Ethiopia’s fast-growing entrepreneurial scene is being stifled by an acute shortage of capital, leaving many promising ventures unable to survive beyond the early stage, according to a draft working paper by Systemic Innovation and Utrecht University.

The Ethiopian Data Foundations report identifies access to growth capital as the primary bottleneck in the country’s startup ecosystem. On the Africa Entrepreneurial Ecosystem Index (AEEI), Ethiopia scored just 0.07 out of one in the Finance dimension — one of the lowest ratings on the continent.

The shortage of capital has created a severe funding bottleneck, where most startups struggle to progress beyond the seed stage.

Fewer than one in ten high-profile Ethiopian ventures — just 8 percent of 598 tracked firms — have secured any form of external financing. Even among those that did, most raised only modest seed grants or angel rounds, with a median investment of around 150,000 US dollars.

The number of firms that have successfully scaled remains strikingly low. Only four startups have ever raised more than 5 million US dollars, representing less than one percent of the cohort studied.

In comparison, more established ecosystems such as Nigeria and Kenya have produced dozens of startups securing multi-million-dollar rounds. Across Africa, there are currently nine tech unicorns valued above one billion US dollars — none of them Ethiopian.

The result, the paper notes, is a growing “valley of death” where ventures that receive initial seed funding struggle to attract follow-on investment. Domestic sources of growth capital remain scarce, forcing many promising startups to stall or shut down once their initial funds run out.

It also finds that diaspora-founded companies were among the few able to tap into foreign venture funds, showing how global connections can help bypass local financing constraints.

The study concludes that mobilising growth-stage venture capital remains the number one challenge for Ethiopia’s entrepreneurial ecosystem. Without consistent access to financing, the country’s startups risk remaining trapped in early-stage stagnation — unable to transform strong ideas into sustainable, scalable businesses.