In a continent where venture capital (VC) funding is often seen as the only ticket to success, African startups are increasingly looking beyond traditional VC models to scale their businesses. Despite raising $3.2 billion in 2024, most of these funds went to a few tech-heavy startups in key markets, leaving many promising businesses unfunded. The limitations of VC funding in Africa are becoming apparent, and entrepreneurs are exploring alternative funding models that prioritize sustainability and long-term growth.

The traditional VC model, which relies on high valuations and quick exits, often clashes with the realities of African markets. Investors tend to favor expatriate-owned startups or those founded by Western-educated Africans, while local entrepreneurs without patronage struggle to access funding. Additionally, the emphasis on tech-driven scalability has sidelined businesses supporting most African economies, such as agriculture, manufacturing, logistics, and local commerce.

One of the main challenges facing African founders is the lack of local investor networks. With few local investors, a disconnect exists between the operational realities of regional economies and investors' expectations. This has led to a focus on alternative funding approaches, including revenue-based financing, grants from development agencies, and strategic partnerships with established brands.

Companies like Kenya's BitPesa (now AZA Finance) and Pesapal have proven that it's possible to scale without VC funding. Pesapal, a payments service provider, has built its business through strategic partnerships with banks and mobile money platforms, focusing on sustainable revenue growth instead of external funding. In an industry where VC-backed fintechs have struggled to crack the market, Pesapal has registered steady growth by prioritizing cash flow and profitability.

Revenue-based financing (RBF) is another alternative funding model gaining traction in Africa. Under this model, investors receive a share of revenues until the agreed amount as a multiple of principal investment – usually three to five times. South Africa's Linea Capital has started giving startups funding through this model, promising a non-dilutive, collateral-light funding structure compared to the VC option.

Large companies, including banks, telcos, and FMCGs, are also seeking partnerships with innovative startups. Such arrangements give startups market access, capital, and operational support – which some VCs might not offer. For instance, Safaricom's M-Pesa has partnered with startups like KopoKopo and Payless to expand payment solutions. The agreements between startups and established brands offer founders credibility and operational support that money alone cannot buy.

Startups that offer solutions that address social problems can leverage mobile-based crowdfunding platforms like M-Changa or impact investment funds such as Acumen. Community-driven funding models and impact investment funds are filling the gaps left by traditional banking systems with rigid collateral requirements and VCs. Large corporations and foundations owned by wealthy Africans have also set platforms to fund small businesses, such as the Tony Elumelu Foundation.

While traditional bank financing has been out of reach for most startups due to high interest rates and rigid collateral requirements, some lenders have since relaxed the rules. Banks like Kenya's Equity Bank and Nigeria's Access Bank have introduced SME-friendly solutions with flexible repayment plans that can accommodate startup growth cycles.

Grants and development financing from multilateral agencies like the World Bank, African Development Bank, and USAID often offer grants to startups in education, healthcare, and clean energy – among other areas that align with their objectives. Such financing is valuable for founders addressing social challenges that may not give quick returns after huge investments.

In conclusion, the narrative around funding for African startups needs to shift. The VC model is not the only funding alternative, and entrepreneurs are finding innovative ways to scale without relying on traditional VC models. By exploring alternative funding models, African startups can prioritize sustainability, independence, and a total focus on solving real problems rather than chasing higher valuations.