Where did the $100k cheques go? Inside the exit drought paralysing early-stage African tech

The number of African startups seeking seed funding between $100,000 and $1 million has dropped by nearly 50% over the past half year, according to Husein Merchant of Village Capital, a nonprofit supporting high-impact startups across emerging markets. Merchant attributes this decline to a lack of exits that could demonstrate the viability of earlier investments.

Without concrete evidence that previous rounds generated returns, investors are cautious and awaiting clearer patterns before committing further capital. Village Capital, which has previously backed companies like PiggyVest, Trade Lenda, and AirSmat, is now employing a different approach to fund early-stage ventures. Instead of issuing lump-sum cheques, they allocate capital in milestone-contingent tranches through the Africa Ecosystem Catalysts Facility, a $4 million pilot program.

This structure shields startups from premature pressures and allows investors to assess performance before disbursement. Village Capital's strategy involves partnering with five local Entrepreneur Support Organisations (ESOs)—two in Nigeria, two in Tanzania, and one in Ghana. These ESOs, contracted through a competitive Request for Proposal (RFP) process, manage the sourcing, applications, shortlisting, and due diligence.

This approach aims to ground deal selection in local market intelligence, reducing the risk of detached decision-making. Merchant argues that capital should adapt to each business model, region, and founder's long-term goals, rather than adhering to a one-size-fits-all approach based on traditional equity, debt, or SAFE notes. Merchant's focus is on "boring" businesses—cash-flow focused operations addressing fundamental daily needs—that are often overlooked by venture capitalists.

He believes Africa will primarily consume AI before it creates it, emphasizing that these foundational enterprises hold the greatest potential for growth.