The Case for Venture Debt in Africa

Why startups in Africa present a great opportunity for debt investors.

Eugene Mutiso
Included VC
13 min readJun 7, 2021


The “Dark Continent”

Until recently, this has been the standard narrative associated with Africa, without a doubt, alluding to the high levels of opacity that has generally been the norm. The impact has generally been negative and nowhere has this had a greater impact than in capital deployment. The result: a vicious cycle of liquidity challenges limiting access to seed capital for budding entrepreneurs and enterprises, any financing needed to catalyze the growth of those at later stages, and illiquid capital markets incapable of attracting enough capital to offer attractive exits.

Since most capital inflows have historically been from external sources, limited transparency coupled with the lack of local context makes it difficult to cultivate an accurate understanding of the balance of risks and opportunities. This has not only had the history of negatively skewing the sentiment on the market but also always made deployment of capital on the continent a challenging feat. This has resulted in the deployment of far less capital than the available opportunities warrant.

In spite of this, I believe that even for the risk-averse, opportunities to participate in the market still exist, providing needed liquidity, primarily in the form of venture debt and other self-liquidating instruments. In this article, I’ll touch on:

  1. 💰 the state of startup financing;
  2. 🚀 exits;
  3. 🧠 the viability of alternative instruments;
  4. 📍 how data can move the needle; and
  5. 💥 the opportunities available on the continent.

🌍 Startup Funding in Africa

Accessibility of digital technology has led to a technological leap in Africa. According to GSMA, as of 2019, there were 477 unique million subscribers on the continent expected to hit 500 million by 2021 and grow at an annual compounded rate of 4.3% until 2025.

Source: GSMA

Mobile broadband coverage is on a rise with 4G networks covering almost 50% of the regional population coupled with increased affordability of internet-enabled devices (down to 30% of monthly GDP per capita from 57% in 2015) and data (down to 4.2% of monthly GDP per capita from 8% in 2015). This has led to the emergence of startups and innovators creating solutions addressing some of the pressing infrastructure gaps on the continent. The result has been a steady stream of venture financing flowing into the continent towards solutions that are increasing access and creating efficiencies at scale.

Source: Partech Africa

The most viable opportunities on the continent exist at the intersection of prevailing infrastructure gaps, and emerging demographic and economic shifts. This is reflected by the nature of the verticals that have been the largest recipients of venture financing, specifically Financial Services, Energy, Healthcare, Mobility and logistics, and Agriculture.

Source: Partech Africa

🚀 Startup Exits

In spite of the increased deal quality and activity, limited exit options coupled with existing risks have squeezed the amount of capital deployed in the ecosystem. This has made it increasingly difficult to exit, even well-performing companies, limiting fundraising efforts and making capital allocation much more challenging. As a result, limited exit opportunities present a challenge for GPs in Africa in the near term, evident from the decline in the number of high-quality exits, from a peak of 52 in 2017 to 43 in 2019.

Secondary exits have declined, half of which have been driven by Trade Buyers seeking an entry point into African markets, and IPOs have been a rarity bordering the esoteric, with the few exceptions of the Egyptian FinTech Fawry, which listed on Egypt’s stock exchange raising $22m at a valuation of $330m,- with its stock eventually rising to a valuation of $1bn in 2020 -, Jumia which listed in NYSE and Konga which is eyeing an IPO by listing across the NYSE & LSE bourses.

Any feasible alternatives?

Instead of limiting the ecosystem, this presents an opportunity for the use of self-liquidating instruments. Those with lower risk appetites and lacking clear market knowledge can test the waters with limited exposure to any uncertainties and risks. Given that the payback period of capital (on a three-year loan) lent to startups is within 15–18 months contrary to the lengthy holding periods (5–8 years) of equity financing, some needed liquidity is provided giving investors an opportunity for a more immediate return without the need for an outsized exit generally needed to get an acceptable return.

For startups, this provides the needed runway between equity rounds, without having to relinquish too much ownership. In some cases, it provides the necessary capital needed to navigate and adapt to new market conditions and economic uncertainties, such as those that emerged at the onset of Covid-19.

Such an investor on the continent would be Equalife Capital, an African-focused debt fund, that set up a $20m relief fund offering short term debt to ease the impact of economic shocks triggered by Covid-19 on businesses within their profile primarily financial services, agricultural value chain, logistics, and consumer goods to mention a few. Another would be the Bridge Fund by Digital Africa and Proparco providing bridge financing to digital entrepreneurs on the continent.

💸 Venture Debt Landscape in Africa

To give an overview of the venture debt landscape on the continent, I am going to touch on what I believe to be the most promising ways to provide debt in line with the needs of startups, and the verticals presenting some of the best opportunities on the continent.

Data as a lever for unlocking capital for startups

As mentioned before, limited transparency has generally been a barrier for businesses to access capital on the continent. However as technology has become more accessible with rising levels of adoption and penetration, interactions between businesses and customers are increasingly occurring on or through digital platforms, leaving a trail of data across multiple touchpoints between the two.

