Future Africa, based in Lagos, is partnering with TLG Capital, a London-based open-ended credit fund, to develop a $25 million venture debt fund for portfolio companies.
The fund formed from TLG’s current funds will assist Future Africa’s portfolio companies in maintaining their runway in an increasingly challenging fundraising environment. Last year, African startups received more than $5 billion, with one unifying theme from two mega-rounds announced: B2B e-commerce site TradeDepot and fintech MFS Africa.
The event demonstrated that startups, regardless of their business style, require debt. Over the last two years, we’ve seen businesses like mobility fintech Moove and B2B food supply chain network Twiga raise several million in loans to run operations, most recently through the yet-to-be-launched Hustler Fund in cooperation with the Kenyan government.
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Although debt funding activity has slowed this year, Future Africa founder and general partner Iyinoluwa Aboyeji believes that the cost and risk appetite of equity capital, combined with rising interest rates, will push founders to embrace debt to run startup operations. He went on to say that even if founders are successful in raising equity, the terms may severely dilute their ownership of the company.
“Many founders want to keep growing through the downturn,” said the founder-cum-investor. “Debt is the best option provided that your unit economics are well defined and you have built the appropriate financial discipline which even equity investors are asking to see now.
According to the firm, since its inception in 2016, Future Africa has invested in over 90 firms valued over $6 billion, including Flutterwave, Andela, Stears, and 54gene. TLG Capital, on the other hand, with its strong debt structuring knowledge spanning more than a decade, has invested in over 30 ventures to date, including FairMoney and Branch, and exited over 20, according to the joint statement. Future Africa intends to build out this venture debt programme by leveraging the credit fund’s debt experience. According to Aboyeji, the programme aims to assist and reward founders who build the right financial discipline, as well as to encourage founders to build good businesses rather than chase valuations.
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“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 U.S. 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.”
According to Thacker’s comment, TLG has provided structure assistance to 13 of Future Africa’s portfolio firms thus far (though the checks are yet to be written to these startups). They meet specific requirements, according to Aboyeji, including the requirement that selected firms earn between $1 and $10 million in yearly revenue.
TLG Capital plans to structure the debt so that it is asset-backed and based on “correct fundamentals.” The business will also engage closely with the portfolio’s CFOs to equip them to: keep adequate records and financial discipline, achieve proper unit economics, and receive and manage leverage on their books. Thacker, who oversees TLG Capital’s focus on originating and executing growth equity transactions, will make the pick as both parties seek to extend this funnel in the coming months.
Future Africa Fund Future Africa Fund
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert.
As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard. You can book a session and speak with him using the link: https://insightsbyexperts.com/view_expert/charles-rapulu-udoh