Patience is the name 🐌 of 🐌 the 🐌 game
It is now taking start-ups in Africa up to twice as long to raise their next round...
There are a few things you’re taught in any VC 101 course, including a few rules of thumb. Like the 2% management fee/20% carry rule (and its root in the New Bedford whaling industry). Or the fact that you should expect around 20% dilution and 18-24 months between funding stages, at least for the first few ones. And like any such rules, those are flawed by design, but they tend to set expectations…
And to be fair, in good times, they can almost seem conservative. For this week’s analysis, Maxime has looked back at data during the funding heatwave (2021-2022) to identify how long it was taking start-ups between their rounds back then. And while the 18-24 months rule seemed to apply between Series A and Series B, it was much (much) faster for start-ups to raise at earlier stages: 16 months from launch to Pre-Seed on average, 15 months between Seed and Series A, and less than a year (11 months) between Pre-Seed and Seed. This is what you get when the market is heating up, investors are being pressured - or sometimes simply putting pressure on themselves - to deploy fast and not miss a good deal. A corollary is of course higher valuations as the bargaining power is on the start-up’s side.
But then what happens when the market slows down?
You guessed it: it takes longer between funding rounds. Why is that? Because there might be less capital available (though a funding heatwave usually coincides with new funds being raised, and therefore some infamous ‘dry powder’); because investors - especially those who were only opportunistically investing in Africa in our case - become more risk averse; also because of the higher valuations of the heatwave, which make follow-on funding conversations harder, in particular if they involve a down round... All in all, again looking at our data, this time since 2023, we can see that it now takes between 1.5x and 2x times longer for start-ups to raise their next round than it did back in 2021-2022: around 2 years between launch and Pre-Seed, and then again between Pre-Seed and Seed; 2 years and 4 months between Seed and Series A; and more than 3 years between Series A and Series B.
However, before anyone jumps to the wrong conclusions, it is worth noting that this trend is not unique to Africa. Indeed, when you start looking for global comparables, you quickly realise that not only is this a global trend, but also that the new timelines can look quite similar. Analysis from Carta in late 2024 found that the median interval between a Seed and a Series A round was 25 months, 1.8x times longer than 3 years ago (vs. 28 months and 1.8x in our data - very much aligned). Carta’s numbers looked better between Series A and Series B (24 months, 2x longer) than our Africa-focused analysis, yet Crunchbase’s estimate over a similar period (31 months) wasn’t that far off from ours (39 months). So once again for the pessimists at the back of the room: the trend is not unique to Africa.
At the end of the day, it is helpful for founders in particular to have these timelines in mind as they prepare for their next raise: ‘2-3 years’ is the new ‘18-24 months’.
Voilà, that’s it for this week. If you want to run your own analysis, or need data to prepare to raise your next rounds or fund, don’t miss our database which you should really access with this discount code. Talking of the database and support in fundraising, we’ve got something cooking up with one of our partners we’re really excited about… but more on this soon! Max