“I Have One Daughter” - But the Seed Investment Equivalent

You know that viral Cameo where a guy turns awkward dating interactions into songs? My personal favourite is when a woman says, “I have one daughter,” and the guy immediately asks, “How many baby daddies do you have, if you don’t mind me asking?” Naturally, she’s shocked and reiterates, “I have ONE daughter.” That soundbite has become shorthand for the bizarre things people constantly have to explain. 

In the world of seed funding, the equivalent confusion is: “Seed funding is risky, we’re focused on later stage.” “Ok, but where will that later stage come from if the whole ecosystem is investing in the later stages?” 

Y’all, we have one daughter! 

I’ve recently become fascinated by seed investments and the reputational evolution the stage of investment has undergone over the last few years—a symptom, I believe, that reflects the ecosystem’s tendency to throw out the baby with the bathwater. 

We’ve set an unrealistic standard for ourselves, given the thesis behind investing through venture capital. We operate in an ecosystem where the success of one belongs to one, but the failure of one belongs to all. We are marked with a proverbial Capital R for RISK. 

We have a startup graveyard that probably contains a cumulative 1/100th of one startup’s loss in a more mature market. Not to downplay the lessons we’ve learned, but certainly to dismiss the attempt at sensationalism, venture capital is risk capital. And risk, might I add, is risky.

 Startups die, and they will continue to do so. Might as well “undrop” the jaw right now 😃

Anyway, in the middle of losing all hope, I decided to remind myself why we’re here, and why what we do is indeed important, as well as remind everyone why we need to pay far more attention to seed funding than we are now. 

For context, by the way, there’s an increased sense, backed by heaven knows what, that seed funding is riskier. This is both numerically and empirically untrue. What is true is that the volume of write-offs is higher in many cases. And we will talk about spray and pray vs institutionalised seed in a later article. 

Here’s the reality we live in: 

Seed investors are the linchpins of the startup ecosystem. (Hand to chest, I would never say that—that was DeepSeek’s suggestion. Let me try again.) 

Seed investors play a crucial role in laying the foundation for the long-term success of any ecosystem. These investors (should) bring more than just capital to the table. They offer essential business acumen, mentorship, strategic guidance, and access to help startups avoid common pitfalls and scale effectively. By doing so, seed investors not only support individual companies but also contribute to the overall maturation of the startup ecosystem. It’s about skill and ecosystem expansion at its core. 

It’s like adding ingredients to the pie as we bake it, to make it bigger. Or finding the flour before we can even talk about splitting the pie. The pie is still at the ingredients stage? *Types in confusion*

I don’t know—it sounded good when I started, but then things fell apart. Hopefully, you get the point. The startup version of this is building the plane as we fly it 😆

Over the past two decades, Africa’s seed investing landscape has shifted dramatically. What began as a near-barren ecosystem in the early 2000s has evolved into a vibrant, though still underfunded, engine powering the continent’s tech industry. Understanding this journey is essential to recognising why the next decade beckons a strategic overhaul in investment practices. 

In this initial phase, startups in Africa faced a landscape devoid of formal seed funding. Entrepreneurs largely depended on personal savings, sporadic grants, or isolated angel investors. Even in promising hubs like Kenya and Nigeria, success stories like M-Pesa were seen as exceptions rather than norms. 

The ecosystem began to gain momentum during this period, with annual VC investments reaching approximately $400 million by 2015. The rise of mobile money facilitated fintech innovations, while accelerators like Flat6Labs in Egypt played pivotal roles. These accelerators acted as de facto seed funds, offering modest investments between $10,000 and $50,000 (which, back then, was so much money) alongside essential mentorship. 

From 2016 to 2021, Africa’s VC landscape witnessed a remarkable transformation, with overall funding surpassing $4 billion by 2021. This surge was supported by global VCs expanding their investment scope across the continent. Dedicated seed funds began writing first checks, increasing deal volumes drastically. Yet, the influx of “tourist VCs” inflated valuations, effectively locking out many local VCs. But there was a boom.

Since 2022, the ecosystem has undergone a ‘Correction’ phase, seeing a pullback in seed deals by 38% and an adjustment of valuations to an average of $1.9 million from much less in previous years. With some of the largest seed players beginning to raise their fund II around this time.

Are you not alarmed?

The reduction in seed funding presents several risks and should be causing deafening alarm bells. This decline will almost certainly affect the broader African tech ecosystem. A significant consequence is the potential bottleneck at later funding stages. With fewer startups receiving the seed capital necessary to reach market viability, the pool of companies ready for Series A and beyond shrinks, leading to a deal famine for later-stage investors. 

This scarcity, as we’ve seen, has already begun to force later-stage investors to step down to seed rounds to secure deal flow. However, their involvement often lacks the hands-on support and specialisation that dedicated seed investors provide. This shift risks inflating valuations, as later-stage investors may apply metrics and expectations suitable for more mature companies, potentially setting startups up for failure under unsustainable growth pressure. 

In addition, underinvestment at the seed stage can lead to talent drain, as promising entrepreneurs may either abandon their ventures for more stable employment or seek opportunities abroad. This not only weakens the current pipeline of startups but also limits the development of entrepreneurial skills critical for future ventures. 

All I am saying is ensuring a well-funded, supported seed pipeline isn’t about risk or the lack thereof; it’s about the sustainability of the ecosystem. In fact, a greater danger lies in the fracture of the cycle, creating challenges not just at the exit stage, but at the very beginning stage.

We have to do seed, I don’t see another way. Do you? 

We have one daughter. Unfortunately, we don't get to the later stage without first having the seed stage.

Guys, that one daughter analogy sounded so clever in my head 😂 I like it very much.