Their revenue could be growing, but a billion-dollar exit is unlikely, so most investors walk away. While the company is investable, the venture capital model was wrong for it. Ishimwe, a fund manager at Development Bank of Rwanda, is trying to build a different model. 

Based in Kigali, he runs a microfund with roughly $4 million in assets under management, deploying non-dilutive cheques of up to $100,000 into Rwandan startups. He is now structuring a larger venture debt fund to test a broader thesis: that debt, rather than more equity, is the missing piece of investment in frontier African markets. 

The proposition runs against much of conventional venture capital thinking. Instead of searching for the next billion-dollar company, Ishimwe wants to back a concentrated portfolio of businesses capable of reaching $20 million and $50 million valuations, provide them with patient debt financing, and leave equity investors to support the next stage of growth.  

The new fund will be sector-agnostic and tech-enabled and will write cheques ranging from $300,000 up to just under $1 million, without requiring collateral. It will offer grace periods measured in years and repayment terms stretching from six to eight years. The debt’s pricing is expected to range between 9% and 12%, well below the 18% to 22% that Ishimwe says private credit providers typically charge elsewhere on the continent. 

Some deals may also include an equity kicker, allowing the fund to participate in the upside if a portfolio company reaches a significant valuation at a liquidity event. Crucially, the fund is designed as an evergreen vehicle because its capital comes from a development bank rather than limited partners seeking an exit within a decade; repayments can be recycled directly into new investments.

The capital, however, is still taking shape, and Ishimwe is candid about where things stand. So far, the development bank is the fund’s only committed backer with $6 million. But he told me that a high-net-worth individual is close to committing a further $3 million while discussions continue with two development finance institutions (DFIs). Raising capital, he says, is not the biggest challenge.  

Instead, it is structuring, as banks remain cautious about taking venture-style risk onto their balance sheets, prompting Ishimwe to use special purpose vehicles with Convergence Africa and the African Guarantee Fund that would ring-fence the risk. He sees the entire exercise as a proof of concept—one that, if successful, could unlock the vast pools of pension and development finance capital held by African institutions but are rarely deployed into technology companies.

The urgency behind that model stems from a finding that Ishimwe returns to repeatedly. In many African markets, he argues, startups can take between 15 and 17 years to mature, while the typical venture capital fund is designed to return capital within 10. That mismatch, he believes, explains why many funds reach the end of their lives before their most promising portfolio companies have had time to realise their full potential. 

In our conversation, Ishimwe explains why he wants a concentrated portfolio of just eight to 12 portfolio companies instead of 30 or 40, why execution and a founder’s ability to scale matter more than the underlying technology, and why he remains quietly sceptical of African AI startups’ successive funding rounds without a credible path to revenue. 

This interview has been edited for length and clarity.

What’s the core thesis of the fund?

At its core, from a thesis standpoint, it is going to be a venture debt fund, and it is going to be sector-agnostic. If you are sector-specific in smaller markets, you carve away too many deals from yourself. It is also going to invest in technology or tech-enabled businesses because we see digital innovations where companies are not pure software.

We will deploy a minimum of $300,000 to a little less than a million dollars. The hypothesis is that we look for products where we can deploy this instrument. If a company is at $100,000 in annual recurring revenue and we deploy $300,000, could this company potentially turn into $1 million or $2 million in annual recurring revenue over the next three to six years? That way, we see the value of our capital: we deployed $300,000 into a $100,000 ARR company and helped it grow several times over.

I keep hinging on revenue because, since it is venture debt, the fact that the business can generate commercial value is instrumental to us. This is in line with what we have seen across Africa. The fund cycle is ten years plus one plus one, but businesses in African markets can take 15, even 17 years to develop. If you deploy a ten-year fund model to a business that takes 15 years, you close your fund before you have returned much to investors.

What we are applying to our fund is keeping it evergreen. If we deploy capital and it is recycled back through repayments, that capital is deployable again. It is not returned to the bank or capital provider. It is easy for us to do because the capital comes from the bank, not from an LP looking at a ten- or twelve-year exit, so we can recycle it and keep it long-term.

The hard part is that banks, in some cases, will not want to set up special purpose vehicles to write equity outside the bank’s balance sheet because this is a risky asset class to them. What they do not want is these businesses failing to perform, with the resulting non-performing loan landing on the balance sheet. They want to isolate it, which is why I am in conversations to find how we can isolate the risk from the bank’s main balance sheet.

Our idea is that for early-stage tech or mid-growth-stage tech, you do not have a lot of assets to collateralise for close to a million dollars. We will waive that almost entirely. Only if there are valuables in the company would we take them, not even as collateral but for recovery — say you have a loan book; since we see a lot of digital lending now, we can be innovative around securitisation or collection. But we do not ask for collateral to begin with.

We do not need repayments in anything below three years. We want to see companies that, if they are at $100,000 now, can reach $300,000, $500,000, or a million or two in the next three to five years, so it is easy to collect our payments after the grace period. If the company is strong, the rest periods are longer. Our payment cycles can be long. We can ride this instrument for six, seven, or eight years. We are flexible on grace periods and flexible on collateral. 

Because we are a development bank, as a trial, we are trying to do development rates: 9% to 12%. We are trying to bring the patience of equity financing and the debt instrument of the bank together to let capital flow.

