Where did the $100k cheques go? Inside the exit drought paralysing early-stage African tech

The number of African startups raising between $100,000 and $1 million has fallen by almost half over the past six months. Husein Merchant, who leads Village Capital’s regional operations, has a straightforward explanation: there have not been enough exits to show investors that those cheques work.

Lacking empirical evidence that the previous cycle delivered, investors are holding back and waiting for clearer historical patterns before committing new capital, Merchant said.

Village Capital, a global nonprofit that backs high-impact startups in emerging markets, has a long record in African tech. It backed PiggyVest in 2017 and invested in Trade Lenda and AirSmat this month.

Village Capital does not currently have a fund of its own, Merchant says. The firm manages facilities on behalf of partners. Its newest is the Africa Ecosystem Catalysts Facility, a $4 million pilot, which has committed about $1.3 million to seven companies, five in Ghana and two in Nigeria, since its first investments in May 2026.

Capital is disbursed in milestone-contingent tranches rather than lump-sum cheques—a structure Merchant argues shields early-stage companies from premature repayment or exit pressures before operational performance can support them.

The underlying idea is what Village Capital calls purpose-suited capital. Not every business model, region, or founder can make best use of the same instrument. Merchant argues that capital should adapt to the business model, the intended use of funds, local regulation, and what the founder wants long-term, which means looking past the standard menu of equity, debt, and SAFE notes before designing the structure.

The most distinctive aspect of the model, however, is in its selection mechanism. Through a competitive Request for Proposal (RFP) process, Village Capital contracted five local Entrepreneur Support Organisations (ESOs)—two in Nigeria, two in Tanzania, and one in Ghana—compensating them to manage sourcing, applications, shortlisting, and due diligence. The objective was to eliminate detached decision-making by anchoring deal selection in ground-level market intelligence.

Merchant’s broader investment thesis diverges sharply from mainstream venture trends. He contends that the single greatest opportunity in Africa lies in “boring” businesses—unglamorous, cash-flow-focused operations addressing fundamental daily needs that venture capitalists routinely overlook in pursuit of flashier tech narratives.

In this conversation, Merchant breaks down the operational mechanics and compensation of ESO partnerships, clarifies what separates a deal approval from a rejection, and explains why he believes Africa will primarily consume AI before it creates it.

This interview has been edited lightly for length and clarity.

The number of African startups raising between $100,000 and $1 million has fallen by almost half in the last six months. What do you think is causing that?

The most likely reason is that there have not been sufficient exits for investors expecting a return within five or seven years, whether through SAFE notes, direct equity, or other instruments. Because there have not been enough exits to demonstrate that those ticket sizes and those instruments are working, there has probably been a reduction in new investments.

Investors are looking for data. They are looking for patterns they can follow. In the absence of strong evidence that past investments worked, they are hesitating to make new ones.

Are you seeing better companies for the same money compared with five years ago?

There has definitely been a maturing among founders. There is better understanding now of the kinds of capital available and what kind of capital they want to raise. In terms of business model, I do not think there is any meaningful difference. But the founders I have been interacting with do seem better equipped to have conversations with investors than they were five years ago.

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You have invested about $1.3 million across seven companies in 19 months, out of a $4 million facility. What is the thinking behind that pace?

We started work on the Africa Ecosystem Catalyst Facility, the $4 million facility, around early 2025. Through this facility, we are not directly going out and finding companies to invest in. We are working with local entrepreneur support organisations.

We use their help to find relevant companies, and it is a fairly detailed and lengthy process. We first worked with them to explain the kinds of companies we were looking for and to design their sourcing process. They then made a call for applications and filtered it down. We reviewed those together, and that became our initial pipeline. Even though the facility started in 2025, much of that year went into that engagement process.

After we had the shortlists, we started the selection process: in-person due diligence, legal due diligence, and all those steps. Only then could we close the investments. If a company engages directly with an investor, it might close six months from the point the investor first hears about it. Ours was stretched further because we were not interacting with the companies directly at the outset. The ESO did a level of diligence and passed it along to Village Capital.

The second important thing is that we are being very mindful about deploying in tranches this time. Even if we have allocated, say, $500,000 to a company, we are not deploying the entire amount at the initial stage. We structure the investment according to milestones, so companies are not burdened by pressures of repayment or providing exits, and so we get some evidence of the company’s performance before deploying the full amount.

Can you explain what you mean by purpose-suited capital?

The underlying thesis is that every business model, every region, and every kind of founder may not be able to make best use of the same kind of capital. Capital needs to adapt according to the business model, the use of the capital, local regulations, and what the founder wants to achieve in the long term.

When we, as investors, look beyond the traditional instruments of equity, debt, and SAFE notes, take the time to understand the business model and the use of funds, and then design our capital according to that use, that is what we refer to as purpose-suited or fit-for-purpose capital.

How does the arrangement with local partners work?

For this specific facility, and this is a pilot, we were learning as we went along. It is the first time we have implemented something like this in the region.

We have engaged five local entrepreneur support organisations: two in Nigeria, two in Tanzania, and one in Ghana. We also engaged another entity, not as a full partner, but as someone who helps with sourcing.

Several ESOs applied to act as our partners on the facility, and that went through a detailed, rigorous selection process, which gave us our partners in each region.

The thinking was that we would use their local expertise, because what we wanted to avoid was investors making decisions without on-the-ground presence. We relied on them to help us understand the local context and nuances, and to inform the investment decision accordingly.

