Institutional Actors
“There is a mismatch between sources and uses of capital. In other parts of the world, for businesses to scale that are selling products that people want, not need, a more traditional funding cycle is appropriate. Whereas we are building businesses that people need, more than want. And this takes much longer. This inherent disconnect causes so many issues.” - interviewee
Capital System Anatomy
Africa is not simply capital-scarce. It is capital-immobile: substantial domestic capital exists, but the institutional pathways that would move it into scaling firms remain weak. The problem is composition, not only volume. More than $4 trillion in domestic savings and institutional capital sits adjacent to a scaling venture market it cannot yet reach effectively.
The sections that follow treat each institutional actor in turn.
Scaling without the usual capital scalers
BII’s Paddy Carter’s thin-markets argument sharpens this diagnosis. Low investment activity does not automatically prove absolute capital scarcity. Viable firms may fail to raise because search is costly, matching is inefficient, capital supply is inelastic, or the available instruments do not fit their stage, sector, currency or risk profile. The capital exists; the matching architecture does not.
Emerging market innovations require highly risk-tolerant, patient capital. Entrepreneurs are often building entirely new business models to serve consumers entering the formal economy for the first time, under volatile macro conditions. The correction period tested this empirically. The institutions with the most patient-capital mandates - DFIs, sovereign funds and multilateral agencies - had the theoretical capacity to provide countercyclical support during the funding winter. In practice, the evidence suggests a more cautious response. DFI participation in Africa-focused venture fund commitments fell from roughly 45 percent between 2022 and 2024 to 27 percent in 2025. The point is not that DFIs disappeared, but that their capital did not behave as countercyclically as the ecosystem needed.
The structural foundation for understanding why this happened sits in modern public-finance scholarship. Mariana Mazzucato's The Entrepreneurial State - and her subsequent Mission Economy synthesis - established the foundational empirical pattern: public investment institutions that operate as patient, mission-driven, risk-bearing capital deliver structurally different outcomes from those that converge toward private-sector benchmarks. The institutions that produced the foundational technologies of the late twentieth century - DARPA, NIH, the early-stage Apollo and aerospace investments, the European public-research backbone behind contemporary digital infrastructure - operated as active, mission-driven shapers of innovation rather than as risk-managed allocators chasing private-market returns. The implication for the African DFI architecture is direct. DFIs were positioned, by mandate, to perform the patient, risk-bearing, countercyclical function the correction period required.
The institutional convergence toward commercial benchmarks - risk-managed allocation, downside protection, near-term return profiles - is the failure mode Mazzucato’s framework helps explain: public capital adopting the form of private capital and weakening the distinctive function only public capital can perform.
Frontier capital and the limits of blended finance
Blended finance - the deliberate combination of commercial, concessional and philanthropic capital - has not yet become the scalable capital architecture its advocates hoped for. The OECD DAC Blended Finance Guidance 2025 is direct: too much of the field remains bespoke, fragmented and insufficiently standardised, with limited transparency across instruments and outcomes.
The structural incentive problem is beginning to be documented empirically in the development-finance literature. One study using bank-level data and a database of DFI-intermediated lending programmes across Africa between 2010 and 2021 finds evidence that supported banks can reallocate lending toward targeted clients while reducing credit elsewhere in their portfolios. DFI intermediated finance may improve access for specifically targeted segments while reducing credit for the broader SME population. Programme-level success statistics can mask ecosystem-level displacement. The substantive treatment of how donor-funded programmes systematically produce these crowd-out effects when programme delivery substitutes for market discovery - anchored in Honig's Navigation by Judgment - sits inFeedback Loops Loop 1.
Blended vehicles can also drift toward the safer end of the investment spectrum - providing de-risking capital to ventures already close to investable by commercial standards, rather than opening access for the frontier ventures that most need catalytic capital. The structural incentives of blended-finance vehicles, especially where they must demonstrate returns to private-sector co-investors, can push capital toward lower-risk frontiers, reproducing rather than correcting the market failure they are designed to address.
