Africa’s Deeptech Funding Gap: Why Hardware Startups Struggle to Raise Capital

On paper, African deeptech is a growth story. A UNDP review found that deeptech startups raised $3 billion across 360 deals between 2013 and mid-2023, about 15 percent of all startup funding on the continent. Annual investment rose from $86 million in 2015 to $1.2 billion in 2023.

Founders who build physical products describe a different experience. Money arrives for the prototype, then thins out just when the work gets expensive. The gap sits between a working device and a company that can manufacture, certify and sell it at volume, and it has widened in a year when venture investors have turned cautious.

A market built around software

Hardware runs against the assumptions of most venture funds. Research by Briter Bridges, summarised by Included VC, found that about 72 percent of African deeptech products include a hardware component. Of the 300-plus investors active in the segment, only 4 percent hold a dedicated deeptech mandate, and 77 percent target stages between pre-seed and Series A.

The financing mix over the decade to 2023 was 67 percent equity, 18 percent venture debt, and 11 percent grants. Late-stage funding was described as the hardest to find, particularly for hardware and biotech ventures.

The reasons are practical. A software company can ship an update at almost no cost. A hardware company must buy components, fund inventory, pass certification, and carry working capital long before revenue arrives. Payback periods stretch beyond the five-year exit horizon most funds work to.

Capital is there, but it is concentrated

The broader funding picture in 2026 has not helped. African startups raised roughly $1.4 billion in the first half of the year, but the number of companies securing $100,000 or more fell to its lowest level since 2021, according to Africa: The Big Deal. A single $270 million round for electric motorcycle maker Spiro in June lifted the total. TechCabal’s reporting shows deal counts falling from 252 to 174 year on year on TechCabal Insights’ data, and Semafor reports that investors are favouring proven later-stage companies over younger ones.

Headline totals therefore overstate the health of the middle of the market. Large cheques go to a few established names, and early-stage founders compete for a shrinking number of deals.

The missing middle

The clearest illustration comes from electric mobility. An analysis by Launch Base Africa of 2025 deals counted more than $158 million raised across 12 companies. Spiro took $100 million of it. The other eleven shared about $58 million, an average round of roughly $5 million. Development finance institutions supplied around 70 percent of disclosed capital, and traditional venture funds were largely absent.

That creates what the analysis calls a missing middle. Companies that raise $1 million to $3 million at seed struggle to find $10 million to $20 million for a Series A. Development banks want operational maturity before investing, but reaching that maturity takes more money than a seed round provides. Some companies stall, and others accept down rounds.

South Africa’s Zimi Charge shows the same pattern at a smaller scale. It received a R6 million ($320,000) grant to test vehicle-to-grid technology, which suited an experiment. As TechCabal reported, a grant could not pay for the next stage of growth, and businesses like it can be too capital-intensive for conventional venture capital and too young for a bank.

Nigeria’s added costs

Nigerian hardware founders face the same funding logic with extra friction. A baseline study commissioned by the Nigerian Communications Commission found that 84 percent of hardware components used in the country’s telecoms sector are imported. Every import exposes a startup to exchange-rate swings and clearance delays.

The country also has few hardware companies to learn from. Techpoint Africa noted that it is hard to name 20 active ones. Electric bus maker NEV Electric reported $14 million in revenue over 14 months, and drone company Terrahaptix reported $2 million in orders in 2024. Kifta Technologies, a defence-tech startup, moved its operations to the United States because Nigeria lacked the infrastructure to sustain production.

Terrahaptix’s route to investors is instructive. Its chief executive said investors want recurring revenue, and the company sells software that coordinates its physical assets, including a surveillance integration expected to earn $60,000 a year in subscriptions at a power plant. Hardware raised money there because it carried a software layer.

What is starting to work

Blended structures fit hardware better than a single equity round. Grants can cover research, debt can finance assets that generate steady payments, and equity can follow once the model is proven. Launch Base Africa noted that French climate fund Mirova offered Kenya’s Arc Ride up to $10 million in debt because rider subscriptions produce predictable cash flow.

Accelerators are adapting as well. The Savant Build Programme offers top graduates grants of up to €80,000 and is designed for founders working on longer development cycles. Its 2026 cohort focuses mainly on climate and green-economy ventures, so the support is narrow, and its workshops take place in Cape Town.

What the evidence suggests

Africa’s hardware founders are not short of engineering talent. What they lack is patient capital sized for the stage between prototype and scale, and few funds are built to supply it. Development finance can bridge part of that gap but moves slowly, and grants cannot finance production runs.

For Nigeria, a Startup Act on the books since 2022 has not produced that capital. The more useful measures are likely to be local manufacturing partnerships, domestic pools of long-term money such as family offices and pension assets, and debt products designed around hardware revenue. Without them, promising devices will keep reaching the prototype stage and stalling there.