Fintech has long been the most funded startup sector in the continent, as companies look to capitalize on Africa’s flourishing digital payment market and the continent’s drive to increase financial inclusion and cashless payments. Recent standout deals by payment service providers include Flutterwave’s $170 million Series C round in March, and Network International’s acquisition of DPO Group for $288 million last year.

However, early-stage startups are still facing gaps in funding, particularly in the $250,000 to $1 million range, that could help them bridge “the valley of death,” the report says. Maëlis Carraro, managing director of Catalyst Fund and co-author of the report, describes this as the period when a startup has begun operations and has a product in market, but has not yet generated revenue, which is often a prerequisite for getting funding from institutional investors.

The result, she adds, is that the startups don’t get the opportunity to fully scale and provide a benefit to consumers, resulting in a loss of opportunity for potential customers, small businesses, and governments, and ultimately hurting the economy.

“They die in the van before they even are getting the opportunity to reach that stage,” she says.

Despite the presence of accelerators, incubators, mentorship programs, and angel networks, the report says, the African market is still far from having enough support to sufficiently spur more innovation. This is especially because this support appears concentrated in a few leading markets such as Kenya and among specific founder communities, it adds.

Founders who lack connections and influential networks are often excluded from funding flows early in their startup journeys, the report says. But besides capital, it adds, startups need practical and technical support from experts and operators that can help overcome the early hurdles.

To this end, there are many opportunities for blended finance approaches that make use of philanthropic and equity or debt capital to spur more innovation and help startups overcome the “valley of death,” the report says.

“We’re still falling short for the ecosystem to really mature and flourish like it has in other regions, and that’s our message for investors and for other ecosystem players, whether it’s enablers or funders of those types of programs,” says Carraro. “We need to do more for those entrepreneurs, and we need to see more innovative solutions emerge.”

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