Introduction : 

Millions of euros are disbursed every year by the European Commission and its members through their development agencies. This critical funding is a lifeline to hundreds of thousands of entrepreneurs in Africa. In a continent with so little funding for entrepreneurs, every euro counts. However, not all euros are equal. The way capital is raised, allocated, and reinvested dramatically impacts its effectiveness.

Despite growing momentum, African startups have yet to create a transformative impact on the broader economy. Digital Africa, through Fuzé, is challenging traditional funding mechanisms by shifting from grants to investments, ensuring that capital not only supports but also scales African entrepreneurship.

A paradigm shift in development financing

For decades, the default approach to supporting African startups has been grants, with the underlying assumption that early-stage entrepreneurs need free capital to launch their ventures. However, this model has shown its limits: while grants provide initial relief, they often fail to instill the financial discipline and long-term growth mindset necessary for sustainable success.

Fuzé challenges this paradigm by introducing an investment-based approach, positioning itself as a catalyst for real market-driven innovation. Unlike traditional grant schemes, our model ensures that every euro invested is an incentive for both the entrepreneur and the investor to drive measurable impact.

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Fuzé: A Game-changer for early-stage startups

Fuzé is an evergreen investment vehicle that allocates up to €100,000 to startups. This program, fully funded by the French Treasury’s budget, serves as a crucial gateway for entrepreneurs, enabling them to secure their first rounds of funding.
The investment structure enables Digital Africa to provide funding in tranches of €20,000, €50,000, or directly up to €100,000. Typically, entrepreneurs receive an initial investment of €20,000, with the possibility of raising a further €30,000 and €50,000 later on, eventually reaching a maximum of €100,000.

Digital Africa invests through its Fuzé program in around thirty startups per year, making DA one of the most active VC investors on the continent.

Digital Africa is the first European DFI branch to provide investment tickets to early-stage startups rather than grants. 

Why do we think that investments are more useful than grants ? 

Disruption for the financiers (VC, Angel, Institutional Investor, DFIs…): 

• Potential for Returns – Investments (equity, convertible notes, SAFEs) provide the opportunity for financial returns, whereas grants are non-recoverable. In an era of strict institutional and national frugality, guaranteed returns might be the solution to guarantee budgets. 
• Aligned Incentives – Investors have a vested interest in the startup’s growth and success, leading to active involvement and strategic support. The alignment is also granted for a longer timeframe as the association Investor/Startup is supposed to last longer than the association Grantor/Startup. 
• Governance & Influence – Equity investment often grants the investor board seats or voting rights, allowing them to shape the startup’s trajectory. However, at Fuzé, we decided not to opt for this requirement simply because our volume is so large that attending 50 board meetings per quarter would be impossible.
• Recycling Capital – Successful exits (M&A, IPO) allow investors to reinvest proceeds into other startups, creating a sustainable funding model. This is the holy grail for all investors, especially when the thesis is to reduce the dependence on fresh cash and recycle the proceeds as they come.
• Attracting Co-Investors – Startups raising investment rounds attract additional private sector funding, increasing their financial runway and credibility. At Digital Africa and in partnership with BPI, we launched Africa Next to manage a community of active African VCs with one purpose in mind: increasing cooperation between VCs and ensuring startups secure more funding. 

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Disruption for the early stage Startup :

• Encourages Sustainable Growth – Startups that raise investments must develop revenue-generating business models, unlike grant-dependent ones. In fact, entrepreneurs engage with Digital Africa as they do with any other investor, early in the fundraising game: they structure their deal rooms, provide checks and proof for due diligence, and share reports in a timely manner…
• Stronger Financial Discipline – With investor oversight, startups are encouraged to manage resources efficiently and focus on profitability. Our team knows exactly how the funding will be allocated. We make sure that big decisions are discussed and as we offer follow-on tickets, we can unlock additional funding to ensure the startup growth. It’s also important to mention that overreliance on grants can create a “free money” mindset, limiting a startup’s ability to scale sustainably. 
• Better Valuation & Market Signal – Equity investments validate a startup’s potential, making it more attractive for future fundraising. Digital Africa provides the first reality check to the entrepreneurs when it comes to valuation. It’s indeed one of the painful steps of the closing process and yet, we both close the deal. 
• Long-Term Support – Investors typically provide mentorship, business development assistance, and network access beyond just capital. We don’t support simply because we are part of a development agency, we do it because we care about our investment as well. 

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Disruption for the Broader Ecosystem:

• Market-Driven Innovation – Investments push startups to create solutions that customers are willing to pay for, rather than relying on donor funding. We often say, getting investment is the very sign of market validation a startup can get, this unfortunately does not apply to grants. 
• Job Creation & Economic Impact – Scalable startups funded through investment grow faster, hire more employees, and contribute to GDP.
• Stronger Local Capital Markets – A culture of investment rather than grants fosters robust venture capital ecosystems, reducing reliance on international aid. Fuzé’s startups despite their very young age have raised more than 14 millions dollars from local and regional investors.

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The African startup ecosystem is at a turning point. The question is no longer whether we should invest instead of granting, but how fast we can make this shift to unlock Africa’s full entrepreneurial potential.

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