Redesigning the Startup Funding Chain in Global Growth Markets: A call to Ecosystem Builders in Africa and Beyond

By Salma Baghdadi

One of my biggest frustrations during my time as Ecosystem Director at Smart Capital was the limited funding options for startups in Tunisia.  Let me paint a picture: back in 2019, the ecosystem was supported by just a handful of players—Four VCs (Flat6Labs, UGFS, Intilaq), a couple of granting programs (like Réseau Entreprendre), and zero interest from banks to lend to startups.

To address these gaps, Smart Capital launched Flywheel in 2020, an €7 million funding program backed by the World Bank, GIZ, and CDC (more on that complex web in another article). My role was to manage this fund, which targeted two groups: Startups and Startup Support Organizations.

Let’s focus on startups. Flywheel offered two blended financial instruments—60% grants and 40% refundable advances (repaid without interest by successful entrepreneurs to sustain a revolving fund):

• AIR ($10K): Designed for very early-stage startups (stage 0) to develop the proof of concept of their innovative and potentially scalable solutions.
• AIR2 ($60K): Aimed at pre-Series A startups with a proven track record and scalability strategy, already backed by external investors and seeking to raise $1M+. It was both a bridge and a lifeline to navigate Tunisia’s “valleys of death.”

Over 3.5 years and six application cycles, more than 100 startups received AIR, and 25 secured AIR2.

The impact? AIR built a pipeline of innovative early-stage startups in an ecosystem where entrepreneurs couldn’t rely on personal savings (Tunisia gross saving rate is 2,2% in 2023 compared to 20% in France), family and friends (GDP per capita is around $3,9 k while its $44,5K in France and $81,7k in the US), or a robust network of business angels. AIR2, meanwhile, helped promising startups weather the COVID-19 crisis and VC slowdown, enabling them to close better deals, retain teams, and continue expanding.

The Bigger Picture: Beyond Grants and VCs

While AIR and AIR2 made a difference, they weren’t enough to solve Tunisia’s broader funding challenges. The ecosystem remains fragmented, with limited public funds for innovation, a dearth of VCs, shy business angels, no corporate VCs, and absent engagement of commercial banks in the innovation stream.

The real issue isn’t the lack of money—it’s the lack of vision. Conversations about funding tend to fixate on VCs, as if they’re the sole solution. But is it realistic to build a thriving VC system in a weak funding value chain?

In my experience, no.

Every stage of a startup’s journey requires tailored financial mechanisms. Early-stage startups benefit from grants; mid-stage startups thrive with VC funding; later-stage startups align with private equity. But what about business angels, commercial banks, philanthropic contributions, and innovative public funding models?

Ecosystem builders have a critical role in strengthening the funding continuum. They must broaden the focus to include diverse funding instruments that meet startups where they are. It’s not just about more money; it’s about smarter, more inclusive funding models that reflect the realities of emerging markets.

Building Blocks of the Startup Funding Value Chain

Ecosystem builders must envision and creatively construct a cohesive, continuous value chain of funding mechanisms to support the evolving needs of startups throughout their growth journey.

Each mechanism would be designed to address a specific need and characteristics of startups, while simultaneously meeting the financial expectations and return requirements of donors,  investors or lenders. Below is a suggestion of various funding mechanisms that can facilitate and accelerate the steady and continuous growth of startups. 

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Credit: Salma Baghdadi

Funds sources and providers:

Several actors should be onboarded in the funding journey of a startup, depending on its stage. These range from individuals—such as family and friends, if available—to business angels, public funding, and philanthropies, all of which help support the earliest stages of a startup. At this stage, funding is often driven by socio-economic and environmental impact motivations, particularly when supporting less-privileged founders. As the startup matures, more traditional financial organizations, such as venture capital (VC), private equity (PE), and commercial banks, come into play to provide the necessary capital for further growth.

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Credit: Salma Baghdadi

The Multifaceted Role of Ecosystem Builders in Shaping the Funding Value Chain

Ecosystem builders are the architects of thriving startup environments, bridging gaps between entrepreneurs, investors, and policymakers. Here’s how they make it happen:

1. Advocating for Financial Stakeholders
   Educating financial players about diverse funding mechanisms suited to different stages of the startup lifecycle.
2. Guiding Startups and Support Systems
   Helping startups and their incubators or accelerators identify the right funding strategies at the right time.
3. Strategic Funding Support
   Advising startups on funding choices that align with their growth trajectory while managing risks.
4. Channeling Public and DFI Funds
   Directing public and development finance into areas that spark growth, especially for early-stage, high-risk startups.
5. Shaping Enabling Legal Frameworks
   Collaborating with policymakers to create laws that attract investors and expand funding opportunities.
6. Aligning Funding with Maturity Stages
   Ensuring funding mechanisms evolve with startups—from high-risk seed funding to growth-oriented instruments.
7. Fostering Investor Collaboration
   Encouraging funders to work together, leveraging diverse financing options to create cohesive support systems.

Ecosystem builders are more than facilitators—they’re catalysts for innovation and growth, shaping ecosystems that empower startups to thrive.

Conclusion and call-to-action:

In many African ecosystems, the absence or inaccessibility of crucial funding mechanisms presents significant barriers to startup growth and ecosystem development. These mechanisms are not merely financial tools—they are vital enablers that help startups overcome challenges, whether scaling, strategic expansion, or operational needs. To bridge this gap, ecosystem builders, policymakers, and financial stakeholders must collectively advocate for and implement a robust financial framework that fosters innovation and entrepreneurship across the continent.

Governments and public funding institutions are often expected to be the primary catalyzers of innovation. While their financial contributions are crucial, their role must go beyond direct funding. They are uniquely positioned to establish the legal and regulatory conditions necessary to empower a wide range of stakeholders—banks, philanthropies, DFIs, venture capitalists, and others—to effectively play their roles within the ecosystem.

To unlock the full potential of African startups, the following actions are essential:

1. Engage Commercial Banks: Advocate for their active involvement in providing accessible financial solutions tailored to startups' needs.
2. Leverage Philanthropy and DFIs: Channel these funds into innovative, flexible financial instruments to de-risk early-stage investments.
3. Foster Venture Capital Growth: Create an enabling environment for venture capital to thrive, facilitating critical investments in scaling startups.
4. Prepare Public Markets: Build capacity within public markets to support startup bonds and equity stakes, offering mature startups new avenues for growth and liquidity.

The time to act is now. The African startup ecosystem holds immense untapped potential, and by addressing the funding continuum gaps, we can catalyze the emergence of transformative ventures that drive economic growth, create jobs, and address pressing societal challenges. Ecosystem builders, policymakers, and investors must unite with a shared vision to create a sustainable and inclusive funding landscape for African startups to flourish.