African Start-ups See Mixed Results in First Half of 2025
The first half of 2025 has brought a more favorable environment for African start-ups compared to the same period last year, with increased access to funding from global investors. However, there is a noticeable shift in how this funding is being structured, with a growing preference for debt financing over traditional equity investments.
According to data from the Africa Venture Capital Association (AVCA), venture capital funding for African start-ups rose by 50 percent, reaching $1.2 billion in the six months up to June 2025, compared to $800 million in the same period in 2024. Notably, 80 percent of this funding came in the form of venture debt, signaling a significant change in investor behavior.
The number of deals also saw an increase, rising to 239 in 2025 from 205 in 2024, representing an 11 percent growth. East Africa accounted for 22 percent of these deals, worth approximately $144 million. This suggests that while the overall market is expanding, certain regions are benefiting more than others.
Despite the positive numbers, the rise in debt financing comes with its own set of challenges. For the first time, venture debt has surpassed equity deals in value, more than doubling the amount of equity funding. This shift has raised concerns among founders, who now face stricter financial obligations and repayment schedules.
Mercy Kimalat, CEO of the Association Start-up and SMEs Enablers of Kenya (Assek), highlighted the difficulties associated with debt financing. She pointed out that the lack of regulatory predictability in many African markets makes it hard for start-ups to plan their financial strategies effectively. “Debt is very frustrating because you have to repay within a stipulated period otherwise you are auctioned, and remember you have a lot of other liabilities that you have to repay,” she said.
The AVCA’s mid-year update noted that venture debt has been gaining traction globally as a flexible, non-dilutive financing tool. Between 2018 and 2024, the asset class grew by 14 percent, reflecting a broader trend in the private capital industry. In the first half of 2025, $971 million was raised through debt, a more than double increase from the $428 million recorded in the same period in 2024.
While the average deal value increased by 31 percent, from $5.9 million to $7.7 million, the value of debt deals more than doubled, rising from $14 million to $33 million. This indicates that larger transactions are increasingly being funded through debt rather than equity.
According to AVCA, most equity deals were below $3 million in value, with the majority of the funding growth coming from a few high-value transactions, primarily in the financial technology sector. Debt, on the other hand, dominated these high-value deals, with only 29 debt transactions accounting for 80 percent of the total funding value.
The AVCA observed that the ecosystem is showing signs of recovery, albeit cautiously. While deal volume is recovering faster than deal value, overall activity remains well below historic highs. The association believes that sustained investor engagement in the second half of the year could reinforce the slow but steady progress seen so far.
Last year was particularly challenging for African start-ups, with funding for early to mid-stage ventures dropping to its lowest level since 2020. Factors such as global economic crises, tax hikes, political tensions, and regional unrest contributed to this downturn. Investors became wary, leading to reduced funding for key innovation hubs in Kenya, Nigeria, and South Africa.
Experts suggest that the shift towards debt financing may also be driven by a growing disillusionment among investors due to the closure of numerous start-ups across the continent. Mercy Kimalat argued that institutional funders are changing their priorities, which is affecting the support available to African entrepreneurs.
Another notable trend this year is the rise in early-stage start-ups. Seed capital deals, which represent the first major round of funding for a start-up, accounted for 80 percent of the increase in the number of transactions closed. Seed funding rose by 40 percent year-on-year, reaching $171 million in the first half of 2025.
Financial technology, information technology, and industrial start-ups dominated the funding landscape, accounting for 62 percent of the total money raised. These sectors continue to attract significant interest from investors, highlighting their potential for growth and innovation.
While the current trends indicate a cautious optimism, the road ahead remains uncertain. The AVCA noted that if past trends hold, deal activity is likely to build gradually through the remainder of the year, potentially matching the full-year volume of 2024. However, late-stage appetite remains limited, and overall activity is still well below pre-downturn levels. The ecosystem appears to be settling into a new baseline, with sustained investor engagement being key to a continued recovery.