Ideally, it is now possible to get in-depth insight across a startup’s operations, from cash flows to customer engagement and growth, providing a more reliable foundation for decision making. Instrumental to this has been the gradual creation of a data-rich ecosystem on the back of catalysts such as the adoption of digital payments and transactions along with increased use of APIs across messaging, banking, USSD, and location services.

The result is a positive feedback loop that cultivates an unbiased approach when determining an investment’s viability, providing a more reliable foundation for decision making, reducing the bias involved in evaluating startups, making the allocation of capital much more efficient.

In a recent interview, Rob Eloff, Managing Partner, Lateral Capital said:

“Given the high levels of opacity in Africa, data is a means to assess risk and reward beyond delivered traction and endorsement from other funds… Given the difficulty of evaluating startups, the availability of data spanning across a startup’s operations drives intelligent selection decisions reducing the impact of bias in the decision-making process, shifting it away from subjective and retrospective signals such as the identity of VCs backing the startup and the borrower’s IP.”

A great example on the continent would be Untapped Global. It takes a more data-driven approach and focuses on startups, along with small and medium-sized businesses that don’t fit the ideal profile of venture-backed startups that are largely excluded from the various forms of financing available in the continent. Their use of technology to track and aggregate data from assets belonging to target startups gives an expansive and real-time view of the company’s performance, from real-time cash flows to market penetration and adoption.

As due diligence becomes more data-driven and monitoring enabled by a constant stream of information, structures such as revenue-based financing become increasingly viable on the continent. Amidst high market volatility, such instruments are ideal for startups to access financing — which they generally cannot access from banks — without diluting ownership at unattractive valuations. Investors get a percentage of gross revenues over time until the amount due is paid up, inclusive of the predetermined premium.

This data-driven approach is viable across verticals such as mobility and logistics, cold chain storage, energy, and water especially given the popularity of pay-go and lease financing models.

💪 The promising verticals

On the continent, the potential lies in verticals with the largest gaps and potential mass-market solutions. Ideally, these are infrastructure gaps leading to high levels of friction in areas touching on everyone’s lives, critical to the growth of the continent’s economies. For the purposes of this piece, I will touch on mobility and logistics; energy; and agriculture, all of which are integral to catalyzing further growth on the continent.

🚖 Mobility

Efficient transport systems and services have always been a challenge on the continent, being more expensive and of poorer quality and standard relative to other regions in the world. However, given the rising population, high urbanization rates, an increase in digital commerce, and intra-Africa trade, there is an ever-growing need for efficient transport services, both in terms of cost and service.

A number of startups have emerged angling to carve out a market in the sector, creating solutions targeting different segments in the market. Some of the most popular solutions being ride-hailing, on-demand, and freight logistics. Across Africa, the sight of motorbike taxis maneuvering through and zooming past gridlocked traffic ferrying a passenger or a package is no strange one.

The motorbike market in Africa is set to cross $9 billion by 2021, with South Africa, Nigeria, and Tanzania as the largest markets followed by Kenya, Algeria, Uganda, Egypt, Morocco, Angola, and Ethiopia. Boda Bodas, as we call them in East Africa, number around 5 million in the region, with Rwanda being home to 37,000 (with its capital Kigali having 30,000 bikes), Kenya at least 600,000 commercial bikes, the majority of them in cities (with Nairobi being home to at least 100,000), and Kampala, Uganda with 200,000.

Startups such as Sendy (Kenya) and Tugende (Uganda) emerged and grew as the need for efficiency in the sector rose, with motorbike taxis being part of the equation to much-needed efficiency. Sendy, an on-demand delivery platform serving East and West Africa, was able to leverage a financing agreement with Creditation to grow the number of riders at its disposal, by enabling riders to acquire motorcycles through flexible installment plans. Tugende, a tech-enabled asset finance company, was able to raise $10m in debt and equity financing, enabling it to provide its lease to own financing of motorbikes to a wider market base.

In Nigeria, the motorcycle market is projected to reach $875m in 2021 and grow to $994m by 2025. It is predominantly serviced by Gokada and To meet the growing demand, raised financing by issuing a fully subscribed $1m bond, the first in a debt scheme targeted at raising $22m to finance its growing asset financing program across two and three-wheeler vehicles. This is indicative of the opportunity present for alternative financing solutions to meet the growing needs of the sector.

More promising however is the increased development and adoption of eMobility solutions. It’s grown from an obscure niche to become more mainstream as more startups emerge across the market, piloting their solutions and attracting investment. Ampersand, for example, has made some headway in Rwanda (an ideal market considering the legislative push to eliminate petrol-powered motorcycles in favor of e-bikes) with 35 riders who’ve covered 1.3 million kilometers and 7000 riders on the waitlist.

In Kenya, EcoBodaa, recently launched its pilot in Nairobi with 10 e-bikes running its pilot in partnership with Uber Eats. The continued adoption and success is pegged on increased efficiency and effectiveness of solutions without any disruptions to operations. According to CEO Kimosop Chepkoit:

Having solid partnerships with commercial users that prove the business model, prove adoption, and guarantee sustainable revenues’’.

