The venture capital landscape in Africa is witnessing a noticeable shift, as some of its leading investors are increasingly backing foreign founders exploring opportunities within the continent. Just yesterday, Helios Investment Partners, one of Africa’s largest private equity firms, led a $100 million Series D funding round in India-based M2P Fintech. This fast-growing Banking as a Service (BaaS) and Infrastructure API provider has ambitions to extend its services into Africa’s financial services sector. Flourish Ventures, another prolific Africa-focused investor, also participated in the round.

Late last week, Zeno, a stealth-mode Wyoming-based startup founded in 2022 by Tesla alumnus Michael Spencer, raised $9.5 million in an oversubscribed seed round, with participation from 4DX Ventures, a firm typically dedicated to African startups. Zeno is positioning itself to revolutionize Africa’s energy and transport landscape by leveraging electric vehicle (EV) technology. The inclusion of 4DX Ventures in this round demonstrates how Africa-focused investors are open to funding startups with foreign founders, especially when there is a clear alignment between their technology and Africa’s needs.

This trend is not limited to U.S. or Indian startups. European firms with African connections are also attracting Africa-focused capital. Amsterdam-based Userguest, which has Moroccan roots, recently secured €2.2 million ($2.4 million) in seed funding, led by Moroccan VC firms such as Al Mada Ventures and CDG Invest. The capital infusion underscores the growing appetite to support African entrepreneurs operating in global markets, with Al Mada Ventures emphasizing their desire to back a player making an impact in the African tech ecosystem while scaling globally.

Strategic Diversification Amid African Portfolio Struggles

These recent investments signal a broader move towards geographical diversification among African investors. A recent study by Launch Base Africa showed that 35.2% of Africa’s top venture capital investors are now adopting this strategy, spreading their investments beyond the continent. This trend reflects growing concerns over the challenges within Africa’s own tech ecosystem, where several high-profile failures have put investor returns at risk.

Firms such as EchoVC, DoB Equity, and MSA Capital have faced setbacks following the collapse of their African portfolio companies. As losses mounted, some investors began reconsidering their focus on the region, seeking out more established markets with stable growth prospects.

In the Maghreb region, this shift has been particularly evident. Local venture capital firms are recalibrating their investment strategies, moving away from a heavy reliance on regional startups. Morocco’s Maroc Numeric Fund II (MNF II), managed by MITC Capital, exemplifies this shift. Once a champion of the Moroccan startup scene, MNF II recently faced criticism after the collapse of Yallah Xash, a fintech company targeting remittance services for the Moroccan diaspora in North America. 

MITC Capital’s challenges with Yallah Xash reflect wider difficulties for Moroccan startups, as a string of failed ventures — including NetPeas, Mydeal.ma, and OnePay — has raised questions about the region’s startup ecosystem. Despite significant capital inflows in recent years, these companies struggled to achieve sustainable growth, prompting investors to seek safer opportunities abroad.

The recent pivot by firms like Helios, 4DX Ventures and MNF II suggests that Africa-focused investors are now pursuing a more measured approach, balancing their portfolios between African and non-African ventures. While the continent’s market potential remains undeniable, these investors are increasingly cautious about overexposure to local risks. By investing in foreign companies with the potential to expand into Africa, investors may be signaling that they can tap into the continent’s growth story without being tied to the challenges that have hindered the success of some African startups.

Confidence in Local Founders at Risk

While this diversification may be seen as a strategic way to hedge risks, experts say this could inadvertently undermine the confidence in local founders and ecosystems. The first argument from this is that as Africa-focused investors shifts towards foreign founders, local entrepreneurs may find it increasingly difficult to attract significant funding.

Many African startups are still in the early stages of development and face challenges such as limited access to infrastructure, regulatory hurdles, and market volatility. Historically, venture capital funding has played a crucial role in helping these businesses scale, but the increasing trend of supporting foreign-led companies could potentially siphon off resources that would otherwise go to local ventures.

This shift is particularly concerning for regions like North Africa, specifically Morocco and Algeria, where several high-profile startup failures have already undermined investor confidence. In this context, it is understandable that investors may even be more inclined to pursue offshore startups, especially following the acquisition of the startup InstaDeep for $684 million.

Yet, even as they diversify, many investors ( such as Morocco’s Azur Innovation Fund, which recently backed local artificial intelligence (AI)-driven recruitment startup Kwiks) remain committed to the African market, recognizing the continent’s long-term potential. As emerging sectors such as fintech, clean energy, and logistics continue to develop, the prospect of transformative growth in Africa still drives investor interest. The challenge, it seems, lies in navigating the complexities of the local ecosystem while mitigating risk through broader geographic exposure.