In 2021, 37 African tech startups raised a complete of $767 million in 43 debt rounds, indicating the rise of the debt funding class and rising international lender confidence in African tech, per Partech’s report on enterprise capital funding in Africa.
This pattern seems to be ongoing with Future Africa, a pan-African-focused fund, asserting that it has created a $25 million enterprise debt fund in partnership with London-based TLG Capital.
The enterprise debt fund, which is earmarked from TLG’s present funds, can be invested in Future Africa portfolio firms that meet specified standards equivalent to money administration, CFO reporting, and governance.
“Many startups are centered on VC fairness investor milestones equivalent to buyer acquisition technique and price, buyer lifetime worth.” Aum Thacker, an funding skilled who joined TLG final 12 months to construct its give attention to development fairness house, informed TechCabal. “These metrics aren’t a very powerful when extending debt financing as a result of financiers care clearly about them however in addition they care about how bankable the enterprise is.”
Thacker shared that after startups undergo this analysis course of and obtain debt funding from TLG, banks and different conventional lenders also can select to spend money on the businesses.
“These standards are pure issues that startups must do to scale earlier than Sequence C and D, so I feel we’re serving to them to do this earlier anyway,” Thacker mentioned.
The enterprise funding program will see Future Africa and TLG Capital work collectively to construct a best-in-class service suite for portfolio firms past capital, serving to portfolio firms with investor introductions, expertise acquisition, monetary planning and evaluation, and trade benchmarking.
This announcement comes a month after TechCabal reported that Future Africa transitioned to a leaner operation mannequin.
Based in 2016, Future Africa has invested in 97 portfolio firms throughout Africa equivalent to Nexford, Eden Life, Stears, and Evolve Credit score with an mixture worth of $6 billion. TLG is a non-public fairness fund that invests in small and medium enterprises (SMEs) in sub-Saharan Africa. It has invested in over 30 offers, together with African-focused Neobanks, Department and Fairmoney, and exited over 20 of such offers.
Why debt funding?
As enterprise buyers more and more give attention to profitability and money circulate over development and enlargement, debt funding provides startups aligned with this new metric an alternate funding supply.
The brand new debt financing programme provides mature startups the chance to finance important purchases and enlargement plans with out sacrificing the dilution of fairness. Debt funding has usually been enticing to startups within the renewable vitality and lending sector, which supply credit score services to their prospects.
“Usually debt funding preserves founders’ possession. Proper now fairness is more durable to seek out plus the phrases are almost certainly not going to be pleasant due to the market atmosphere,” Aboyeji informed TechCabal.
“Debt is a extra easy method to develop for those who really perceive your unit economics and have derisked what you are promoting.”
*Future Africa is an investor in Huge Cabal Media, the dad or mum firm of TechCabal.