Both startups use lease financing to enable riders to purchase the bikes and swap batteries across their swap stations. However, being CAPEX heavy, credit financing can be instrumental especially when driven by huge unmet demand. According to Kimosop:

“The data on energy consumption, mileage, buying ability and frequency, and purchasing power amongst riders can be used to inform product development and come up with pricing models”.

This data stream also provides a great foundation to enable revenue-based financing if needed. Other startups in the space are Kiriev, and WeTu, both building electric motorcycles.


Energy has always been the foundation of societies. In modern times, electricity has been the most important form of energy, with the presence of a robust and reliable grid critical in determining a society’s economic output and wealth. Africa, however, has a great deficit, with 600m Africans lacking access to electricity and population growth outpacing electrification efforts in the continent. A huge gap exists with an investment of at least $2.6trillion needed between 2019 and 2040, to fill the widening gap to energy access.

Source: World Resources Institute.

Even in areas where electrification has been achieved, inconsistent supply and rolling blackouts are frequent. Economic outages are estimated to cost the continent 2% of its GDP stemming from business disruption and lost profits.

However, this gap presents an opportunity for startups to fill existing supply gaps or create efficiencies in energy utilization.

PayGo energy solutions, the likes of M-Kopa Solar, Fenix International, and BBox, emerged to meet unmet demand by providing solar kits for household lighting and electrification, driving mass adoption (at least 860,000 households use their products) through lease financing. Credit has been instrumental to this success with M-Kopa at one time raising $80m and Bboxx raising two $4m and $8m debt facilities in an effort to reach more households. The economic multiplier effect is huge as it drives the adoption of mobile money beyond payments for solar kits, leading to the adoption of high-value financial products.

The opportunity lies beyond household-scale energy, with mini-grids providing much-needed energy to power communities across at a fraction of the costs. Ideally, it is the most effective way to provide energy to 260 million people in Africa by 2030 but so far, only 0.1% of the forecasted capital required has been raised.

The opportunity for some form of blended financing is evident with firms such as Crossboundary having scored successes in the market. This has been realized through the provision of blended finance, which the managing partners believe is a way to enable broader and more sustainable outcomes, targeting independent grids and distributed solar projects in Africa.

🚜 Agriculture

Will Durant, a historian, once wrote: “The first form of culture is agriculture. It is when man settles down to till the soil and lay up provisions for the uncertain future that he finds time and reason to be civilized.”

True to his statement, a steady and quality supply of food has always fueled population growth and had a multiplier effect of fueling trade and economic growth as social and economic complexity emerges on the back of the satiation of our most immediate needs. To put it simply, once we are well fed, once our primary needs are met, our creative capacity is unleashed and society thrives. Glance at Africa on the other hand and it’s obvious that we are yet to achieve this.

Plagued by highly inefficient agricultural systems (although some headway has been made towards reducing this), food insecurity, low farmer earnings, and a host of other challenges have been the norm, w driven by low yields and post-harvest wastage.

It is estimated that 30–50% of food produced in Africa gets lost before reaching markets, mostly due to supply chain inefficiencies in post-harvest storage and transportation. A bit of an unnerving fact considering the need for a 112.4% increase in food production on the continent to meet the needs of its rising population.

Of the 10 million smallholder farmers in Africa, at least 62% are unable to afford cooling technology, and 64% lack access to the electric grid. These figures not only explain the high level of post-harvest wastage but also validate the need for cold chain storage solutions on the continent.

Addressing the issues in availability, Freshbox (Kenya, Somalia, South Sudan), KipitFresh (Nigeria), and Inspira Farms(South Africa, Kenya, Rwanda, Zimbabwe, Ethiopia, Mozambique, Colombia), Cold Hubs (Nigeria), EcoZen (Kenya, India) are implementing first-mile cold chain storage solutions. These created efficiencies would reduce post-harvest losses, as well as increase market access amongst smallholder farmers.

For last-mile logistics, the other inefficiency in the supply chain, Twiga Foods has emerged as one of the success stories raising multiple rounds of debt financing, raising $29.4m in debt from the IFC and $5m from the U.S DFC, which has enabled it to fuel its growth as it expands across Africa.

More on AgriTech in Africa can be found in this great write-up by my friend Charnez.


Whether it’s financing market expansion or capital expenditure on assets to enable lease financing, debt available through a variety of alternative financing instruments to startups has proved to be a viable model in increasing access to solutions across energy, mobility, and agriculture.

This is a need that can be filled by funds specializing in or with the remit to provide this form of financing. A great question, however, is whether this presents an opportunity or a gap for regular business banks to adjust their risk appetites, especially since startups are becoming the main engines of innovation and economic growth on the continent.

If that doesn’t push the envelope enough or is not a “gamble” they are willing to take, then it presents the need for venture banks and other debt financiers, especially for startups in need of working capital to scale.

Keep in touch!

🔗 Connect with me on LinkedIn & Twitter

👉 Follow Included VC on Twitter & LinkedIn

👏 Liked what you read? Clap to help others find this article.

Many thanks to Kimosop Chepkoit for sharing his experience building EcoBodaa and reviewers Angela Khakali, Joan Ng’ang’a, Ishani Patel, Mathew Falcotelo, Oana Hategan & Kenneth Kinyanjui.