Consider two points on a map: Paris and Tunis. The physical distance is trivial, a two-hour flight. Yet, in the world of venture capital, the economic distance appears vast. This creates a paradox: immense geographic proximity coupled with a profound capital disconnect.
While European VCs compete in a mature, high-density market, a nascent, high-growth ecosystem is emerging just across the Mediterranean. This ecosystem, with a potential market size exceeding $100 billion, remains largely outside the field of view for most European funds.
This is not an oversight; it's a systemic friction worth examining.
The Deal Flow
An honest assessment of the European venture landscape reveals a trend toward progressive innovation within a well-defined system. The deal flow is predictable, but the market is saturated, a red ocean of similar B2B solutions competing for marginal gains.
In parallel, a different class of problems is being solved in cities like Cairo and Casablanca. Founders there are building foundational platforms for payments, logistics, and healthcare. They are not optimizing existing systems; they are building them from the ground up in greenfield markets.
These two worlds operate with a significant information asymmetry. The European market is legible and well-documented. The North African market, for many, is a black box. The result is a misallocation of capital based not on potential, but on familiarity.
Outdated Heuristics and Mental Models
Investment decisions are guided by heuristics, mental shortcuts that help navigate complexity. However, when the underlying system changes, these heuristics become liabilities. European VCs appear to be operating with an outdated map of North Africa, guided by three primary models:
1. The Infrastructure Heuristic: This model equates a lack of perfect, Western-style infrastructure with an inability to build scalable businesses. It fails to account for the resilience and ingenuity of founders who build robust systems precisely because of these constraints. The reality on the ground has evolved faster than the perception in the boardroom.
2. The Regulatory Friction Model: This model assumes that unfamiliar legal and bureaucratic systems present an insurmountable barrier. While regulatory friction is real, this model overlooks two key factors: the ongoing reforms in countries like Tunisia and Morocco, and the fact that complexity itself creates a barrier to entry, preserving higher returns for those willing to navigate it.
3. The Network Proximity Model: This is perhaps the most significant factor. VCs rely on trusted networks for deal flow and diligence. The current configuration of these networks is geographically and culturally clustered in Europe. This model is efficient for the local market but is, by design, blind to opportunities outside its predefined boundaries. The result is comfort at the expense of opportunity.
The Negative Feedback Loop
These outdated models create a self-reinforcing cycle that keeps the North African tech ecosystem under-capitalized and underestimated.
The system works like this:
- A lack of reliable, consolidated data leads to a perception of high risk.
- Perceived risk deters early-stage investment from established European funds.
- A lack of investment limits the number of breakout success stories.
- Fewer success stories mean less data and media coverage, reinforcing the initial perception of risk.
This loop benefits neither side. Europe incurs a significant opportunity cost, while North Africa's most promising ventures are resource-constrained.
A Framework for Recalibration
Breaking this cycle does not require a leap of faith but a methodical recalibration of the investment model.
1. Update the Map: The first step is to actively correct the information asymmetry. This means moving beyond anecdotal evidence and investing in data. Co-investing with local funds, partnering with regional accelerators, and commissioning on-the-ground market analysis are ways to build a modern, accurate map of the territory.
2. Re-price the Risk: The current risk models are miscalibrated. They overweigh historical challenges while underweighting current growth and founder resilience. A more accurate model would treat regulatory and infrastructure friction not as deal-breakers, but as quantifiable risks to be priced into the valuation, much like in the early days of venture capital in Eastern Europe or Southeast Asia.
3. Build the Bridges: The network gap is a solvable problem. A strategic approach involves building deliberate connections: joint accelerator programs, cross-Mediterranean mentorship networks, and dedicated funds that bridge the two ecosystems. These bridges reduce the friction for capital and knowledge to flow in both directions.
The future is being built across the Mediterranean. It is a logical and strategic imperative for European venture capital to participate. The question is not one of emotion or belief, but of updating the models to reflect the reality of the opportunity.
