For most startup founders looking to raise funds, the obvious choice is equity financing. However, there is another option: debt financing. Equity financing requires founders to sell shares in their business in exchange for capital.
Debt financing allows founders to raise funds by selling debt securities to individuals or investors, and that money is then repaid on an agreed date with interest.
So far, few African startups have raised funds in this way, with fintech startups Carbon, FairMoney and mobility startup, MAX.ng ââa few examples. During the week, we chatted with Hani Ibrahim, chief investment officer of Lendable, a UK-based debt finance company, to find out how the company invests.
After studying and working in the UK in various positions in corporate finance and investment banking, Ibrahim moved to the Middle East. He spent five years working in Dubai and Qatar.
There, he set up investment banking platforms for local banks and institutions in both countries. In addition, he also worked at QInvest, where he led a $ 500 million credit strategy, investing in Asia, the Middle East and parts of Europe.
In 2019 he moved to the UK and quickly took over his current role at Lendable. Founded by Dyland Friend and Daniel Goldman, the company provides credit facilities to non-bank lenders in frontier and emerging markets.
Initially a software as a service (SaaS) company, Lendable provided an analytics platform to analyze loans. Soon after, they added an investment arm and provided over $ 100 million to startups in Africa, Asia, and the Middle East.
When choosing which startups to invest in, Lendable focuses on startups offering credit facilities in frontier or emerging markets in Africa, Asia and Latin America.
âThe investment thesis is that we are targeting emerging markets, particularly Africa, Asia and Latin America. But we’re looking at emerging markets at large with a focus on the FinTech space. We also target companies that promote and supply products to those who have found or generally have difficulty accessing financial services. “
A key point to note is that Lendable does not invest in companies at the idea stage. Instead, they invest in startups with a proven product but need capital to take it to the next level. The company provides these startups with money that is paid back over a period of time.
On average, these companies receive debt financing between five and ten million dollars.
Fintech startups are not the only ones to receive funding from Lendable. Ibrahim reveals that any tech-driven startup with a funding option matches their investment criteria. However, companies in sectors that they consider harmful or have no impact on their markets are excluded from their target market.
âWhat we’re really interested in is supporting micro and small businesses across the African continent,â he says.
Things startups should avoid
Ibrahim pointed out that while startups typically focus on rolling out new products and hiring new staff, they need to monitor their finances, precisely how and where they get their capital.
âOne thing they should be sure to spend time on is to think about their funding. How do they actually get their capital? Where do they get their capital and in what form?
âDo they have the right mix of capital? Do they think about the risks of different types of capital and the costs and drawbacks and different types of capital â
The greatest successes
Having financed several companies, Ibrahim is particularly proud of Watu Credit, a boda boda start-up funding. In the five years since their launch in Kenya, the company has expanded its reach into Uganda and Nigeria.
âIt was a small business and we were supporting them with a small facility at the time. They are at least in Kenya, but most likely in East Africa, considered the market leader for motorcycle taxi rentals in their space.
âAchieving a leadership position in the market in five years is an incredible achievement for their team. But we are also very proud to have played our part in supporting this.
On missed opportunities and regrets
With fintech being the darling of investors around the world, Lendable sees a lot of arguments from startups, so I asked Ibrahim about missed opportunities and possible regrets. âI think there are definitely some opportunities that we missed. Because there is so much going on in space, we can’t do it all.
âWhat I would say is that I would like to do more in different markets in Africa. You know, every market has its own ways of doing a transaction. So we work on each market and I filter them to see where we can trade.
Ibrahim reveals that when investments don’t go as planned, they work with the management team to find solutions. He says the two sides are working together to develop a win-win solution.
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