Future Africa and TLG Capital have partnered to create a program to erase debt for startups. Both created a $25 million venture debt fund.
TLG will be investing in Future Africa portfolio companies that meet specified criteria such as cash management, CFO reporting, and governance.
“Many startups are focused on VC equity investor milestones such as customer acquisition strategy and cost, customer lifetime value. These metrics aren’t the most important when extending debt financing because financiers care obviously about them but they also care about how bankable the business is.” TLG Investment Professional, Aum Thacker said.
The venture funding program will see Future Africa and TLG Capital work together to build a classy service suite for portfolio companies beyond the capital. This helps portfolio companies with investor introductions, talent acquisition, financial planning and analysis, and industry benchmarking.
The Criteria For Future Africa Debt Funding
To qualify, the startups must go through this evaluation process and receive debt funding from TLG, banks. Once they qualify, the banks and other traditional lenders can also choose to invest in the companies.
“These criteria are natural things that startups need to do to scale before Series C and D, so I think we’re helping them to do that earlier anyway,” Thacker said.
Why Is Debt Funding Necessary
It focuses on profitability, and cash flow over growth, and expansion, and offers startups aligned with this new metric an alternative funding source.
The financing program offers mature startups the opportunity to finance essential purchases and expansion plans without sacrificing the dilution of equity. It has often been attractive to startups in the renewable energy and lending sector, which offer credit facilities to their customers.
“Generally debt funding preserves founders’ ownership. Right now equity is harder to find plus the terms are most likely not going to be friendly because of the market environment,” Aboyeji said.
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