For African founders seeking capital, venture capital (VC) has traditionally been seen as the holy grail. However, many African startups and SMEs are now exploring alternatives that offer flexibility, particularly revenue-based financing (RBF). This financing model allows businesses to borrow against their future revenue, providing much-needed capital without diluting equity — a crucial advantage for founders looking to maintain control of their ventures.
What is Revenue-Based Financing?
RBF is particularly appealing to startups with recurring revenue, such as subscription-based services. Consider the fictional example of Intap Inc., a company with 2,000 customers paying $50 monthly. While Intap might generate $1.2 million in annual recurring revenue (ARR), the company would still need to wait for that revenue to materialize over the course of 12 months. RBF steps in by allowing startups like Intap to access a portion of their future revenue upfront, offering an immediate injection of capital.
Rather than surrendering equity or taking on high-interest debt, founders can receive loans based on future earnings and repay them through a percentage of their monthly revenue. This means that if a company’s revenue drops one month, the repayment amount adjusts accordingly, offering flexibility that traditional financing options lack.
The Surge in Popularity of RBF in Africa
RBF is becoming an increasingly popular funding model in Africa as founders seek non-dilutive alternatives. While VC funding often involves long negotiations, investor meetings, and detailed term sheets, RBF allows founders to bypass these steps and secure capital quickly. For many, the ability to retain full ownership of their company is the biggest advantage. This has particular importance for underrepresented founders, who historically have had less access to VC funding.
In Africa’s entrepreneurial landscape, where capital has often been scarce, RBF presents a lifeline for businesses with a clear revenue model but limited collateral or access to traditional funding sources. The model is also attractive to investors seeking less risky, more liquid investments compared to traditional equity.
South Africa’s Linea Capital Leads the Way
One of the prominent players in Africa’s RBF space is Linea Capital, a South African financier that has recently attracted investment from FSDAi Nyala Facility BV, an initiative of FSD Africa Investments. FSDAi Nyala has committed $1 million to Linea Capital, reflecting the growing recognition of RBF as a sustainable financing model for African startups.
Linea Capital focuses on small and growing businesses (SGBs), a sector often overlooked by traditional financiers. The company’s approach offers a non-dilutive, collateral-light alternative, with repayment terms aligned to a company’s revenue cycle rather than fixed monthly payments. The funds from FSDAi Nyala will help Linea secure lower-cost senior debt, thereby making RBF more accessible to local businesses.
Julia Price and Colin Hundermark, co-founders of Linea Capital, emphasize that their model is designed to support South African businesses through flexible financing options. They also provide post-investment support, ensuring that their portfolio companies are not only funded but also equipped to grow sustainably. Linea’s focus includes sectors such as agri-processing, education, and gender-focused enterprises, further solidifying RBF as a tool for social impact.
Uncap’s $33.3 Million Fund to Boost African SMEs
Uncap, a pioneer in alternative financing, has also recognized the value of revenue-based financing and recently launched a €30 million fund to provide non-dilutive financing to African startups and SMEs. The fund, called “Unconventional Capital,” is designed to address the gap in early-stage funding, where traditional venture capital is often out of reach.
Uncap’s model allows companies to repay loans based on revenue, providing flexibility that is crucial in high-risk, high-potential markets. The fund will focus on key sectors such as agriculture, climate resilience, and financial inclusion, all of which are critical to Africa’s development. Backed by global institutions like the Bill & Melinda Gates Foundation and the Bayer Foundation, Uncap’s initiative is poised to make a significant impact on the continent’s SME landscape.
Franziska Reh, CEO of Uncap, sees RBF as a strategic shift for African businesses. “We are offering a model that fits the unique needs of African entrepreneurs — those who require growth capital but are not willing to give up ownership,” Reh said. By aligning repayments with revenue, Uncap offers businesses a way to grow without the burden of traditional debt or the loss of control that comes with equity funding.
The Growing List of RBF Investors in Africa
As African startups become more aware of the advantages of RBF, the list of investors providing this type of financing continues to grow. In addition to Linea Capital and Uncap, global firms such as Capchase and Primary Funding Corporation may also interested in funding African startups with substantial revenue traction. These firms offer innovative models that allow startups to access capital quickly and efficiently, with flexible repayment options that adjust to a company’s revenue stream.
The rise in the number of investors using the revenue-based financing model signals a shift in how African startups approach financing. For founders who are tired of the traditional venture capital route, RBF offers an attractive alternative — one that allows them to maintain control of their company while accessing the funds they need to grow. As more investors enter this space, the financing landscape for African startups is likely to become more diverse, offering founders greater choice and flexibility in their growth journey.
In an environment where African SMEs are increasingly seen as key drivers of economic development, the growing popularity of RBF is a welcome development. By providing non-dilutive financing options, investors are not only supporting the growth of individual companies but also contributing to a broader narrative of sustainable development and economic inclusion across the continent.