The supply side of the capital market has begun to say this publicly. The Innovative Finance Initiative's Patient Capital Manifesto, launched in 2025 by a coalition of fund managers convened by Aunnie Patton Power, is a public petition stating that the traditional ten-year closed-end fund model is not fit for purpose across the markets, sectors, and business models they operate in. The signatories commit to designing longer-horizon, evergreen, open-ended, and permanent-capital vehicles - if capital providers will fund them. The Manifesto adds supply-side confirmation that the structures do not fit. The constraint is not only on the willing side of the market. It is on the allocating side: many actors agree that African growth firms need longer-duration, more flexible capital, but far fewer vehicles are actually structured to provide it.
TheCi-Gaba Fund of Funds in Ghana is necessary but not sufficient. The structural prerequisite it does not yet address is exits. A self-sustaining domestic capital ecosystem does not form through LP commitments from development institutions - however well-structured. It forms through exits that generate local returns that local investors then redeploy commercially into the next generation of funds. That cycle requires scaling ventures to generate exits, exits to generate returns for local investors, local investors to redeploy those returns into domestically managed funds, and those funds to generate the next cohort of scaling ventures. It is a flywheel. It has not yet completed a full turn at meaningful scale in any African market.
The increase in 2025 exit activity — 34 venture-backed exits, up 31 percent year on year per AVCA — is an encouraging signal that the cycle may be beginning to turn. The composition matters as much as the volume. When African acquirers buy African ventures, more of the capital, knowledge and operating experience has the potential to remain in the ecosystem. When international acquirers buy African ventures, especially through offshore holding structures, value capture can shift outside domestic markets. The possible shift toward more African buyers is therefore more structurally significant than the headline exit count alone suggests.
What remains absent is the upstream condition: a functioning Series B market that allows scaling ventures to reach the valuation and operational maturity at which acquisition becomes genuinely value-generative rather than distress-driven. AVCA’s 2025 data point to the continued thinness of late-stage equity, even as exit activity improved. Some of the M&A activity rising in parallel likely reflects consolidation among ventures that could not reach growth-stage equity - meaning the distinction between distressed exits and value-generating exits matters. Distressed exits do not generate the returns that validate the asset class for pension fund trustees making their first allocation to African growth equity. Value exits do. The missing link between domestic capital mobilisation and ecosystem self-sustainability is not a fund structure problem. It is a Series B problem. Solving the Ci-Gaba architecture without solving the Series B cliff produces a better-capitalised ecosystem that still cannot generate the exits that would make it commercially self-sustaining.
This is the most important causal chain in African venture capital that the headline domestic investor surge obscures. The direction of travel is correct. The cycle is not yet closed.
Impact investors: recalibrating role, not structure
The tension between impact investment mandates and commercial scaling outcomes has not been resolved. It has become more visible.
"I think impact investors also play a controversial role. In optimising for impact first, you end up with businesses that are not commercially viable and reliant on development funding and grant capital to stay alive, and it allows for business models that don't work to proliferate." - interviewee
The correction has sharpened this critique. Some ventures capitalised primarily through impact-oriented or grant-heavy structures were not forced early enough to prove revenue quality, cost discipline or a credible pathway to commercial funding.
The issue is not the existence of impact capital itself. The instruments themselves - concessional capital, blended finance, longer time horizons - remain necessary in markets where risk-adjusted returns are structurally mispriced. The failure lies in deployment and transition design. Capital has too often been provided without sufficient conditionality around revenue generation, cost discipline and the pathway to commercial viability.
The system effect is cumulative. Where capital repeatedly absorbs failure without enforcing adaptation, it can alter venture behaviour, weaken selection pressure and slow the emergence of scalable business models.
Recalibration therefore sits not in redesigning instruments, but in tightening their function: linking capital more explicitly to performance, embedding stronger transition mechanisms toward commercial funding, and aligning impact objectives with the development of firms that can survive beyond the capital that first supported them.
