At a recent event co-hosted by the Mineworkers Investment Company (MIC) and Grindstone Ventures (Grindstone), industry leaders emphasised the urgent need for funding instruments that are tailored to the unique growth trajectories of African startups.
As the African tech ecosystem matures, the traditional venture capital (VC) mode, while crucial, does not always align with every startup’s needs. Thandiwe Matequka, CEO of Grindstone Ventures, highlighted that misalignment during a panel discussion.
“It's a big problem for us as well because we find these businesses and realise that they don’t quite fit what our mandate is. We might assess to see if we can get returns, but ultimately, we have institutional investors and the Limited Partners (LPs) who are expecting returns,” she said.
This growing disconnect has given rise to the increasing importance of tailored financing solutions that can better meet the varied needs of African entrepreneurs, particularly in early and growth stages.
What Is Tailored Startup Financing?
Tailored financing refers to financial solutions that are customised to a business’ specific need, unlike traditional funding that often follows a one-size-fits-all approach. These bespoke models take into account the stage of growth, business model, and operational needs of the startup.
Key benefits include:
Customised to fit the specific needs of the business
Considers the unique circumstances and financial history of the business
Provides more flexibility in terms of repayment schedules
Focuses on providing financing that helps the business achieve its objectives
Why African Startups Need Alternative Financing
Startups across the continent face challenges in accessing the right type of capital. While traditional VC is still dominant, there’s a growing ecosystem of alternative financing options that can help plug the funding gaps.
These include crowdfunding, asset-based financing, and working capital loans, all of which are playing a significant role in enabling startup sustainability.
Crowdfunding Platforms Gaining Momentum in Africa
Crowdfunding enables startups to raise capital through a broad base of supporters ranging from friends and family to customers and private investors, via online platforms. While still in its infancy in many parts of Africa, crowdfunding is beginning to gain momentum.
Notable platforms include:
The Angel Investment Network - connects startups with global angel investors
Thundafund - A leading local rewards-based crowdfunding platform
The People’s Fund - Specialises on funding black-owned businesses
Venture Capital Trends in 2025
Despite macroeconomic headwinds such as currency devaluations, high interest rates and infrastructure challenges, VC investment in Africa remains resilient.
In the first half of 2025,African startups raised $1.4 billion in funding (excluding exits), marking a significant 78% year-on-year increase compared to H1 2024, when startups raised just $800 million. This places H1 2025 nearly on par with H2 2025 ($1.42 billion), representing only a marginal 1.5% decline on a half-on-half basis.
This data shows a renewed investor confidence, particularly in sectors like fintech and logistics, which continue to deliver scalable impact and strong unit economics.
Asset-Based Financing for Early-Stage Startups
Asset financing allows a startup to borrow money against the value of existing assets, like equipment, stock, or receivables. It’s useful for businesses needing to fund operations such as purchasing raw materials or pay staff, without diluting equity.
Lula has business equipment funding designed for businesses of all sizes.
This type of financing is popular among startups with physical inventory or revenue generating infrastructure.
Working Capital Loans to Manage Cash Flow
Startups regularly face short-term cash flow issues, especially when waiting for payments or managing unexpected expenses. Working capital loans serve as a buffer to keep operations running smoothly.
“The biggest gap we saw in the market was working capital and asset-based funding that many businesses actually need. It's a huge gap in the market,” said the panel.
How Government Policies Impact Startup Funding in Africa
Across the continent, there is a pressing need for government policies tailored specifically to the needs of the startup ecosystem. Among the top four startup ecosystems - South Africa, Kenya, Egypt and Nigeria - only Nigeria has implemented a dedicated Startup Act.
While many governments have policies aimed at small businesses, these often fail to address the unique needs of high-growth, tech-enabled startups.
Entrepreneurs and investors often struggle with navigating complex regulations and paperwork, especially in countries like South Africa. Streamlining processes for starting, operating, and scaling businesses is essential.
Market Access Over Skills Training
While skills development remains important, there’s a growing demand for market access and scaling support. As Acting CEO of MIC, Cynthia Pongiwe pointed out:
“We let the government lead the way forward as corporations, and they're leading it from a skills development perspective. But we've passed that. Business owners are looking for scaling opportunities, job creation and sustainability.”
Building a Legal Framework for Startup Growth
Startups need legislation that enables innovation, protects intellectual property (IP), and facilitates global expansion. A dedicated startup policy can help foster growth and attract further foreign investment.
The Role of Fintech in Startup Capital Access
The rise of financial technology (Fintech) has significantly reshaped the startup financing landscape in recent years. Fintech solutions have reduced dependence on traditional banks and enabled more inclusive access to capital.
Take Yoco as an example, this local fintech provides financing to small businesses within its ecosystem based on transaction data, enabling real-time access to credit.
Other fintech solutions helping investors make smarter decisions include:
These technologies improve transparency, reduce due diligence time, and lower funding risks.
Risks of Fintech Funding Models
While fintech has democratised access to capital, it’s not without its risks:
Algorithmic Bias
Fintech platforms that rely heavily on data-driven algorithms may unintentionally exclude startups that lack historical performance data or fall outside standardised risk profiles.
Cybersecurity Threats
South African businesses face a growing cybersecurity risk. According to a recent report, 70%of South African businesses reported ransomware attacks in the past year. The threat landscape is evolving, with AI-powered cyberattacks and the exploitation of collaboration tools on the rise.
For fintech platforms to scale safely, data protection, compliance, and security must remain top priorities.
Custom Capital Is Key to Startup Growth
For African startups to scale and compete globally, a broader suite of financing options must be available—ones that go beyond traditional VC and accommodate the unique needs of founders across various sectors and stages.
Tailored financing, whether through asset-based lending, working capital solutions, or fintech-driven models, offers a viable path forward.
But for this potential to be fully realised, governments, investors, and financial institutions must align on a more holistic approach that puts startup sustainability and growth at the centre of funding strategies.
As the ecosystem continues to evolve, access to the right kind of capital (not just capital itself) will define Africa’s next wave of unicorns.
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.
