Profit-making idea: Fill the gap that is Africa’s venture debt market

Profit-making idea is a series of short posts, each with a piece of information that we think you might find useful: for investment, for growing your company or to start a new business. Read our previous posts here.

In a past interview, we asked Lexi Novitske, the principal investment officer for Singularity Investments, to name a business opportunity she would still like to pursue. Here is her response:

This question might as well be, which business opportunities have I passed on that I wish I had been involved in! I still believe there is tremendous opportunity to invest in regtech, digital currency, banking-focused software-as-a-service, education, micro-fintech solutions (payments/insurance/lending), and digital identity.

As an investor, I also see a missing opportunity in equity-linked venture debt. Venture debt is for startups that don’t have positive cash flows or significant assets to use as collateral. Venture debt providers combine their loan with rights to purchase equity at a future date to compensate for the higher risk. We have had several companies that had working capital requirements or balance sheet needs (in the case of microfinance) which couldn’t find banks willing to extend credit and who had to instead rely on equity investments to support their growth. Other local players have turned instead to Western venture debt companies – inherently these companies have less understanding about the local market and price in large risk premiums to compensate for this risk.