Venture capital (VC) has become the default ambition for many African founders, but the uncomfortable truth is that most businesses on the continent will neither benefit from nor be suited to VC money. The idea that every tech-enabled business is a “startup” has been fuelled by years of Silicon Valley mythology: pitch decks pushed as the centre of gravity, blitzscaling treated as a default strategy, and valuations romanticised as proof of innovation.
But as Africa’s technology ecosystem matures, reality is taking centre stage. The vast majority of businesses across the continent are structurally and strategically closer to small to medium-sized enterprises (SMEs) than Silicon Valley-style startups. And confusing the two has consequences: misaligned capital, distorted growth expectations, unnecessary founder stress, and — ultimately — failed companies.
In a recent webinar, Zachariah George, Managing Partner atLaunch Africa Ventures challenged the assumptions that continue to shape founder behaviour and investor dialogue. He opened with a statement that should be required reading for anyone entering the ecosystem:
“Most businesses, not just in Africa but all over the world, tend to be SMEs. Very few of them are actually startups, and the two of them are like oil and water.”
This distinction is not semantics. For founders, investors, and ecosystem builders, it is the foundation upon which sustainable, scalable African businesses can emerge.
The Real Difference Between African SMEs and Start-ups
George’s articulation of the SME–start-up divide goes straight to the heart of a long-standing problem in African entrepreneurship: the misclassification of businesses. Too many founders believe they are building start-ups simply because they are using technology or because they envision rapid growth — but the operational DNA, risk appetite, and funding rationale of start-ups and SMEs are fundamentally different.
His warning is direct: treating an SME like a start-up doesn’t only distort the funding strategy; it actively harms the business. Founders end up chasing investors who cannot — and should not — finance their model.
For investors, the distinction helps filter realistic opportunities from speculative ones. For founders, it clarifies whether a venture-backed trajectory is appropriate or whether the business would thrive far more reliably under SME-oriented financing such as loans, grants, supplier credit, or revenue-based funding.
As George emphasised throughout the session, founders need to deeply understand what they are building, not just what they wish it could become. This understanding is now a competitive advantage in itself.
Why Venture Capital Funding Fails Most African Businesses
There are very few moments in African tech discourse where someone says what George says plainly:
“Venture capital is not for everyone and it's probably at best the last resource for a lot of founders.”
This statement stands in stark contrast to the prevailing belief that VC is the first milestone in a founder’s journey — a badge of legitimacy or the fuel without which growth is impossible.
But VC is a very specific type of capital designed for a very specific type of company.
Why VC rarely fits SMEs
SMEs typically:
Serve local or regional markets
Prioritise profitability and cashflow stability
Grow cautiously, often in direct relation to available revenues
Operate with established business models
Use debt or internal reinvestment rather than equity funding
According to George, SMEs “look for long-term stable growth that creates sustainable, long-lasting businesses”. These are businesses that can be family-owned, locally rooted, and financially healthy without scaling into multiple markets or raising external equity.
Why VCs Require a Different Kind of Business
Startups, on the other hand:
Are built for speed and scale
Prioritise growth over early profitability
Aim to expand beyond their home markets
Pursue aggressive customer acquisition
Require equity capital to operate at a loss during early scaling
VCs are not looking for efficient small businesses; they are looking for exponential outcomes. This is why the mismatch is so destructive — founders try to force a model that demands hypergrowth onto a business that was never built for it.
When SMEs chase VC money, the result is typically a combination of overhiring, rushed product decisions, unrealistic market expansion and debilitating pressure to grow at a rate that neither the business nor the market can sustain.
The hard truth? The vast majority of African businesses fall into the SME category — and that is perfectly fine.
Silicon Valley vs Africa: The Funding Mindset Mismatch
For many years, Silicon Valley has shaped the imagination of African entrepreneurs. Pitch decks emulate Valley storytelling; founders speak of “runways”, “acquisition pipelines” and “network effects” long before they have real customers; and accelerator culture has created the false impression that mentorship and pitch polish can compensate for shallow markets or flawed business models.
“Because of the glitz and glamour of Silicon Valley, a lot of founders have assumed that they can run start-ups, not SMEs,” explains George.
This misunderstanding ripples through product development, hiring, fundraising and market strategy.
Why Silicon Valley templates fail in African markets
Market structure is different. Fragmented regulation, inconsistent digital infrastructure and uneven purchasing power make blitzscaling impractical.
