How Launch Africa is investing through Africa’s venture capital reset

Africa’s venture capital market is recovering, but as funding returns, it is being directed to fewer new startups capable of sustaining that recovery.

According to Condia’s State of Startup Funding in Africa II report, seed-stage deals have fallen from 105 in 2022 to just 31 in 2025. The decline worries investors because today’s seed companies become tomorrow’s Series A and B businesses.

A shrinking pipeline leaves investors with fewer opportunities to back category leaders and increases the temptation to concentrate capital in a small pool of already established winners.

“What I’m worried about is the barrier that this has created for lots of other businesses that could have otherwise scaled but cannot,” Uwem Uwemakpan, Head of Investments at Launch Africa Ventures, tells Condia.

A buyer’s market for early-stage investors

For Launch Africa, the slowdown presents as much opportunity as concern. The firm invests primarily at the pre-seed and seed stages, where investor pullback has sharply reduced competition for deals. With fewer funds chasing founders, Launch Africa has greater access to promising startups while investing at valuations that better reflect market realities.

That marks a significant shift from the exuberance of the venture capital boom, when founders often raised at valuations that proved difficult to justify in African markets. Following the market correction, pre-seed rounds have become markedly cheaper, while seed-stage valuations have largely settled between $4 million and $7 million.

The challenge, Uwemakpan argues, is no longer simply deploying capital. It is finding companies capable of generating venture-scale returns. That responsibility, he says, extends beyond investors.

While venture firms could do more to identify exceptional founders, he believes the ecosystem is also losing valuable entrepreneurial talent to companies that are effectively dead but continue operating.

Many experienced founders remain committed to startups that are unlikely to ever deliver venture returns instead of applying the lessons from those ventures to build stronger businesses. For him, capital does more than finance businesses. It gives talented entrepreneurs the chance to learn, iterate and build again.

“Sometimes, the difference between a good founder and a great founder is money,” he says.

African startups need alternative financing

The problem is compounded by Africa’s limited financing options. Venture capital has become the default funding mechanism for startups, including those that were never designed to fit the venture model.

Without broader access to debt, revenue-based financing or private equity, businesses that could become successful, profitable companies are often forced into a venture-backed growth trajectory. When they fail to produce venture-scale returns, they are labelled failures despite never being suitable VC investments in the first place.

The industry’s recent caution is understandable. Higher global interest rates, weaker fundraising conditions and currency volatility have all made investors more selective. Yet Uwemakpan argues that venture capital cannot become so focused on managing downside risk that it overlooks the continent’s long-term opportunities.

For him, continuing to write early-stage cheques is about more than sourcing attractive investments. It is also about preserving confidence in Africa’s startup ecosystem.

“The world exists on signals,” he says. “If people like us stop investing, the rest of the world starts assuming that nothing good is happening on the continent, and that affects the number of people that can raise funds on the continent.”

This year alone, Launch Africa Ventures has made 15 new investments from Fund II into startups including Mainstack, Growwr and Yamify. The second fund also reflects lessons from the firm’s first.

Where Fund I typically invested between $100,000 and $200,000 initially, Fund II can write first cheques of up to $500,000. More importantly, it now reserves capital for follow-on investments — something that was absent from the first fund.

Portfolio companies that reach agreed milestones but require additional capital can receive up to $1 million in cumulative funding, giving them a stronger runway before approaching external investors.

Engineering exits from day one

The firm’s investment thesis has evolved as well. After reviewing its first portfolio alongside broader market trends, Launch Africa concluded that technology infrastructure offers more compelling long-term opportunities than consumer-facing applications.

Its priorities now include credit infrastructure, embedded finance, health insurance, B2B commerce, digital identity and government technology. Rather than backing businesses that sell directly to consumers, it increasingly favours companies building the rails that enable other businesses to operate more efficiently.

Every prospective investment is evaluated against its existing portfolio to identify opportunities for collaboration. The objective is not merely to assemble a collection of startups but to build an ecosystem whose companies create value for one another.

“One of the things that we hope to achieve — and is in our mission — is building the future of business relationships on the continent,” Uwemakpan says.

Those relationships can generate commercial partnerships between founders today while creating strategic options tomorrow. Companies that have worked together for years are naturally better positioned for acquisitions, mergers or other exit opportunities when the time comes.

The same emphasis on long-term outcomes has reshaped the firm’s due diligence. Recognising that founder dynamics often determine whether startups survive inevitable setbacks, Launch Africa now interviews co-founders separately during investment processes. The goal is to understand not only each founder’s contribution but also how they work together under pressure.

“You can’t pivot a bad founder,” Uwemakpan says, arguing that co-founder conflicts remain among the most destructive events a young company can experience.

Launch Africa’s evolving investment thesis

As Fund II deployment gathers pace, several investment principles now guide the firm’s decision-making. The composition of the founding team remains paramount. Equally important is ownership: the firm prioritises investments where it can hold meaningful stakes while remaining positioned to exit within the fund’s lifespan.

It also evaluates whether Launch Africa can materially improve a company’s chances of success through introductions, strategic guidance or customer relationships. Occasionally, investments are made because they strengthen the broader portfolio, even when standalone returns are less obvious.

Profitability has also moved much higher up the agenda. Rather than rewarding growth at any cost, the firm looks closely at whether businesses can withstand macroeconomic shocks such as the currency volatility that severely disrupted many African startups over the past two years.

Perhaps the biggest lesson, however, concerns exits. Launch Africa recently returned $2.5 million to investors through 11 exits. Those outcomes, he argues, were not the product of chance but of relationships cultivated from the moment the firm’s first cheque was written.

Potential acquirers, strategic partners and future investors were engaged years before transactions eventually materialised. As Africa’s venture market enters a more disciplined era, that philosophy may prove increasingly important.

Capital is more scarce, valuations are lower and investors are demanding stronger fundamentals. But for firms willing to continue backing founders early and thinking deliberately about how those companies eventually mature, the current downturn may be laying the foundations for the ecosystem’s next generation of winners.