Ethiopia Built the Rooms. Now Fund the Startups

Ethiopia Built the Rooms. Now Fund the Startups

Jul 31 , 2026. By Birhanu Beshah (PhD) ( Birhanu Beshah (PhD), (birhanu.beshah@aau.edu.et) is an associate professor in the School of Mechanical & Industrial Engineering of Addis Abeba University (AAU). )

Supporting startups has become fashionable. Public institutions host them, universities are opening innovation hubs, and private companies are giving over office space to entrepreneurs.

The Ethiopian Artificial Intelligence Institute (EAII) has handed a five-storey building to startup companies. Companies such as iceaddis, BlueMoon and Health Hub have widened access to workspace, mentorship, networking and technical guidance.

I find this heartening, for it marks a real break from a decade ago, when someone with the ambition to innovate struggled even to find a desk, an internet connection or an ecosystem that understood what entrepreneurship meant. Physical infrastructure seems no longer the country's biggest constraint.

Ethiopia has now cleared the first phase of building a startup ecosystem, creating spaces where ideas can emerge. The next phase remains largely unfinished.

Innovation on its own rarely produces a successful business. Startups become engines of economic transformation only when innovation is continuously fed by patient and risk-tolerant capital. Office space can cut operating costs, but it cannot finance product development, market expansion, customer acquisition or the retention of talent. Those require investment.

Yet our ecosystem still turns mostly on competitions, hackathons, innovation contests and award ceremonies. I do not dismiss these. They identify talent, surface new ideas and inspire young people. They generate excitement and visibility. But a competition should be the start of the investment journey, not its destination.

Most contests end with a modest cash prize. Entrepreneurs are grateful for it, but prize money and growth capital are different things. Prize money is consumed, while investment capital is multiplied.

A startup building a scalable technology product often needs sustained financing over several years before it turns a profit, and no one-off award can stand in for that. This is why so many promising Ethiopian startups falter after winning. Their ideas earn recognition, but not the patient capital that turns a prototype into a viable company.

The country has tried to close that gap through policy.

The law now recognises angel investors, venture-capital firms, startup builders and accelerators as real contributors to innovation finance. Recent startup frameworks encourage financial institutions to back young ventures. The Development Bank of Ethiopia's (DBE) idea-financing initiative is among the more notable efforts.

But recognition on paper has not yet become an active investment market. Commercial banks stay cautious, and understandably so, because startups rarely hold collateral, predictable cash flows or a long trading history. Lending models built for established firms do not fit high-risk innovation. Debt alone can never be the backbone of this ecosystem.

Around the world, startups grow mainly on equity. Angel investors put in the first outside money, venture funds finance rapid expansion, and institutional investors support the larger scaling that follows. More than writing cheques, these backers bring governance, strategic advice, business networks and market access. Their reward depends on the company's growth rather than on fixed interest.

Such an investment culture is shallow here. Our startup scene remains dominated by innovators, graduates, software developers and young founders, while the financial community is largely absent. Startup events gather coders, researchers, students and officials, but rarely draw institutional investors, pension funds, insurers, family-owned businesses or seasoned business leaders willing to fund high-growth ventures. Without these, no ecosystem can mature.

Ethiopia should now shift its emphasis from building spaces for startups to building capital. We may already have enough incubation centres to generate ideas. What we lack is an organised pipeline that converts promising ideas into investable businesses. That takes deliberate action.

Policymakers can sharpen incentives for angel investment through tax relief and regulatory clarity. Universities should judge their success not only by how many ventures they incubate but by how much private investment those ventures attract.

Financial regulators can help set up professionally managed venture funds and encourage institutional investors to place a small share of their portfolios in innovation. Large corporations can build corporate venture funds that invest in technologies aligned with their own futures.

Just as important is investment readiness. Many startups need stronger financial reporting, clearer governance, proven customer demand and scalable models before an investor will look at them. Support organisations should, therefore, spend as much effort preparing founders to raise money as they now spend organising competitions.

In the end, an ecosystem is not measured by the number of hackathons held each year or incubation buildings opened. It is measured by how many startups become sustainable companies that create jobs, attract private investment, expand abroad, and eventually return money to those who backed them.

Buildings can house entrepreneurs and competitions can discover talent, but only patient, strategic and sustained capital can turn a good idea into a company able to reshape the economy. The harder task now is to nurture such an ecosystem.

PUBLISHED ON Jul 31,2026 [ VOL 27 , NO 1370]