Why traction-first investing could make Africa miss its next category-defining companies

**African venture capital is becoming more disciplined, writes Amarachi Nwachukwu, is a tech investor at MARLVC, where she leads investment activities across Africa, from deal sourcing and due diligence to investment execution and portfolio support. **

But I worry that in trying to avoid the mistakes of the last funding cycle, we may be creating another problem: becoming so focused on traction that we lose the ability to recognise exceptional opportunities before they become obvious.

Over the past few years, the conversation around early-stage investing has shifted significantly. Founders who could once raise capital on the strength of their vision, market opportunity and team are now being asked to demonstrate revenue, customer growth, retention and sometimes even profitability before investors are willing to write the first cheque.

I understand why. The funding boom of 2021 and 2022 taught us expensive lessons. Capital became harder to raise, follow-on funding slowed, and companies built around unsustainable growth struggled to survive. Investors became more selective, and founders were forced to prioritise stronger business fundamentals.

That correction was necessary.

Investing is fundamentally a judgment business. When we begin replacing judgment with rigid frameworks, we risk becoming exceptionally good at identifying what already works and increasingly poor at recognising what could work.

If we expect founders to eliminate most of the uncertainty before investing, what exactly are we underwriting?

**The traction paradox **

One of the biggest contradictions in African early-stage investing is that founders need capital to generate traction, yet investors increasingly demand traction before providing capital.

Consider a founder building financial infrastructure, an energy technology company or an AI product requiring specialised engineering and enterprise adoption.

These businesses may need regulatory approvals, technical development, distribution partnerships and significant product experimentation before meaningful revenue becomes possible.

Yet they are often evaluated using the same commercial expectations as software businesses operating in established markets.

The result is a difficult cycle: founders need funding to build, but must demonstrate the outcomes of that funding before receiving it.

And this changes what founders build.

When a founder is constantly worried about payroll, infrastructure costs and keeping the business alive, long-term product innovation can become secondary to immediate revenue.

Instead of pursuing an ambitious technology opportunity, they may pivot toward consulting, short-term commercial contracts or smaller business models that generate cash quickly.

There is nothing wrong with building a profitable small business. But venture capital is supposed to finance companies with the potential for outsized outcomes.

If our investment expectations consistently push founders toward what is easiest to monetise, we may be discouraging them from building what could become most valuable.

**Traction is not the same as potential **

In evaluating early-stage technology companies, I have become increasingly interested in the distinction between what a company has already achieved and what its achievements actually tell us about its future.

A company generating $30,000 in monthly revenue is not automatically a better venture investment than one generating $3,000.

The first may operate in a crowded market, with limited differentiation, expensive customer acquisition and little room to expand.

Revenue does not eliminate execution risk, competition, regulatory uncertainty or the possibility that a business will never achieve venture-scale returns.

For some companies, revenue is the strongest evidence of demand. For others, it may be product adoption, customer retention, successful technical deployment, signed commercial agreements or a measurable improvement in how customers operate.

Of course, a signed partnership is not equivalent to revenue, and a product demonstration is not proof of product-market fit.

But these signals should not be dismissed simply because they have not yet translated into substantial revenue.

Our responsibility as investors is to understand what each signal proves. AI has made this conversation even more interesting.

Today, with AI-assisted development tools and increasingly accessible software infrastructure, founders can build prototypes and minimum viable products at a fraction of what similar development might have cost a few years ago.

Investors know this. However an MVP alone is no longer particularly impressive in many software categories. If almost anyone can build a functional product, investors reasonably want evidence that customers need it..

But we should not confuse the declining cost of building software with the declining difficulty of building a meaningful technology company. Distribution, regulatory complexity, customer trust, proprietary technology and sustainable competitive advantages remain difficult to develop.

The question should not simply be whether a founder has built something and generated revenue.

It should be whether they are building something that matters, why they are uniquely positioned to succeed, and whether the market conditions support that opportunity.

**Are we managing risk or avoiding it? **

It would be unfair to discuss traction-first investing without acknowledging the position of fund managers.

Fund managers have fiduciary responsibilities, portfolio construction strategies, investment mandates and return expectations. Their ability to raise subsequent funds often depends on the performance of their existing investments and in Africa, those pressures are particularly significant. The ecosystem operates against a backdrop of currency volatility, limited exit opportunities, uneven consumer purchasing power, regulatory uncertainty and a relatively small pool of investors willing to fund companies through multiple stages. This explains why investors increasingly favour companies with measurable commercial progress.

However, there is a difference between managing risk and refusing to take the risks that define venture capital. If every fund eventually waits for the same revenue thresholds and growth metrics, we eventually compete for the same small pool of validated companies. And by then, the earliest opportunities to generate outsized returns may already have passed.

I believe investing is fundamentally a judgment business.

At pre-seed, I want to understand the founder’s insight into the problem, their ability to execute, the timing of the market opportunity, the strength of the technology and the evidence supporting their assumptions.

Most importantly, I want to understand what the investment will help them prove next.

There is a difference between managing risk intelligently and refusing to take risks that are central to the venture capital model.

Not every fund should invest before revenue. Fund mandates, portfolio strategies and LP expectations matter. But an ecosystem in which almost nobody is willing to finance that stage has a structural problem.

We are also shaping the kinds of companies Africa will produce.

Perhaps the most concerning consequence of traction-first investing is not the individual companies that fail to raise capital. The greatest consequence of traction-first investing may not be the companies that fail to raise capital. It may be the companies that never get built. Founders respond to incentives.

Founders pay attention to what investors fund. If capital consistently flows toward business models capable of generating immediate revenue, more founders will naturally pursue those opportunities.

We may end up with an ecosystem that produces an increasing number of commercially sensible startups but fewer companies attempting difficult technological breakthroughs or creating entirely new markets.

But where the potential for venture-scale outcomes exists, investors should be willing to evaluate the opportunity on its merits instead of rejecting it because its commercial progress does not resemble that of a conventional SaaS startup.

There is also a broader ecosystem effect. Every successful founder can create experienced operators, angel investors, new companies and future sources of capital. Supporting the right early-stage companies can therefore create value beyond the returns of an individual investment. But that future ecosystem cannot emerge if we consistently wait for someone else to take the earliest risks

But where the potential for venture-scale outcomes exists, investors should be willing to evaluate the opportunity on its merits instead of rejecting it because its commercial progress does not resemble that of a conventional SaaS startup.

The greatest consequence of traction-first investing may not be the companies that fail to raise capital. It may be the companies that never get built. Founders respond to incentives.

If investors consistently reward business models capable of generating immediate revenue, founders will naturally gravitate toward those opportunities. We risk producing more companies that are commercially sensible from day one, but fewer attempting difficult technological breakthroughs or creating entirely new markets.

I am not advocating a return to reckless investing, inflated valuations or funding ambitious narratives without credible evidence.

African venture capital needs discipline. We need better governance, stronger due diligence, realistic valuations and founders who understand capital efficiency.

Our responsibility is to recognise the difference between an unproven idea and an opportunity worth proving.

Because if we only invest when the outcome begins to look certain, are we still financing innovation, or are we simply financing its survivors?

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