Uganda has overtaken Rwanda and Tanzania as a leading destination for startup funding in East Africa, buoyed by rising support from Pan-African financiers and stronger local backing.

 

For the first time, Ugandan startups attracted more venture capital than their regional counterparts in Rwanda and Tanzania, signalling a change in regional investment dynamics., signalling a shift in investment dynamics across the region.

Kampala-based startups attracted $30 million in 2025 from different investors across the globe, beating Kigali’s $12 million and Dar es Salaam’s $5 million, after the two countries saw a decline in new funding for budding firms.

According to the African Venture Capital Association (AVCA), Uganda’s VC funding in 2025 increased by more than seven-fold from just $4 million, while the number of investment deals signed between startups and financiers doubled from 10 to 22.

During the same period, Rwanda’s deals reduced from 10 to 6, while value of investments more than doubled from $5 million in 2024, indicating a surge in mega-sized deals and a concentration of funding to a few startups, but a slower growth than Kampala’s.

Tanzania was the region’s worst performer in the startup funding scene, with the value of funding received dropping by more than eight-fold from $41 million, despite the number of deals rising from eight to 9.

Experts contend that Uganda’s rise as a key destination for startup capital is not just linked to growing investor confidence in the country and a growing number of successful startups launched from the country, but also rising financing and support from within.“Uganda's startup scene is emerging as a hub for foreign investment, particularly in fintech,” noted Allan Ananura, founder of Kampala-based VC firm iVenture Africa.

Confidence in the Ugandan startup ecosystem is rising, especially among Pan-African investors. A survey by the East African Venture Capital Association in 2024 revealed that about 31 percent of African investors now prioritize Uganda, alongside Ghana, Rwanda, and Senegal as a secondary hub.

But Kampala’s own local financier – Uganda Development Bank (UDB) – has also scaled its financing for local startups in the country, boosting access to seed capital for the country’s budding firms.

Last year, for instance, UDB pumped $3 million into electric vehicle manufacturer Gogo Electric, marking the largest amount the startup has raised so far, and which saw it attract an additional $1 million from the European Union-backed EDFI ElectriFI.

Transformation agendaThe financier, which has traditionally supported small and medium enterprises, has in recent months increased its funding to startups, earmarking up to $7 million (Ush25 billion) for private equity and venture capital initiatives.“Through UDB, the government is supporting businesses with patient, long-term capital, a cornerstone of our transformation agenda,” said Finance Minister Matia Kasaija last year. “If they continue doing a good job, we shall increase their funding.”Uganda has also boosted its regulatory support and tax incentives for startups. For instance, the government last year introduced a 3-year tax holiday for every budding firm started after July 1, incentivizing innovations in the country.

In Tanzania, a difficult regulatory environment that does not incentivize innovation is blamed for the slowdown in startup funding, coupled with the fact that many startups in Tanzania are in the agritech and healthtech sectors that traditionally don’t attract much funding.“Startups face unpredictable regulations that discourage investors from committing long term. Government reforms, including tax incentives and easier cross-border payments ae necessary to ensure consistency,” Michael Nywamwero, an entrepreneur and startup mentor told The Citizen in an interview last year.

Rwanda’s VC funding has mostly been to fintechs and electric vehicle manufacturers, with fims such as Kayko and Ampersand leading fundraises last year amid the decline in deal volumes.

In the Eastern African region, Uganda has now claimed second place in attracting startup funding, displacing Rwanda, Tanzania, Ethiopia, and Seychelles. 2025 was particularly a tough year for startups in Seychelles and Tanzania, which saw a significant dip in funding.

The region was generally outperformed by the North and Southern African region, which attracted a higher value of startup funding but fewer deals, indicating a higher number of mega-sized deals. Funding in North Africa was topped by Egypt, while South Africa led the southern parts of the continent.

In total, startups in the region raised $405 million – 82 percent of which went to Kenyan startups – a slight drop from last year’s $413 million, with a more tilt towards debt than equity last year compared to previous years.“Venture debt emerged as the defining feature of the ecosystem,” noted AVCA in its latest Africa Venture Capital Activity report.“It accounted for nearly one-third of deal volume and more than two-thirds of deal value, making East Africa the most active region on the continent for venture debt and the only one where it eclipsed equity funding in 2025.”Experts argue the shift to debt ultimately puts more pressure on the startups and signals less confidence on their success.“Debt is very frustrating because the regulatory landscape in Africa lacks the predictability, hence founders are unable to financially plan for their business growth,” argued Mercy Kimalat, chief executive of the Association of Startup and SME Enablers in Kenya ((Assek).“It comes with more pressure for founders because you have to repay within a stipulated period otherwise you are auctioned and remember you have a lot of other liabilities that you have to repay.”Looking ahead, experts exude confidence that Uganda will sustain the momentum in attracting startup funding.“This isn’t just about one good year. '

The underlying structure suggests Uganda tech startups could challenge the established narrative about where Africa’s next major innovation hub will emerge,” argued scholar Muktar Mola in an article on Batafric.“By 2031, Kampala might be mentioned in the same breath as Lagos and Nairobi, something that sounds absurd today, which is precisely why it deserves serious analysis.”

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