Growth curves are slower. Consumer adoption patterns differ sharply from developed markets.
Capital availability is limited. Africa simply does not have the volume of speculative capital that drives Silicon Valley’s risk appetite.
Localisation is non-negotiable. Solutions require deep contextual intelligence — something Valley models rarely prioritise.
Start-up failures carry higher social cost. Many founders bankroll their businesses with personal savings, family contributions or community support.
Founders who dont prioritise localisation and follow the Valley-style hypergrowth narrative often set themselves up for preventable failure.
The Narrative Shift Underway
Investors across the continent are now differentiating more clearly between businesses that can scale internationally, those that can scale regionally, and those that will grow reliably but locally. This shift is helping both founders and investors recalibrate expectations, leading to healthier conversations and more sustainable businesses.
What Venture-Backable African Start-ups Must Demonstrate
If SMEs are the backbone of the African economy, only a small subset of those businesses are genuine candidates for VC. For George, that distinction begins with “great teams”, deep industry knowledge and a business model capable of scaling beyond local confines.
In the webinar, he repeatedly emphasised three factors, “We’re looking for great teams, a really good understanding of what your target addressable market is, and proof of paying users.”
These criteria alone filter out the majority of early-stage applicants.
1. Startups must demonstrate traction — real traction
African investors no longer fund ideas or prototypes. As George put it, VCs “need to see proof of paying users”. Waiting lists, free sign-ups and enthusiastic surveys do not count. Revenue — particularly recurring revenue — is far more meaningful.
He was explicit:
Launch Africa Ventures does not typically evaluate companies doing less than $25,000 in monthly recurring revenue.
Traction should be verifiable: pilots, POCs, contracts or active paid usage.
2. Startups must have clear founder–market fit
Because Africa’s ecosystem is still maturing, repeat founders are rare. To compensate, VCs place greater weight on deep industry experience. For example, a fintech founder should ideally have prior experience in financial services, banking or regulatory environments.
3. Startups must address a large, accessible market
Venture returns require scale. A founder must prove that the target market is not only large but reachable with economically viable customer acquisition costs.
4. The product must include technology that creates leverage
In George’s words, a startup must have “something unique from a tech perspective”. In a world where open-source tools and AI have lowered barriers to building software, competitive moats matter more than ever.
5. Unit economics must be credible
George walked founders through the essential metric: the lifetime value to customer acquisition cost ratio (LTV:CAC). A ratio of 3:1 or better is widely regarded as a healthy indicator of scalability.
Startups with unit economics that break even only at massive scale are rarely competitive in African markets, where efficiency and disciplined spending can be the difference between survival and collapse.
What Venture-Backable African Start-ups Must Demonstrate
In the final portion of the webinar, George summarised Launch Africa’s approach to early-stage investment. While he did not go into fund structure or dollar amounts during the session, he was explicit about the criteria used to assess founders and deals.
Launch Africa looks for:
Exceptional teams
Clear market understanding
A path to scaling within and beyond Africa
Paying customers
Strong industry experience
Evidence of traction and revenue repeatability
George captured this succinctly when addressing the audience, “We’re looking for great teams, a really good understanding of your target addressable market, and proof of paying users.”
This is a clear public articulation of Launch Africa’s investment philosophy — practical, evidence-based and grounded in the realities of building companies on the continent. Startups looking for funding from Launch Ventures Africa can submit their digital pitch on thislink.
Conclusion: Clarity Is the New Competitive Advantage
Africa does not need more founders chasing the wrong capital. It needs founders who understand the true nature of their businesses — and investors who reward clarity, traction and discipline.
George’s message is not pessimistic; it is liberating. Most African businesses do not need VC to succeed. SMEs are not a lesser category — they are the backbone of economies, generators of employment, and engines of stability. Start-ups, meanwhile, serve a different purpose: they are high-risk, high-reward vehicles capable of rapid transformation when the model fits.
The opportunity ahead lies in founders knowing the difference, investors reinforcing the distinction, and the ecosystem celebrating the full spectrum of viable, meaningful African businesses.
Lungile is the Digital Editor for Startup.Africa, with a knack for storytelling, technology and innovative ideas. Working with Startup.Africa, she takes simple ideas and turns them into amazing stories.
Lungile Msomi
Lungile Msomi
