Seven years ago, Amanda Cotterman set out to make a venture debt model that worked for the East African venture market. In the wake of the covid-19 outbreak, she realized she could do more for the budding industry.
Last week, her firm EquaLife Capital launched a $20 million fund to help venture-backed companies in East Africa that are struggling in the wake of the coronavirus.
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The fund plans to provide loans that are worth $200,000 to $2 million in size for increments of six to 24 months. The interest rate will range between 5 and 10 percent.
“In the last two weeks we found that venture capital equity investors, as well as strong venture businesses in the ecosystem, have been calling us nonstop saying, ‘We are ready for debt. We need debt,’” said Cotterman, founder and managing partner of EquaLife Capital, which includes a small team.
She said that they are hearing that companies are having to put off planned funding rounds and are looking for capital to keep them afloat during these turbulent economic times in the wake of the pandemic.
“We are at a pinnacle point where the venture ecosystem is so new, the entire ecosystem might fall apart,” Cotterman said. “It’s important for us to be stakeholders in it and help them through this challenging time.”
Cotterman said that they reached out to foundations and grant-writing organizations to help them fulfill their quick fundraising goal.
“We are putting this out there as a solution for a very tangible problem,” Cotterman said. “We are hoping LPs can be willing to move a lot faster.”
The fund is set up as a permanent capital vehicle so that the firm will be able to raise in increments and put capital to work as early as April 15, when the firm hopes to close on its first batch of commitments.
Rising to the occasion and adapting to the surrounding market is nothing out of the ordinary for Cotterman though. She, and EquaLife, have been committed to helping the East African venture ecosystem as the market has worked to establish itself over the last four to five years.
The firm was started seven years ago by Cotterman when she noticed a need for a venture debt product. She said that equity in the region was getting saturated and with the fintech boom many companies were taking on debt that was inefficient.
Since then, the firm has put $750,000 of capital to work, through a combination of personal capital and a small starter fund.
The firm is industry-agnostic and has five VC-backed portfolio companies in such markets as financial services, education and agriculture. The portfolio companies include Kenstate, a coconut product company, and Moringa, a coding school in Nairobi.
EquaLife provides more than just capital, which is unusual for a debt lender. The firm looks to help its portfolio companies operationally, too, and it connects entrepreneurs with resources in the VC market.
“We are helping them understand how to be more fiscally responsible. Our reach is far in sales and marketing, operations, HR,” Cotterman said. “Whenever we see a challenge they are about to face, we go into our network and connect them and think of how to solve it.”
She added that the team is well connected in the local community and happy to help their start-ups in that way. She said start-ups there don’t always have access to top financial or tech talent.
As the covid-19 crisis continues to unfold, Cotterman hopes that the relief fund will be able to stretch past the East African region and invest across the continent. She said she can imagine that the African ecosystem could benefit from similar relief funds in the future.
“In a time of crisis, we have to adapt again what venture debt as an asset class looks like,” Cotterman said. “We can’t evaluate the perceived risk the same way, it’s off the charts. Can we still support these businesses because the fundamentals are the same?”