To finalise: if you are doing technology, there is always going to be an upside. We might deploy $500,000 into a transaction that is around $2 million because we can syndicate deals at certain rounds, and in five years the company does well and reaches a strong valuation. We have an equity kicker built into the transaction. When we do a deal, we may still agree on a valuation with the founder but deploy a debt instrument, and if there is a high liquidity event or secondary, we could exit from an equity standpoint by valuation. It is about how you let capital flow without the constraints of the bank or pure VC, while still optimising for the upside case.

What is your ideal scenario for the fund? What does success look like for you?

To keep it succinct: seeing it come to fruition. There is one lever I am trying to pull, and if I pull it with a partner to isolate the bank’s risk, we will be okay. And it is not my success alone — I talk directly to senior officials at the bank and to ministers, who are also looking at this to make sure it works, because it is a model that could inspire the markets.

We want to ideally do 8 to 12 deals over three years. Success looks like seeing these companies growing — growth being a factor of different things, whether commercial value or valuation growing off a strong user base even if revenue does not. If our portfolios are growing by whatever metric, that is success.

Number two, if we turn capital back. With debt, we are not only looking at power-law outcomes. Even if two or three companies fail and the model holds, seeing returns come into the fund is the biggest measure — because if capital returns, we can repurpose it into other early-stage deals. We are going to be very hands-on, providing bottom-line-aligned support to make sure these companies grow and scale, not just here but across Africa. If we see them growing, and if they can recycle capital back so the fund is sustainable by itself, that is a very big measure of success. That is when we toast to what worked. But we are putting in a lot of effort to see whether this works.

Why fewer deals, what is your holding structure, and what is the lifetime of the fund?

Because we want to operate these companies. We had this conversation on a panel with fellow investors during a summit roundtable. Support for tech companies needs to evolve. Entrepreneur support organisations and hubs have traditionally provided mentorship and that kind of support, which is great — I am not opposed to it — but entrepreneurs have grown to a point where they need support that contributes directly to the bottom line of the business.

For example, if you are a fintech, Rwanda now has passporting licences with Ghana and Kenya. You can get a licence in Kigali or in Nairobi in three or four months, and when you come to Kigali, it is a simple harmonisation of processes — two weeks is enough. Think about it: companies like Flutterwave spent almost two, if not three, years to get a licence in Kenya. That is the kind of support we would give. Number two is helping you find integrations – with banks, payment gateways, or whatever institution you are looking at. All of this contributes to the bottom line, because getting a licence lets you penetrate another market, and a partnership contributes directly to the profit and loss. More of these forms of support we are still navigating on a need basis.

That is why we want to have 8 to 12 companies, provide all the support we can, and make sure they all succeed, as opposed to 30 or 40, where we cannot operate each company — not get into daily operations, but provide direct support and follow up.

Lastly, if this becomes successful, we believe it can help unlock capital in African markets. Think about it: DFIs that deploy capital that comes from outside. But we have a ton of capital reserved within Africa. Pension funds in some countries hold almost 55% of the money in circulation, but they rarely deploy capital to vehicles that invest in technology. This is going to be a test bed. If it works, could it be a model to unlock capital from local capital providers? That is the spectrum I would put it into.

What is the ideal exit scenario for the fund?

There is nobody besides the bank whose mandate is to play a development role. We are talking to other banks with a development role across Africa, not just Rwanda. Our biggest incentive is not getting the capital back or getting an exit — it is having a fund that deploys capital to our technology sector on a progressive basis. We are not focused on getting the capital back, though if other investors step into the fund, we model how to return their capital and when, depending on when we deploy. 

But for the bank and DFI partners, it is not about getting the capital back and isolating it. It is about keeping the fund operational and benefiting more companies.

What are you looking for in founders and startups?

We want executors. Execution is almost overrated in how much it matters — you might like AI, you might like blockchain, but even if the market is promising, if I do not see your ability to execute, it is going to be hard for me. Lower-level technology can always be built. An app is not the core fundamental. The fundamental is: can you execute this? If you are a founder in the event space, I want to see whether you have operated there and whether you can onboard the next 5, 10, 20, 50, or 100 users and in what time. Speed matters. If you are a fintech, have you been in that space before? Do I see networks that translate into monetary value for the business?

We are looking for executors, and not just executors of code, but executors of business. 

We want founders looking broader than what their market provides. Our market is small, so you do not want to be a business that only operates here. We want to see a scalability mindset from the outset: how big do you think this can go? Those two, especially execution and horizon, make an ideal fit, among other factors.

What are your red flags in founders? Your no-go areas?

One — you know the pattern where a founder is at accelerator A for a $3,000 grant, and when they finish, they go to another and another, spending almost six years in cross-accelerator programmes. I am not opposed to it, but if it has not brought results, it changes the way I look at you.

We like AI, and it is great that we want to be competitive on the global scene, but it has proven hard. I have done a couple of AI deals, but sometimes we cannot see when the company reaches its future horizon. We might see you in ten years still burning cash, unable to sustain a business. You can absorb two or three equity rounds, but we do not see you transitioning to profitability.

It might be an impressive, amazing product, but because we are not an equity investor, if we do not see the route to commercialisation or a clear path to profitability — not in two or three years, but at least in four to seven — it becomes hard for us. It is not that it is wrong or that we do not trust them. It is that those deals are misaligned with our instrument. If we saw strong profitability in year six or seven, or if it suited an equity investor predicting an event in year 12 or 15, that is a different story.

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