Over the past five years, equity has been the primary funding source for African startups. However, debt financing has significantly increased since 2020, surging by 111% to USD 589 million by 2024, according to WT Elite data. This increase comes amidst a global funding slowdown, prompting founders to utilize venture debt to extend their financial runways without diluting equity.

This shift is driven by several factors, including a decrease in equity rounds due to a global venture capital (VC) squeeze, improved revenue predictability in mature fintech and Software-as-a-Service (SaaS) firms, and the emergence of non-bank lenders offering revenue-based and asset-backed loans. Later-stage startups are increasingly using venture debt to meet growth expectations from VCs and to avoid raising equity financing at lower valuations.

Examples of this trend include Kenyan asset financier M-KOPA’s USD 250 million debt (plus equity) raise and Nigerian mobility fintech Moove’s mixed rounds. However, debt financing requires stable cash flows and involves covenants and a higher cost of capital, meaning that missteps can negatively impact operations and strain cash flows. For astute founders, strategically combining venture debt, convertible notes, and equity can help maintain control while supporting growth.

Equity funding in Africa peaked at USD 3.7 billion in 2021 but decreased to USD 1.35 billion by 2023, a 72% drop, as global LPs reduced their investments, according to WT data. In contrast, debt financing rose from USD 98 million in 2020 to a record USD 589 million in 2024, tripling in four years. As of Q1 2024, hybrid deals (combining debt with equity) accounted for nearly 18% of funding rounds, up from 6% in 2021. This trend mirrors global shifts, with the U.S. seeing debt reach USD 53.3 billion in 2024, a 94.5% increase from 2023, and private debt fundraising growing by 41% in direct lending segments.