Africa’s startup ecosystem is alive with promise as entrepreneurs drive innovation across sectors from fintech and healthtech to agri-tech and logistics. Yet beneath this growth lies a critical problem: limited access to capital beyond the early stages and a persistent challenge around liquidity and investor exits.
At the heart of this dilemma is a disconnect between venture capital (VC) and Africa’s capital markets. While VC plays a crucial role in seeding and scaling startups, it rarely comes with a clear path to exit. Meanwhile, capital markets — traditionally the next stop for mature businesses — remain shallow, fragmented, and underutilised. This disconnect stifles growth, traps capital, and leaves many promising startups in a state of arrested development.
To unlock Africa’s full innovation potential, we need to rethink how VC and capital markets interact and more importantly, how they can complement each other to create a sustainable, scalable startup ecosystem.
Venture Capital landscape
Africa’s VC ecosystem has made impressive strides in recent years, especially in countries like Nigeria, Kenya, South Africa, and Egypt. These “Big Four” dominate funding flows due to their relatively mature financial infrastructure, larger consumer markets, and, in some cases, proactive regulatory reforms. Kenya, for example, has implemented fintech-friendly regulations that have boosted investor confidence and encouraged growth.
Yet beyond these markets, the VC pipeline becomes thinner. Startups in smaller or less developed economies often struggle to raise capital, not because of a lack of ideas but because of weaker local investment ecosystems and minimal support infrastructure. Even within the Big Four, most startups face long holding periods before achieving liquidity — whether through acquisition, secondary sales, or a public listing.
Why Capital Markets matter
Capital markets, essentially the platforms where companies raise funds through shares or bonds, are critical for creating liquidity. They enable early investors to exit, founders to raise follow-on funding, and businesses to scale without relying solely on debt or additional VC rounds.
In mature economies like the US, this synergy between private and public markets is well-established. Venture-backed companies often transition to public markets through Initial Public Offerings (IPOs), unlocking massive capital inflows and creating a virtuous cycle of reinvestment. The Jobs Act of 2012 further streamlined this process by easing regulatory burdens for emerging growth companies.
Africa, however, lacks that seamless handover.
Most African exchanges are characterised by low liquidity, limited listings, and weak investor participation. As a result, IPOs are rare and often seen as the preserve of large, established companies. This structural weakness closes off a crucial pathway for startups to grow and for early investors to exit undermining confidence and restricting capital flows into the ecosystem.
The recent collapse of Kenyan buy-now-pay-later startup Lipa Later offers a sobering illustration of the risks tied to over-reliance on venture capital without a diversified funding strategy. Founded in 2018, the fintech raised more than $15 million in equity and debt —most notably a $12 million seed round in 2022 and a $3.4 million debt facility in 2023.
Yet by March 2025, Lipa Later was placed under administration after failing to raise another round in time. Mounting debts, unpaid salaries, and an ill-timed acquisition of e-commerce platform Sky.Garden (for Sh250 million) left the company overstretched and financially exposed.
This collapse wasn’t merely a case of poor execution — it reflected a broader systemic problem. Like many African startups, Lipa Later depended heavily on fresh VC rounds to sustain operations. With no access to alternative funding mechanisms — such as public markets or secondary share sales — the company had no financial shock absorbers when investor appetite cooled.
Had there been a functioning, startup-friendly capital market framework in place, Lipa Later might have been able to diversify its funding, tap into retail or institutional investors via a mini-IPO, or allow early investors to exit gradually via secondary markets. Instead, the company crashed under the weight of its own growth strategy —an outcome that could have been mitigated with better financial infrastructure.
Reimagining Capital Markets for startups
If capital markets are to meaningfully support startups in Africa, they must evolve in three critical ways. First, listing barriers need to be lowered. Current requirements often penalise early-stage, high-growth businesses simply for being new. Markets like China’s STAR and Singapore’s Catalist offer models for tailored boards that strike a balance between investor protection and startup-friendly listing terms—approaches that could be replicated or adapted across Africa. Second, we need to improve liquidity mechanisms. Exchanges should enable more than just IPOs; tools such as secondary share sales, private placements, and retail investor participation can provide alternative paths for startups to raise follow-on capital and for early investors to exit without the pressure of a full public listing. Third, the foundation must be strengthened through better infrastructure and governance. This means investing in robust regulatory frameworks, transparent reporting standards, and improved market oversight—all essential for attracting institutional capital and building investor confidence. When confidence grows, so does participation—and with it, liquidity.
Some African stock exchanges are already making incremental progress. Kenya’s Ibuka Programme, South Africa’s Enterprise Acceleration Programme, and Botswana’s Tshipidi Mentorship Programme are all focused on helping SMEs navigate capital markets. Through mentorship, business advisory services, and phased listing support, these programs are lowering the barriers to entry and preparing startups for future funding milestones. While these are important steps in the right direction, far more systemic effort is needed to ensure capital markets serve as real engines of innovation and growth on the continent.
For investors, liquidity is everything. Without clear exit pathways, even the most promising and well-funded startups become high-risk propositions. Exit strategies are not just formalities — they are essential components of a healthy startup ecosystem. They allow early investors to realise returns, recycle their capital into new ventures, and give founders the financial runway to continue scaling.
There are several key exit strategies that help unlock this liquidity. One of the most well-known is the IPO, where a startup lists its shares on a public exchange and raises capital from the broader market. IPOs provide significant liquidity to founders and early investors while opening the company to larger funding pools. In Africa, IPOs remain relatively rare due to underdeveloped capital markets, but they remain a long-term aspiration for high-growth companies. Another common route is acquisition, often by a larger or international company. This path allows startups to scale with institutional backing while enabling investors to exit and has become increasingly common in sectors like fintech and e-commerce.
Private equity buyouts represent another option, particularly for startups that have reached a certain level of maturity. In these cases, private equity firms acquire a majority stake, providing capital and strategic support, while allowing early investors to cash out. Finally, secondary market sales — where early shareholders sell their equity to other private investors — are becoming more relevant globally and offer partial liquidity without requiring the company to go public or be acquired. While not yet widespread in Africa, these sales present a practical solution in markets with limited IPO activity.
Ultimately, these exit strategies are more than just financial tools; they are the mechanisms that keep innovation cycles moving. Without them, capital gets stuck, startups struggle to scale, and the broader ecosystem stagnates. For African startups to thrive, we must build financial systems that not only fuel growth but also ensure smooth and strategic exits — for the benefit of both investors and the societies these businesses serve.
If properly aligned, venture capital can drive the early momentum, and capital markets can provide the scale, structure and sustainability that startups need to go the distance.
Africa’s future depends not just on bold ideas, but on the financial systems that support them. As more entrepreneurs build transformative solutions across the continent, our challenge is to ensure the capital they need doesn’t dry up midway. That means modernising capital markets, encouraging liquidity, and building bridges between private capital and public exchanges.
The integration of venture capital and capital markets isn’t just a financial necessity it’s a strategic imperative for Africa’s innovation economy. The story of Lipa Later is not an outlier; it’s a signal. If we fail to fix the structural gaps in how African startups are financed, we will continue to see good ideas falter not from lack of vision, but from a lack of liquidity.
The writer is a management consultant, whistleblower and active citizen
