The result is a capital stack that rewards speed over sustainability.
58% of respondents estimate fewer than a quarter of their holdings have a visible route to liquidity, while an additional 29% said only 25–50% of their portfolio had a clear path to exit. Exits remain scarce, unpredictable, and heavily concentrated in a handful of sectors or geographies.
40% of respondents report between 10–50% of their portfolio companies are 'Zombies' — currently surviving without scaling or exiting. This ties up capital and extends fund timelines. Even funds holding fundamentally strong and growing portfolio companies often show weak DPI as there are no natural buyers or exit windows within their standard fund lifecycle.
Our survey suggests that fund managers expect the secondary route to be the most common exit path going forward. While only 38% of respondents have already completed at least one secondary transaction, 36% expect secondaries to be their main route to liquidity, followed by M&A (28%) and strategic buyouts (28%).
69% of respondents believe alternative or structured exit instruments should play a role in the African VC ecosystem. Similarly, 71% of fund managers expressed willingness to use annex funds or SPVs for follow-ons and structured exits.
The traditional 2% management fee and 20% carried interest model sits uneasily within the African context. With smaller fund sizes, higher operational complexity, and longer investment horizons, this structure neither sufficiently funds operations nor properly aligns incentives.
64% of respondents manage funds below USD 50 million, while only 20% of funds exceed USD 100 million. Yet 46% believe a fund must be at least USD 50 million to be economically sustainable — highlighting the capital fragmentation that characterises African VC.
Under European-style (whole fund) waterfall models, which DFIs frequently mandate, fund managers can only earn carry after the entire fund has returned invested capital and preferred returns to LPs — usually after at least 15–17 years. This unintentionally penalises African fund managers managing small funds with concentrated exposure and staggered liquidity.
Addressing these gaps requires more than marginal adjustments to existing models — it calls for rethinking how capital is structured, deployed, and incentivised. The goal is not to replace the existing VC model, but to complement it.
Evergreen structures eliminate the fixed 10-year fund cycle, allowing managers to reinvest proceeds and exit when market conditions are right. Grounded Investment Company initially launched as an evergreen holding company focused on 'boring' but essential sectors such as agribusiness and processing — though ultimately transitioned to a 13+1+1 structure acknowledging LP resistance to open-ended vehicles.
Venture studios co-create startups from the ground up. Catalyst Fund operates as a hybrid (part VC, part embedded venture builder), with its team of former operators dedicating up to 400 hours per startup. 88% of its portfolio across Fund I and II remains active, with survival and growth rates significantly outperforming the regional VC average.
ESO-linked funds combine capacity building with investment, often blending catalytic or grant capital with follow-on venture funding. Flat6Labs describes its structure as 'two sides of the same coin' — the accelerator functions as a sourcing and validation layer, while the fund deploys follow-on capital to the most promising startups.
Corporate VCs and institution-linked funds are emerging as key players. CVCs can bring significant value by validating products through internal pilots and becoming early commercial partners post-investment — and in Africa, can be 'the most logical route to liquidity' by acting as natural acquirers.
The findings of this paper point to one clear truth: there is no single 'right' fund model for Africa. Instead, there is a rich spectrum of combinations and possibilities, each shaped by different philosophies of risk, liquidity, and value creation.
When African fund managers are freed from the constraints of conventional structures, their visions expand dramatically. What emerges is not homogeneity but striking diversity: evergreen structures or 15-year vehicles, blended capital stacks that mix equity and debt, venture studios, buy-and-build platforms, local currency funds, continuation vehicles, and high-ownership SME-focused funds.
Africa's venture ecosystem cannot afford uniformity. It needs a portfolio of fund models, just as it needs a portfolio of startups: patient capital alongside faster capital, evergreen vehicles alongside closed-end ones, blended structures alongside pure equity. Africa's future will not be financed by one structure, but by many.