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FIP 125: Venture Debt Fund for revenue-generating businesses during COVID-19 with Amanda Cotterman

Today’s challenge is for those businesses who’re seeing a temporary loss of revenue due to the COVID-19 crisis, but also anyone in the business of raising capital, and interested in different funding instruments.

We’ve got Amanda Cotterman on the show, and we’re talking about the fund she’s raising, Equalife Capital’s Africa Venture Debt COVID Recovery Fund. We help you understand whether this funding instrument is right for your enterprise or if you’re a donor or investor, whether you might want to put some capital towards this fund.

What you’ll learn on this episode:

  • Amanda works for Equalife Group. They’re raising a $20M venture debt fund. It’s for businesses that are revenue generating and cashflow positive, and have a specific revenue stream or they want to prove out a revenue stream to get a better valuation. The debt would need to be serviced.
  • Examples of appropriate businesses include:-
    • Agriculture businesses e.g. a milk distribution business that pays farmers up front, before going to market
    • A wholesale distributor in Rwanda, who buys from farmers, adds value to veg by cleaning and packaging, and sells to hospitality market.A
    • FinTech factoring business, that pays against invoices.
  • Businesses that have a genuine liquidity issue are most suited to this fund, so there’s good product market fit, there’s a demand for their product, but it’s just a matter of sourcing sufficient working capital to cover purchases in the short term.
  • How the fund could be used to weather the COVID-19 storm:
    • Businesses might have seen a drop in revenue and need cash to weather the storm. They don’t want to take on more equity.
  • Amanda has been an entrepreneur in Kenya for 9 years , working in an operational role with several ventures. She moved to Kenya after working in Asian markets with Morgan Stanley. With a deep understanding of financial instruments and the needs of African ventures, she saw the gap for debt to come in alongside venture capital. The debt can be useful where the venture has a profitable revenue stream and wants to demonstrate the potential to gain a higher valuation, but is struggling with cashflow. Shareholders don’t want to dilute their shareholding by using equity to support with cashflow needs.
  • The venture fund prices for the risk, so interest in the range of 5-10%.

Links to useful resources:

Connect with Amanda:

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