A Reminder: The Fundraising Trap
Earlier, we unpacked “The Fundraising Trap: Why African Startups Keep Raising (And When to Stop),” highlighting how relentless equity rounds can lead to dilution, misaligned incentives, and an endless chase for growth at the cost of sustainability. In today’s climate—where venture capital for African startups dipped from $2.9 billion in 2023 to $2.2 billion in 2024—founders must broaden their horizons and explore alternative financing models to fund the long game.
The Crossroads for Founders
Imagine you’re at the brink of your next expansion: new market, bigger team, enhanced product. Do you:
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Raise more equity? Faster growth, but increased pressure and dilution.
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Bootstrap/Revenue-Based Financing? Retain control, but grow more gradually.
This crossroads moment is where alternative financing shines—letting you match your capital strategy to your business rhythm.
Alternative Financing Models
1. Revenue-Based Financing (RBF)
How it Works: Investors receive a fixed percentage of future revenue until a predetermined repayment cap is reached. No equity dilution.
Pros: Aligns investor returns with business performance; founders keep control.
Cons: Repayments during early revenue dips can strain cash flow.
Example: Moove
Nigeria-born Moove secured $100 million in RBF to finance vehicles for gig drivers, using driver earnings data to calibrate repayments. This model enabled Moove to scale into 16 markets without giving up equity, and aims for profitability by the next fiscal year.
2. Grants & Impact Investment
How it Works: Philanthropic and developmental organizations provide non-repayable grants or low-interest loans to ventures with social and environmental goals.
Pros: No dilution; supportive mentorship and network access.
Cons: Often competitive; strict reporting requirements.
Example: Tony Elumelu Foundation (TEF)
TEF’s $15 million seed-grant program supports 3,000 entrepreneurs annually, offering $5,000 each along with mentorship and training. Since 2015, TEF has disbursed over $100 million, empowered 2 million entrepreneurs, and catalyzed $4.2 billion in revenue across Africa.
3. Crowdfunding
How it Works: Startups raise small amounts of capital from large groups of individuals—either in exchange for early products, rewards, or equity (equity crowdfunding).
Pros: Market validation; community building; flexible terms.
Cons: Requires marketing effort; platform fees.
Example: Farmcrowdy
In Nigeria, Farmcrowdy used rewards-based crowdfunding to finance early agritech pilots, pre-selling farm shares to hundreds of backers and securing $250,000 in critical seed funding before formal VC interest emerged.
4. Angel Networks & Venture Studios
How it Works:
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Angel Networks: High-net-worth individuals pool resources to fund early-stage startups, often offering mentorship and industry connections.
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Venture Studios: In-house teams co-create startups, providing capital, operational support, and shared services in exchange for equity.
Pros: Founder-friendly terms; active support; lower bureaucratic hurdles.
Cons: Limited funding size; equity still exchanged.
Example: Africa Angel Academy
Through curated cohorts, AAA connects emerging consumer-tech startups with angels who invest $25k–$100k, while venture studios like Launch Africa Labs co-build solutions alongside founders, reducing time to market.
5. Strategic Corporate Partnerships
How it Works: Corporates provide funding or in-kind support (distribution, marketing, technology) in exchange for revenue-sharing, supply agreements, or minority stakes.
Pros: Access to markets and expertise; potential pilot contracts.
Cons: Possible conflicts with corporate priorities; slower decision cycles.
Example: Cellulant & Visa
Cellulant initially scaled its payment platform through a partnership with Visa and Mastercard, accessing merchant networks and co-developing solutions without ceding control to traditional VCs.
6. Diaspora Bonds & Pooled Community Funds
How it Works: Governments or platforms issue bonds targeted at diaspora populations; community-driven funds raise capital from local investors.
Pros: Mobilizes under-tapped capital; fosters community buy-in.
Cons: Regulatory complexity; requires strong governance.
Example: Rwanda’s Diaspora Bonds
Rwanda has raised millions via diaspora bonds, earmarking proceeds for housing and SMEs—demonstrating how national bonds can indirectly benefit startups through improved infrastructure and financing.
7. Peer-to-Peer (P2P) Lending & Cooperative Models
How it Works: Individuals lend directly to businesses via online platforms, or form cooperatives that pool savings to fund member ventures.
Pros: More flexible than banks; community trust.
Cons: Credit risk; platform fees; governance challenges.
Example: M-Kopa’s Asset Financing
M-Kopa’s pay-as-you-go solar model operates like a P2P loan; customers repay via mobile money daily, enabling M-Kopa to recycle assets and fund new solar units without equity dilution.
Finding the Right Blend
No single model fits all. Founders should:
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Assess Cash Flow Patterns: RBF works for predictable revenues; grants suit early pilots; equity fits high-growth tech plays.
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Evaluate Trade-Offs: Control vs. speed; reporting burden vs. mentorship value; cost of capital vs. strategic benefits.
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Mix and Match: Combine grants with RBF, angels with crowdfunding, or corporate pilots with venture studio support to de-risk each stage.
Final Thoughts: Building for the Long Game
The key isn’t eliminating equity fundraising but making it strategic. By weaving alternative financing into your capital plan, you can maintain control, align incentives, and build a resilient foundation. As the ecosystem matures, these diverse models will help African startups navigate downturns, scale sustainably, and fulfill their vision—without endless fundraising cycles.
At Startinev On The Go, we champion founders exploring every financing avenue. Subscribe to our newsletter for deep dives, practical frameworks, and stories of entrepreneurs who dared to fund differently—crafting ventures that last.
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