In every conversation about startups — especially in Africa — the spotlight tends to shine on the founders, their products, and the potential to "build the next Flutterwave or Chipper Cash." But behind every $1 million seed round or $50 million Series B lies a quieter, often overlooked question:

Where does venture capital money come from?

Understanding the origin of VC money is crucial — not just for transparency, but for strategy. At Ajim Capital, we often get this question from both sides of the table:
Founders wonder whose money they’re taking. Diaspora investors ask how their capital flows into the innovation economy. LPs want to know where the returns come from.

Let’s break it down — with data.

1. The Capital Stack: Who Funds the VCs?

Venture capital firms don’t invest their own money — at least not entirely. Instead, they raise capital from Limited Partners (LPs). These LPs are the real power behind the scenes, and they’re diverse in profile:

- Institutional Investors

These are the heavyweights. University endowments, pension funds, insurance companies, and sovereign wealth funds make up the largest pool of LP capital.
In the US, university endowments like Yale and Stanford have historically allocated 10–20% of their portfolios to private equity and VC. For example, Yale’s $42.3B endowment (2023) allocates 17% to venture capital — nearly $7.2 billion backing innovation globally.

- High-Net-Worth Individuals & Family Offices

As of 2023, there were over 79,000 ultra-high-net-worth individuals (UHNWIs) in the U.S. alone (Knight Frank), and a growing number are diversifying into venture. These investors typically seek exposure to emerging markets and mission-aligned funds, especially those with impact-driven mandates like funding African startups in health, education, and fintech.

- Development Finance Institutions (DFIs)

DFIs such as IFC, British International Investment, and the African Development Bank are among the earliest backers of Africa-focused VC firms. In fact, over 30% of VC capital deployed in Sub-Saharan Africa between 2018–2022 had a DFI anchor, according to AVCA (African Private Capital Association).

- Corporate Venture Arms & Funds of Funds

Tech giants like Google, Microsoft, and Visa have set up Africa-focused VC vehicles. Meanwhile, funds of funds like Kauffman Fellows Fund and 500 Global’s Africa Fund act as LPs backing emerging VC managers.

2. Where the Money Flows: Geography & Sector

While Silicon Valley still dominates, a quiet capital reallocation is taking place.

🔹 African VC funding reached $3.5B in 2023, down from its $6B high in 2022 due to global macro pressures — but still 10x more than a decade ago.
🔹 The bulk of funding (60%+) goes to Nigeria, Kenya, Egypt, and South Africa — what Partech calls “The Big Four.”
🔹 Fintech continues to dominate with over 40% of funding, but sectors like climate tech, logistics, and edtech are rapidly catching up.

The money that powers these deals largely comes from off-continent LPs, especially US-based institutions and diaspora wealth pools looking for higher growth potential than traditional assets can provide.

3. The Economics of a Venture Fund

Let’s demystify the math:

• A typical VC fund operates on a 2/20 model — meaning 2% annual management fees and 20% carry (share of profits).
• If a fund raises $50 million, it might collect $1M annually to cover salaries, operations, and sourcing deals.
• The goal is to return 3x the fund in 10 years. That means turning $50M into $150M, where LPs get most of the returns after the GP’s carry.

But here’s the kicker: Venture is a power law game. A few investments — usually just 1–2 out of 30–40 — return the bulk of the fund.

Which is why LPs are particular about where their money goes, and why fund managers are selective about who they back.

4. Diaspora Capital: A Rising LP Class

One of the most exciting developments in African venture capital is the rise of the African diaspora investor as a legitimate LP class.

According to the World Bank, remittances to Sub-Saharan Africa topped $54 billion in 2023, with Nigeria alone receiving $20.5 billion. But only a fraction of this money goes into productive assets.

Imagine if just 1% of that $54B ($540 million) was pooled into African venture funds. That would be enough to fund over 1,000 early-stage startups at a $500K ticket size.

‍

Are you an investor interested in investing in Africa’s growing tech ecosystem?‍

‍Fill out this short form to connect with Ajim Capital and explore co-investment opportunities.

‍