African companies are finding it harder to raise private capital for growth and expansion as investors grow more cautious over valuations and exit conditions, a new report shows.

Quarterly disclosures by the African Venture Capital Association (AVCA) indicate that private capital fundraising on the continent has faced significant headwinds. Over the nine months to September, final and interim fund closes fell by 22 percent and 30 percent respectively, marking a second consecutive annual decline.

Total private capital raised during the period stood at $2.6 billion, comprising $1.4 billion in final closes and $1.2 billion in interim closes, just over half of the $4 billion raised in the first nine months of 2024.

The report states that the fundraising cycle has slowed as investors take longer to assess fund performance, driven by concerns over volatile valuations and uncertain exit conditions.“H1 2025 (January-June) briefly sparked hopes of a rebound in Africa’s fundraising cycle, but this now appears to have been a delayed carryover effect rather than a sustained recovery. As with global markets, Africa is experiencing the impact of heightened LP (Limited Partners) selectivity, with fundraising dynamics shifting toward fewer active funds, larger allocation sizes, and extended timelines,” the report says.“Within Africa’s evolving private capital landscape, the outlook for fundraising in 2025 remains cautious. A strong H1 raised hopes of a rebound, but Q3 stagnation tempers expectations for a full-year recovery.”‎‎The report notes that transparency around capital deployment remains limited, while competition among fund managers for performance and valuation benchmarks continues to obscure market depth. AVCA calls for improved disclosure and better data harmonisation across the private capital ecosystem.

Fundraising has also become increasingly concentrated in large vehicles. About 85 percent of final close value during the period was captured by just three funds, reinforcing the polarisation of Africa’s fundraising landscape.

African-focused funds now take an average of 2.3 years to close, up from 1.9 years in 2022. “Fundraising cycles have lengthened, mirroring global patterns of slower capital recycling and increased scrutiny of fund performance, as limited partners remain cautious amid volatile valuations and uncertain exits,” the report said.

Limited partners, investors who provide capital but do not manage funds, have remained selective. In response, fund managers are pursuing targeted exits, focusing on sectors with strong buyer demand and liquidity, particularly financials and consumer discretionary.

Between January and September, financials led exit volumes, doubling year-on-year and accounting for 31 percent of exits in the third quarter. Consumer discretionary and consumer staples followed at 13 percent each. Financials and consumer discretionary recorded shorter holding periods, reflecting strong demand, while consumer staples exits took longer, often linked to legacy assets.

Regionally, Southern Africa emerged as the continent’s liquidity hub, accounting for 45 percent of exits and overtaking West Africa.

Despite the contraction, fundraising has tilted toward larger funds. Vehicles above $100 million averaged $406 million, up from $249 million in 2022–2024, while smaller funds below $100 million remained stable at about $37 million.

Fund managers have accelerated exit timelines to demonstrate performance and reassure investors in an increasingly selective environment. “Exit activity observed throughout 2025 is expected to persist into Q4 as fund managers prioritise liquidity creation to bolster investor confidence,” the report said.

Private debt emerged as a stabilising force, sustaining deal activity amid weaker equity fundraising. AVCA recorded 41 private debt deals worth $300 million in the nine months to September, nearly matching the full-year total for 2024.

Read: African start-up funding rebounds, shifts to debtDeal activity was concentrated in logistics, asset financing and renewable energy, driven by specialist managers such as Sahel Capital and Verdant Capital.

East Africa led with 40 percent of transactions, while Southern Africa’s share rose to 24 percent, pointing to a gradual diversification of regional deal flow.

Venture debt played a growing role, expanding 67 percent to account for 37 percent of private debt deal volume and 47 percent of value, underscoring its importance in sustaining liquidity as equity financing remains constrained.

© Copyright 2022 Nation Media Group. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).