These engagements were formally contracted. Village Capital contracted with all of these ESOs, with a very defined scope of work, defined milestones, and compensation for the work they do alongside us.

The contracts started with helping us refine our investment thesis for the region, because we wanted the local ESO to validate it. Once that was done, we designed the application process together. We guided them on how we wanted companies to apply and what information we wanted shared, and we assisted them in shortlisting, explaining the kinds of companies to look for.

The ultimate objective was that along with drawing on their local knowledge, we would also give them insight into how the investment process works, so we were helping them upskill their own teams by collaborating closely with us.

What exactly are the local partners compensated for?

There were very specific tasks in the contract. Bucketing them into main categories: one was running the application process. The second was sourcing and shortlisting. The third was participating in some level of diligence on the companies.

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After you get a recommendation from a local partner, what happens next? Can they veto an investment?

The ultimate investment decision is Village Capital’s. The investment sits on our books, and it is ultimately a Village Capital investment, so the decision rests with us. What we wanted was to involve them in the shortlisting and selection process to get to a relevant number of companies much faster.

Here is one concrete benefit. If we had run the application process on our own in a market like Nigeria, we would have had more than 500 companies apply. When you have such a limited pool of capital, getting from 500 down to the seven or eight companies you want to conduct detailed diligence on is extremely time-consuming. When we engaged the ESOs, they brought us a solid list of about 30 to 40 companies, and we only had to spend our time reviewing those.

Another good example is companies we might otherwise have overlooked, either because the business model did not appear to be a fit or the founder did not appear ready for investment. We had several cases where the ESO came to us and said they highly recommended we speak to a particular founder, because they were a great founder and well suited to a facility like this. If they had not told us that, it is very likely we would have overlooked that company.

What makes a company a yes from Village Capital, and what makes it a no?

Context is important, because this applies to this specific facility. Village Capital does not currently have its own fund that we invest out of. We manage facilities on behalf of partners. When a facility is managed on behalf of a certain partner, the themes and objectives of that facility are of primary importance. A company that is a yes for one facility may not be a yes for another facility we manage later.

With that context, a lot comes down to the founder’s ability to convince us that they understand the problem extremely deeply and that they are the ones who can solve it profitably. A great deal depends on the founder’s ability to convey that.

In this case, we also relied on the ESOs for their opinion, because in most cases they were familiar with the founders before recommending them. They had already done some form of vetting, whether the founder had participated in one of their accelerators or they knew them through their network.

The founder needs to be credible and able to demonstrate that they understand the problem and can solve it.

After that, impact is extremely important for Village Capital. Companies that do not check the impact box get filtered out very early. That impact lens differs from facility to facility. A previous facility would have a different impact focus from the current one, and the company selected should have a very strong impact fit for that specific facility.

Then it depends on what we want to achieve through that capital. If there is a strong tilt towards ensuring a return on investment, the metrics we look for are different. If the tilt is towards market creation, or the capital is able to take on more risk, we look for more innovative or untested solutions that may or may not succeed, where the risk is worth taking given the level of innovation.

Why does Village Capital rely on local partners?

We believe African stakeholders should be involved in the decision-making and the investment process as much as possible. This should be true for any region, not only Africa. For any investment being made in a region, there should be weight given to the opinions and expertise of people actually based there who know that market.

Partnering with local entrepreneur support organisations is an efficient way for us to achieve that, because they have expertise for the region we engage them for. Even though Village Capital has a team based in Africa, we do not have teams in every country. If we want someone with expertise in a particular country and region, this partnership is an easy and efficient way to get it.

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What have you personally learned from investing on the continent?

The biggest learning is that you need to think locally and take into consideration the opinions and expertise of people and teams actually based in the market. That is what we are attempting to solve through the new facility.

The second big learning is that there is so much opportunity in boring solutions and boring businesses. A lot of us chase the flashy and the trendy investment opportunities. The bigger opportunity, in my opinion, lies in more boring day-to-day businesses solving important needs that investors overlook. If more capital and attention were diverted to those kinds of solutions, there is a lot of money to be made for African entrepreneurs and investors alike.

What are your thoughts on investing in artificial intelligence in Africa?

To be honest, that is not a sector we have looked at yet, so I cannot give you an official view.

My personal opinion is that there is going to be a lot of opportunity on the consumer side for AI solutions. I do not have sufficient information on what exactly that could look like. But given that Africa may be more of a consumer of AI technology than a creator of it, I feel the kinds of investments and solutions may also lean towards the consumer side of things.

What are the macro headwinds in Africa, and how have you navigated them?

For most foreign investors, foreign exchange fluctuations were among the biggest headwinds over the past two or three years. That has largely stabilised now. I would not say the fluctuations have subsided, but they have stabilised, so there is at least more predictability about what you can do next.

Depending on the solutions you are looking at in Africa, several have a heavy dependence on imports. In manufacturing, for example, a lot of raw materials and components are imported from China and other markets. Given the tariffs and the shipping route disruptions of the past year or so, all of that has affected countries heavily dependent on imported technologies and components.

Those are the two that come immediately to mind: forex and the disruption in global shipping and trade.

How important are early-stage startups to Africa, and why does Village Capital invest at that stage?

Any business starts as an early-stage company, and that is probably the stage at which they need the most support. That is one of the reasons Village Capital supports companies at that stage. There is a lot of value you can add to a company then, and the opportunity to create impact is much higher working with companies at that stage than with companies that are far more mature.

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