Future Africa, a Lagos-based VC company, has partnered with TLG Capital, an open-ended credit fund located in London, to establish a $25 million venture loan fund for portfolio firms.
In an increasingly challenging fundraising climate, the fund established from TLG’s current funds will assist Future Africa’s portfolio firms in maintaining their runway. Over $5 billion was raised by African startups in 2018, with a common thread between two reported mega-rounds being a reliance on debt finance for B2B e-commerce platform TradeDepot and fintech MFS Africa.
The occurrence demonstrated the need of loans for entrepreneurs of all kinds. Companies like mobility fintech Moove and B2B food supply chain network Twiga have raised millions in debt funding over the past two years, most notably through the soon-to-be-launched Hustler Fund in cooperation with the Kenyan government.
Although debt fundraising has slowed this year, Future Africa founder and general partner Iyinoluwa Aboyeji told that increasing interest rates and the high cost and limited risk tolerance of equity capital may force startups to turn to debt. Even if founders are successful in raising stock, he continued, the terms may severely reduce their stake in the company.
“We have seen access to liquidity become increasingly challenging for founders, and are pleased to reiterate TLG Capital’s commitment to Africa’s early-stage entrepreneurs with Future Africa. Having already engaged with 13 of Future Africa’s founders we see common challenges: businesses contend with large currency devaluations in home markets while raising US Dollar equity, for instance,” said Aum Thacker, an investor at TLG Capital. “We are developing a suite of best-in-class products so founders can focus on operating and innovating – while TLG as a structuring partner helps ensure their businesses are best placed in response to macroeconomic headwinds.”
The founder-turned-investor remarked, “Many entrepreneurs want to maintain expanding during the slump.” If your unit economics are well defined and you have established the necessary financial discipline, which is something that even equity investors are demanding to see these days, then debt is your best bet.
Future Africa claims to have invested over $6 billion in more than 90 firms since its 2016 inception, including Flutterwave, Andela, Stears, and 54gene. TLG Capital, on the other hand, has extensive debt structuring knowledge spanning over a decade and has invested in over 30 projects to date, including FairMoney and Branch, and has exited over 20 of those deals, as stated in the joint statement. Future Africa plans to expand this venture debt programme by drawing on the credit fund’s expertise in managing debt. According to Aboyeji, the program’s goals are to aid and reward founders who establish sound financial discipline and to encourage founders to focus on creating successful firms rather than on chasing ever-increasing values.
In accordance with the information provided by Thacker’s cited source, 13 of Future Africa’s portfolio firms have been extended the opportunity to get structuring help from TLG (though the checks are yet to be written to these startups). According to Aboyeji, one of the requirements is that the chosen firms have annual revenues of between $1 and $10 million.
TLG Capital plans on creating a financing structure that is asset-backed and founded on “correct foundations.” CFOs in Future Africa’s portfolio will receive and manage leverage with the help of the company, which will help them keep accurate records and adhere to sound financial disciplines. As both parties look to extend this funnel over the next several months, the decision will be made by Thacker, who heads up TLG Capital’s emphasis on originating and executing deals in the growth equity area.
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