Afri-Spective by AVCA
3 min readAug 29, 2023


Sean Winter, Executive of Alternative Investments — Africa at purchase-led global investor, says that African startups’ challenge in transitioning from VC to PE funding stems from differing valuation methodologies and a lack of communication and understanding between VC and PE investors.

Mauritius, Port Louis: The rising economic dynamism of Africa is reflected in its burgeoning private capital markets, now rebounding from the impact of COVID-19. According to the African Private Capital Association’s 2022 report, private capital investments in Africa reached $7.6bn in 2022, marking a 3% growth in deal values and a substantial 46% surge in deal volumes involving 626 deals across the continent.

Evolving trends within the private capital markets amplify this growth. Where once private equity (PE) was the dominant player, we’re now shifting towards venture capital (VC) and private debt investments. The report underlines this change, highlighting that VC became the most active asset class in 2022, constituting 74% of the total private capital deal volume and over half of the private capital deal value. Moreover, the interest in private debt soared, growing sevenfold year-on-year across Africa.

At the AVCA Conference and VC Summit held in Cairo, Egypt, from 1st to 5 May 2023, we at RisCura had the opportunity to observe this changing landscape. Investors are showing increasing interest in private debt, seen as a less risky option with more stable returns, and are intrigued by more innovative financial instruments that private debt funds are introducing. New lending models, such as revenue-based financing, are gaining traction as they enable founders to retain equity in their businesses.

Despite this positive shift, we noted a significant challenge: navigating from VC to PE funding seems problematic for many African startups. Our discussions at AVCA highlighted a disconnect between VC and PE investors, with the two often operating independently. This lack of understanding creates a bottleneck for VC funds seeking to exit PE funds.

A critical stumbling block here is valuations, a primary service RisCura offers. VC investors are often on the hunt for high-growth potential ‘unicorns’, using valuation methods based on aggressive revenue multiples. This approach contrasts with PE funds’ more conservative valuation strategies that adhere to the International Private Equity and Venture Capital Valuation (IPEV) guidelines.

To harmonise the disparate perceptions of PE and VC investors, valuation experts like RisCura can play a pivotal role. Through our industry expertise, we can help reconcile differences in valuing underlying investments. The recent AVCA conference shed light on potential solutions to bridge this gap.

The key insights we distilled from the discussions with industry experts are:

· Consistent Adoption of IPEV Guidelines: Ensuring that both RisCura and the wider industry consistently follow the IPEV guidelines can promote transparency and create a shared language around valuation practices.

· Broadening VC’s Valuation Techniques: Often, VCs employ cost or the Price of Recent Investment (PORI) for valuation. However, the IPEV guidelines suggest using PORI as a calibration method, not a standalone valuation technique. By advocating for VCs to diversify their valuation techniques, RisCura can help bring their practices in line with industry standards.

· Incorporating high-growth Projections in PE Valuations: PE firms should include high-growth, probability-weighted cash flow scenarios into their discounted cash flow (DCF) valuations. This approach can account for the rapid growth often seen in startups and help align PE’s valuation expectations with the high-growth prospects VCs foresee.

While these insights provide a roadmap to bridge the VC-PE gap, the implementation requires open communication and cooperation between VC and PE investors. Establishing communication channels can create a more integrated ecosystem where VC and PE funds see the mutual benefits they can offer each other.

Ultimately, forging a shared understanding around valuation methodologies and expectations can ease the transition from VC to PE funding for startups. By fostering greater alignment, African startups can successfully navigate the funding pathway and fully realise their fundraising potential.