African tech startups shift toward debt financing

African tech startups are increasingly turning to debt financing to fund operations, according to the latest annual venture capital report from Partech Africa. Debt now accounts for 41% of all capital raised by the continent’s technology sector, a significant increase from 17% in 2019.

This shift is largely driven by a global “funding winter,” where venture capitalists have applied more stringent criteria for equity investments. To avoid “down rounds”—where companies raise capital at lower valuations that dilute existing shareholders—founders are opting for loans and credit facilities. This trend is particularly prevalent among growth-stage companies that require working capital to scale.

In Nigeria, founders are participating in this shift as businesses reach levels of revenue predictability that allow lenders to underwrite them. Unlike traditional bank loans, venture debt is often extended based on a company’s revenue generation and history of equity backing. This allows founders to finance growth and retain a larger percentage of their company’s equity while waiting for market valuations to recover.