The multilateral actor problem: role collapse in practice
UN agencies, DFIs and large donor-funded programmes can operate across multiple functions within the same ecosystem: investor, convenor, service provider and evaluator. The substantive treatment of role collapse and bundled advantage as the structural mechanism by which multilateral actors accumulate compounding ecosystem position - and the substantive analysis of UNDP timbuktoo as the working example - sits in The Political Economy of the Ecosystem. The implication for institutional-actor analysis at the capital-architecture layer is direct: the role-collapse mechanism produces a specific failure mode in capital deployment that the broader ecosystem analysis does not fully capture.
The structural foundation sits in modern development scholarship on isomorphic mimicry. Andrews, Pritchett and Woolcock's Building State Capability - and their broader research programme on Problem-Driven Iterative Adaptation - establishes the foundational empirical pattern: developing-economy institutions and the donor architecture supporting them systematically adopt the form of effective institutions without acquiring the function. Programmes are designed, evaluations conducted, frameworks adopted, and indicators reported - but the underlying capability the form is supposed to deliver does not develop, because the institutional architecture rewards form-replication over function-creation.
The implication for African capital institutional architecture is structurally serious. When multilateral actors operate across investor, convenor, service-provider and evaluator functions simultaneously, the risk is not only poor performance in any one function. The deeper risk is that they substitute for the local institutional capability that would emerge if those functions were performed by separate actors with independent accountability. Capital deployment can become the form of mission-driven public capital without fully performing the function. Convening becomes the form of ecosystem coordination without the function. Service delivery becomes the form of capability-building without producing the local capability the ecosystem requires. The role-collapse mechanism is therefore not just a competition-with-local-providers problem. It is an isomorphic-mimicry problem at the institutional-architecture layer.
Addressing this requires structural clarity of roles. Funding, delivery, convening, and evaluation functions need to be separated and governed accordingly. Without this, incentives remain misaligned and role conflict persists within single institutions.
Coordination is insufficient in this context. The issue is not only alignment between actors, but concentration of too many functions within the same actors.
The Series B cliff: DFIs' most consequential unaddressed failure
DFIs are structurally positioned to take growth-stage risk in frontier markets that commercial investors do not take. This sits at the core of their mandate within the capital stack.
The correction exposed this role with unusual clarity. As the Series B gap widened and commercial capital retrenched, DFIs had a narrow window to deploy countercyclically and stabilise the pipeline of scaling firms. The response was cautious. DFI participation in Africa-focused venture fund commitments declined to 27 percent in 2025. The substantive treatment of why the contractual architecture of African Series A rounds - anchored in Kaplan-Strömberg on VC contracts and Lerner-Schoar on emerging-market contractual practice - produces this structural vulnerability sits in The Financing Journey Through the Scaling Phases.
This is a mandate-execution failure. Risk frameworks, portfolio construction, and investment committee decisions have converged toward commercial benchmarks: downside protection, near-term return profiles, and conservative allocation strategies. The outcome is overlap in deal selection and stage focus. Capital concentrates around the same opportunities, while structural gaps remain.
The empirical evidence for this convergence is now public. Bond's September 2025 review of British International Investment - the most comprehensive independent assessment of the most-active African DFI's evolution over the last decade - names the structural pattern with unusual precision. BII's portfolio share invested in low-income countries fell to 17 percent in 2024; in fragile states, 12.6 percent (5 percent excluding Nigeria). The Catalyst Portfolio established to undertake higher-risk, higher-development-impact investments operates at a scale dwarfed by the conventional commercial-benchmark-aligned portfolio. The institutional stated aspiration - patient, frontier, mission-driven capital - and the institutional actual deployment pattern have diverged structurally. BII is not necessarily unique. It is the clearest case because public analysis is available. Similar questions apply across the wider DFI field: whether development finance is reaching the markets where private capital is least likely to go, or clustering in already more investable segments. The Mazzucato framework introduced earlier names what is happening: public capital adopting the form of private capital and losing the function only public capital can perform.
The system effect is visible across markets. Ventures that progress through early-stage funding encounter a capital discontinuity at the point where scaling requires larger, higher-risk investment. Firms stall, contract, or fail at this transition. The pipeline thins precisely where growth should accelerate.
