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Startups in Africa

Author

Listed:
  • Emanuele Colonnelli
  • Marcio Cruz
  • Mariana Pereira-Lopez
  • Tommaso Porzio
  • Chun Zhao

Abstract

We build new data on startups in Africa to study which types of financing these firms demand, how financing is allocated in practice, and the implications for startup creation and the composition of the sector. We combine a continent-wide founder survey, an incentive-compatible experiment estimating financing preferences, and venture capital (VC) deal records matched to founders’ education and work histories. We find that startups strongly prefer equity over debt, but equity is supplied mainly by foreign investors and flows disproportionately to foreign-connected founders. About 80 percent of VC deals involve a foreign investor, and more than 60 percent of funded founders have studied or worked outside Africa. A simple accounting framework shows that this foreignness reflects three main forces: scarce local equity capital, a thin pool of local entrepreneurs able to access startup finance, and frictions limiting local entrepreneurs’ access to foreign investors. Together, these forces reduce startup creation and tilt the sector toward foreign investors and foreign-connected founders.

Suggested Citation

  • Emanuele Colonnelli & Marcio Cruz & Mariana Pereira-Lopez & Tommaso Porzio & Chun Zhao, 2026. "Startups in Africa," NBER Working Papers 35261, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35261
    Note: CF DEV ED EFG IFM LE LS POL PR
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    JEL classification:

    • F0 - International Economics - - General
    • G0 - Financial Economics - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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