Venture debt overtakes equity in Africa’s startup funding race

Tuesday 18th November 2025

by inAfrika Newsroom

Venture debt has overtaken equity as Africa’s main source of startup financing in 2025, driven by a handful of large deals and a shift in investor risk appetite. New figures show that venture debt reached about $1.6 billion between January and September, surpassing equity volumes for the first time on record.

According to data reported by Ecofin Agency, six large transactions account for a big share of that total, with East Africa leading the charge. Fintechs, logistics platforms and digital infrastructure players remain the main targets, as lenders look for firms with strong cash flows and clear paths to profitability.

Equity funding has softened in the same period. Higher global interest rates, weaker risk sentiment and portfolio losses from earlier years have made many venture capital funds more cautious. Investors now prefer structured products that offer priority repayment and downside protection, while still retaining some upside if companies grow.

The shift comes as Africa’s net foreign direct investment has also slowed. UNCTAD data show that FDI inflows to the continent fell 42% year-on-year to $28 billion in the first half of 2025, with sub-Saharan Africa down 23% to $17 billion.

For founders, the rise of venture debt creates both opportunities and pressure. Debt allows them to extend runway without giving up as much ownership. However, it also adds fixed obligations in currencies that often differ from their revenues. Lenders usually require covenants, collateral or revenue-based repayment structures that tighten if business plans slip.

Analysts note that the pattern reflects a maturing ecosystem. More startups now generate meaningful revenue and can support leverage. Domestic and regional banks, development finance institutions and specialised credit funds have gained confidence after several exits and successful restructurings. At the same time, global investors who still want growth exposure to Africa seek instruments that cushion them against valuation swings.

The shift matters for jobs, innovation and policy. If managed well, venture debt can help strong firms scale faster, hire more staff and expand into new markets. If misused, it can push young companies into distress when currencies weaken or sales slow. Some lawyers and founders are calling for clearer guidelines on covenants, disclosure and insolvency to avoid a wave of silent failures that might damage confidence.

Several regulators are watching closely. In markets such as Kenya, Nigeria and South Africa, authorities have already tightened rules around digital lending and consumer credit. The next frontier may involve clearer treatment of venture debt within prudential frameworks, tax rules and foreign-exchange regulations.

Industry groups urge governments to move carefully. They argue that sudden caps or rigid templates could push the market back into informality or offshore structures. Instead, they propose standard term sheets, voluntary transparency codes and better data on performance.

Next steps include more blended finance facilities that share risk with private lenders, and regional efforts to harmonise rules on cross-border lending. If those pieces line up, Africa’s new venture debt cycle could support the next wave of high-growth companies rather than become a debt trap for founders.