Addressing the Series B cliff requires a shift in mandate execution. Risk appetite needs to extend beyond prevailing market thresholds, with longer time horizons and tolerance for volatility embedded in decision-making. A portion of capital will not return. That is consistent with the function DFIs are intended to perform.
This is governed at board and committee level. Performance frameworks anchored in commercial benchmarks produce commercially aligned portfolios. The development finance function loses distinctiveness under these conditions. Without a change in how mandate, risk, and performance are defined and assessed, DFIs will remain active participants in the ecosystem while the Series B gap persists.
The domestic capital gap: the most underused resource
The Africa Finance Corporation's State of Africa's Infrastructure Report 2025 documents the scale of the underused resource: more than $1.1 trillion in long-term institutional capital from pensions, insurance, sovereign wealth funds and public development banks, alongside $2.5 trillion in commercial banking assets and more than $470 billion in central-bank reserves. Much of this capital is allocated to low-risk or short-duration instruments rather than channelled into productive long-term assets.
The Mo Ibrahim Foundation's 2025 Forum Report is precise: Africa generates approximately $920 billion annually through taxes, sovereign wealth funds, pension funds, and remittances - yet nearly the same amount leaks out through debt servicing, illicit financial flows, and tax exemptions. Africa is not simply capital-scarce. It is capital-immobile.
Pension assets are heavily concentrated, with South Africa accounting for the dominant share of the continent’s pension pool. The concentration of institutional capital in one market, and regulatory restrictions preventing African pension funds from investing meaningfully in alternative assets, are two of the most consequential structural barriers. Ghana’s model - a 5 percent pension and insurance allocation mandate for private equity and venture capital - points toward the regulatory reform required, with estimates of the capital unlocked ranging from roughly $200 million to more than $300 million depending on the asset base used. Nigeria’s approach permits exposure to infrastructure and private equity, but deployment remains constrained by regulation, ratings requirements and the continued dominance of government securities.
The Growth Firms Alliance - a coalition of philanthropic funders including Argidius Foundation, IKEA Foundation, Lemelson Foundation, Small Foundation, and Visa Foundation, specifically focused on growth firms in low- and middle-income countries - has identified the mobilisation of appropriate finance for growth firms as the most systemically important intervention in the SME development field. Their work on the SME investment fund landscape identifies the structural barriers preventing institutional capital from reaching growth-stage firms: fund lifecycle misalignment, capital stack mismatch, exit market absence and governance structures poorly fitted to frontier-market realities. These are the same four misalignments identified in the Rethinking Venture Capital white paper from the African context. The GFA analysis suggests these barriers are not Africa-specific; they are structural features of how the global SME-financing system is constructed, which means the remedies require systemic reform rather than market-specific adaptation alone.
The Ci-Gaba Fund of Funds in Ghana is necessary but not sufficient. It demonstrates that domestic institutional capital can be mobilised into locally structured private-market vehicles, but the structural prerequisite it does not yet solve is exits.
The All for Impact / C3 study How to Unlock Catalytic Capital for African SMEs (March 2026) maps the catalytic-capital landscape for African SME intermediaries and shows why the discussion needs to shift from individual funds to market architecture. Its central structural diagnosis is the transaction-size mismatch: institutional capital has large ticket sizes; African SME funds need smaller, more flexible commitments. Two aggregation mechanisms address this: wholesalers (funds of funds that package smaller SME funds for larger institutional allocators) and aggregators (platforms that combine smaller investors into tickets large enough to move). The operational infrastructure is in more places than aggregate statistics suggest. The coordination architecture that would let these initiatives compound rather than duplicate is what remains to be built.
African state-owned institutions - including public pension funds, central banks and sovereign wealth funds - now manage close to $1 trillion in assets. In 2025, five new sovereign funds were created. Yet only a tiny share of this pool is visibly allocated to venture, growth equity or innovation-linked assets. Greater pan-African sovereign wealth fund cooperation - coordinating around innovation investment, sharing due diligence, and developing common frameworks for tech startup exposure - would create a larger and more credible institutional bloc. The individual funds may be too small to shift the market alone. The aggregate is not.