Africa’s weak public markets are limiting the exit options available to venture-backed startups, forcing investors to rely heavily on acquisitions, private transactions and strategic consolidation to realise returns, investment experts have said.
The challenge was highlighted at the Lagos Venture Finance Summit 2.0, where the investment experts examined the state of liquidity in Africa’s private markets.
To them the limited number of startup listings should not be viewed solely as a venture-capital problem because the weakness extends to African capital markets more broadly.
“This is not a VC issue. It is not a startup issue,” Michael Famoroti, head of research at Stears, said, arguing that even large, established companies across the continent have relatively few listings.
That creates a structural problem for startups approaching maturity. Where public markets are deep and liquid, an initial public offering can provide founders and early investors with another route to realise their holdings. In much of Africa, however, that pathway remains limited.
As a result, venture investors must increasingly look towards acquisitions, secondary transactions and mergers to generate liquidity.
The issue has become more important as Africa’s venture ecosystem matures. After years of rapid fundraising and investment, investors are now under greater pressure to demonstrate how capital deployed into startups eventually returns to limited partners and can be recycled into new businesses.
Famoroti said the scarcity of exit data makes the problem harder to measure. Only about 10 percent to 15 percent of African venture deals disclose their transaction values, according to Stears’ research.
This means the market often knows that a company has been acquired or an investor has exited without knowing the value of the transaction or how much capital was actually returned.
For investors, the information gap affects their ability to benchmark performance. For founders, it makes it harder to understand how companies with similar characteristics are being valued at exit.
It also makes Africa’s venture market less transparent to institutional investors comparing opportunities across emerging markets.
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Acquisitions carry the burden
In the absence of strong IPO markets, acquisitions have become one of the most visible exit routes for African venture investors.
The experts cited transactions involving companies such as Paystack as examples of the kind of large outcome that can shape expectations across the ecosystem.
But the dependence on acquisitions creates another challenge: African startups need a sufficiently deep pool of strategic and financial buyers capable of acquiring companies at valuations that can deliver meaningful returns to early investors.
This is particularly difficult outside sectors such as financial technology, where there are already established international and regional players looking for acquisitions.
Famoroti said the concentration of exits in fintech partly reflects the amount of capital that has flowed into the sector.
“We have the most investments going into fintech in the first place. And, not surprisingly, we have the most exits coming out of fintech,” he added.
The implication is that the apparent dominance of fintech in Africa’s exit market should not automatically be interpreted as evidence that other sectors cannot generate strong returns.
Rather, other sectors have received less capital and have produced fewer exits, leaving investors with a smaller pool of performance data.
Energy illustrates the difference. Large amounts of capital have flowed into energy businesses, but their asset-heavy nature means they often require longer investment periods and different forms of financing.
Famoroti said there has been a shift towards debt-based funding and private credit in the sector, reflecting the different capital requirements of energy businesses.
This could further reduce the number of companies in such sectors that follow the conventional venture-capital path of rapid growth followed by an acquisition or IPO.
Consolidation offers another route
With IPOs difficult and major acquisitions relatively limited, consolidation among African startups could become a more important source of liquidity.
Alyune-Blondin Diop, principal at LoftyInc Capital, said investors need to think more deliberately about how exits will happen because the continent’s venture ecosystem is still young.
Diop pointed to the consolidation involving OmniRetail and Traction Apps as an example of how combinations between African companies can create another form of liquidity.
He also suggested that there may be more such transactions taking place without public disclosure.
That creates another problem for the market: if mergers, acquisitions and secondary transactions are not disclosed, investors cannot develop a complete picture of how African venture-backed companies are creating liquidity.
For Stears, understanding the structure of those transactions is therefore as important as knowing that an exit happened.
Not every exit means cash
The investment experts also drew a distinction between an exit and actual cash liquidity.
Famoroti said a cash transaction is the clearest form of liquidity because capital is returned to investors.
A transaction in which an investor receives shares in another company is different.
While it represents an exit from the original investment, the investor has not necessarily realised the value in cash. Instead, the investor now holds another asset whose eventual value depends on a future liquidity event.
That distinction could become increasingly important as African companies use shares and other instruments to structure acquisitions.
The rise of stock-based transactions could indicate that the market is becoming more creative in finding ways to complete deals. But it could also point to a shortage of buyers with enough cash to fund outright acquisitions.
For investors, understanding that difference is crucial when assessing the quality of an exit.
Exit planning starts at investment
The lack of obvious exit routes is also changing how venture investors structure their initial investments.
Dolapo Morgan, principal at Ventures Platform Fund, said Ventures Platform now considers its eventual exit position when entering a startup.
The fund typically targets about 10 percent ownership at the seed stage, based on the expectation that subsequent fundraising rounds will dilute that stake.
“If you come in at 10 percent, in a couple of years you own 5 percent,” Morgan said, explaining that maintaining a meaningful stake gives the fund a better chance of generating a material return when an exit eventually occurs.
The fund also reserves capital for follow-on investments, allowing it to defend its ownership position as portfolio companies raise additional money.
That approach represents a shift from simply backing as many startups as possible to constructing investments around eventual portfolio economics.
For a young venture market with uncertain exit pathways, ownership becomes particularly important.
A fund that enters a company with a very small stake can find that successive rounds of fundraising dilute its position to a level where even a successful acquisition generates limited proceeds.
The missing IPO route
The investment experts’ concern about public markets ultimately points to a wider question about the structure of Africa’s capital markets.
If startups cannot progress from private venture funding into liquid public markets, investors have fewer mechanisms for realising returns.
Famoroti said countries such as Morocco and South Africa provide examples of markets where larger companies and private-equity-backed businesses have been able to access public markets more successfully.
But such examples remain limited across the continent.
Morgan said stronger links between stock exchanges and the startup ecosystem could help.
Ventures Platform has engaged with stock exchange representatives to help founders understand the requirements for listing while also exposing capital-market institutions to the realities of startup businesses.
The gap is partly one of education. Startups need to understand what public markets require, including governance, reporting and scale, while exchanges need to understand the capital structures and growth patterns of technology companies. But building that bridge will take time.
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Recycling capital
The importance of solving the exit problem extends beyond individual venture funds. Successful exits allow investors to return money to LPs and reinvest in new companies.
That creates a cycle in which the same pool of institutional capital can finance several generations of startups. Without sufficient exits, however, capital remains locked up for longer.
This could become a growing concern as African venture funds move deeper into their investment cycles and LPs increasingly look for evidence of realised returns rather than simply paper valuations.
For Africa, therefore, the next phase of venture-capital development may depend less on how much money startups can raise and more on whether the ecosystem can create reliable pathways for investors to get their money back.
The investment experts message was not that every African startup should pursue an IPO. Rather, the continent needs more exit routes, including deeper public markets, strategic acquisitions, secondary transactions, consolidation and better-functioning private capital markets.
Until those routes become more accessible, Africa’s venture ecosystem risks having a strong front end for deploying capital but a much weaker back end for returning it.
That imbalance could ultimately constrain the amount of capital available for the next generation of African startups.
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