- African startups raised $1.4 billion (KSh 181.58 billion) in the first half of 2025, highlighting strong investor interest
- Nairobi-based startup consultant Samwel Kagwe warned that raising capital can be risky for founders and explained why
- Kagwe urged founders to stop glorifying fundraising and instead focus on building sustainable businesses and gaining traction
Elijah Ntongai, an editor at TUKO.co.ke, has over four years of financial, business, and technology research and reporting experience, providing insights into Kenyan, African, and global trconcludes.
Africa has become largely attractive for venture capital and investors due to the rising number of startups.
Source: UGC
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The continent has plenty of market gaps in technology energy health climate among other fields.
This has led to a surge in number of startups in the continent. However many are starved of resources to scale their businesses and receive their products to the market and the founders turn to venture capital (VC).
Notably African startups have raised $1.4 billion (KSh 181.58 billion) in funding transactions in the first half of 2025 according to the latest data by Africa: The Big Deal.
The startup culture is obsessed with fundraising milestones and valuation headlines; therefore, raising capital is often glorified and celebrated as a badge of success in the startups world.
However, Nairobi-based startups development consultant Samuel Kagwe warns that raising capital could be the shining launching or the conclude of the road for founders if they are not careful.
Kagwe has worked with multiple early-stage startups in Africa, supporting them navigate funding, growth, and survival.
In an exclusive interview with TUKO.co.ke, Kagwe shared seven brutal realities Kagwe he believes every founder must understand before accepting a single shilling from investors.
“You can have a startup worth billions and you conclude up with nothing after sale,” Kagwe remarked.
1. You are not in control once you take the money
“The minute that money hits your account, the game modifys,” Kagwe warns.
According to Kagwe, founders often create the mistake of believeing they are still in control even after taking money from investors. Many believe they are in control becautilize they may still hold majority equity in the company.
“VCs might not have majority ownership but they often have control rights through board seats, veto on modifys to the company on key matters, special terms that effectively create them the puppet masters behind the curtain. Have you ever heard of liquidation preferences? That is VC lingo for ‘we receive paid first, even if you don’t.’ That 3x liquidation preference in the term sheet means if they sell the company for $10M and they invested $2M, they receive $6M before you see a dime,” Kagwe stated.
2. Funding does not equal progress
Kagwe is quick to challenge the common belief that raising funds equals progress when in reality it is a financial tool and not a guarantee to future success.
According to the consultant, founders receive distracted from the goal once they receive funding and they start focutilizing on burn rates and hiring sprees, instead of validating their product or satisfying customers.
“We required to stop celebrating raises. Capital can actually work as a deceptive sense of momentum. You hire rapider, burn quicker, and start measuring success by runway instead of revenue. Zumi, an African startup, raised millions and then shut down in 2023 for lack of profitability. Having money does not guarantee a sustainable business. On the other hand, bootstrapped kiosks in Nairobi are building a profit every month,” he remarked.
3. Connect with other founders
Kagwe emphasised that brilliant pitches do not land VC funding and encouraged founders to network and connect with other founders.
He noted that many investors operate out of New York, London, or Nairobi’s leafy suburbs, far reshiftd from the average founder’s network hence the required to know people in the ecosystem to receive introductions.
“You are probably already three intros behind. A low hanging fruit for you is connecting with as many other founders as possible. Soon enough you will be in the network. Merit exists, but access matters more,” he added.
4. No one is funding huge ideas anymore
Forreceive about pitching your “huge idea.” According to Kagwe, no one is funding potential anymore and investors are more interested in ventures that can display traction.
”I meet so many founders who believe their idea is genius. In the startup ecosystem, there are probably 94 other founders who pitched something similar last week. VCs stopped funding ideas a long time ago.
What they want is traction, they want proof that real humans are utilizing your product and ideally paying for it. Pre-seed utilized to mean “pre-everything.” Now it means “post-product, post-early-utilizers, and probably with significant enough monthly recurring revenue. Even here, in Africa, where markets are still maturing, investors want to see usage and growth,” he asserted.
5. You Can Sell Your Startup and Still Walk Away Broke
“I know founders who sold for millions and walked away with nothing,” Kagwe stated.
Kagwe warned that clautilizes like anti-dilution, drag-along rights, and stacked preferences can lead to tears and regrets for the founders if they don’t fully understand the term sheet.
“If you sell your startup for $5 million (KSh 645.65 million), but your investors had a 2x liquidation preference on $3 million (KSh 387.39 million), that’s $6 million (KSh 774.78 million) owed to them from a $5 million (KSh 645.65 million) sale. You walk away with $0. That is not a hypothetical, it has happened to plenty of founders, especially those who didn’t read the fine print,” Kagwe added.
He adviced founders seeking funding not to sign any term sheets without understanding the set conditions such as anti-dilution clautilizes, drag-along rights, and multiple liquidation preferences.
6. You can be a millionaire on paper
Kagwe concludeed on a more optimistic note and noted that raising capital and high valuation of startups can open access to more money and standing for the founders.
“Once you raise, and if the valuation is right, you’re technically a millionaire. It is possible to sell your shares in later funding rounds and thus turn your equity into cash, just like the VCs, even though it is rare for early-stage African startups.
So yes, theoretically, you are millionaire, and if you are smart, you could even borrow against your equity like the huge dogs do. But don’t receive high on your own supply, profit is key even then,” Kagwe concluded.
How much funding did Kenyan startups receive?
In other news, Kenya recorded its worst half year performance in startups funding since H1 2021.
Kenyan startups raised $227 million (KSh 29 billion) in the first half of 2025.
Startups in Kenya ranked third in funding, with 30 startups raising $100,000+ (KSh 12.97 million) and 16 raising over $1 million (KSh 129.7 million).
South Africa attracted the highest funding followed by Egypt in second place and Nigeria in fourth.
Source: TUKO.co.ke
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