What kind of money was raised?

Debt is not automatically bad capital, and equity is not automatically patient capital

Suppose two Kenyan companies each announce that they raised KSh 500 million. The headline makes them look comparable. One may have sold new shares to fund product experiments with no fixed repayment date. The other may have taken a secured, dollar-linked facility to finance equipment that pays for itself through customer instalments. A third possibility is that a lender announced a commitment that the company has not fully drawn. Those are three different events, with different cash claims and different risks.

That is why the debt-versus-equity discussion matters. The 2025 tracker data cited in Part 1 say Kenya’s funding included $582 million of debt and $383 million of equity, with debt close to 60% of the published amount [1]. The annual summary describes large energy companies as key drivers. The mix tells us something about the instruments recorded in that dataset. It does not tell us which firms received which terms, how much was disbursed, whether the debt financed assets or operating losses, or which capital was best for the borrower.

The practical question is not “Is debt worse than equity?” It is: Does the instrument match the asset, cash-flow timing, currency and uncertainty it is financing? If a founder cannot answer that with dates and a downside case, the company may be accepting capital that makes next quarter’s cash problem worse.

First translate the label into a contract

“Debt” can mean a bank loan, overdraft, invoice facility, equipment lease, asset-backed securitization, convertible note, venture loan or supplier credit. They do not have the same repayment source or seniority. “Equity” can mean ordinary shares, preferred shares, a convertible instrument that later becomes shares, or a fund investment made through a holding company. Grants may be restricted to a specified programme, milestone or recipient. The word in a press release is only the starting point.

For each transaction, write down eight things:

1. Who provides the capital and who legally receives it? A parent and an operating subsidiary may be different borrowers.
2. What is the legal instrument? Read the signed agreement, not just a press release label.
3. What amount is available, and when? Separate announced, committed, signed, closed, drawn and cleared cash.
4. What does it cost? Include interest, fees, arrangement costs, warrants, currency hedges, default charges and any preferred return.
5. What claims does the financier have? Identify security, guarantees, seniority, covenants, information rights and voting control.
6. What activity is funded? Inventory, equipment, customer receivables, research, payroll, expansion, refinancing or a combination.
7. What cash flow or next event repays it? Name the receipts, sale, refinance, grant milestone or future equity round.
8. What happens if that source arrives late or not at all? Map default, dilution, restructuring, asset seizure, waiver, extension or shutdown options.

A single transaction can combine several instruments. A company may draw a secured line, issue preferred shares and receive a grant during the same quarter. Add them into one “funding raised” headline only after recording the amount, date and status separately. Otherwise readers cannot tell which cash remains available and what claims follow it.

Debt can fund an asset. It can also borrow from a future that never arrives

Debt is useful when the borrower can forecast cash receipts well enough to service principal and interest under a conservative case. Asset finance may fund solar equipment, a vehicle fleet, inventory with contracted buyers or invoices from creditworthy customers. The lender may look primarily at the asset, receivable pool, customer collection history, sponsor support and enforceability of contracts.

That structure is different from an early-stage software venture raising equity to test a product that has not yet found repeatable demand. The latter may have valuable intangible assets but no predictable monthly cash. A scheduled repayment can force a premature sale, aggressive customer collections or spending cuts that undermine the experiment. Equity can absorb more variation, but it dilutes founders and investors and may introduce governance rights or a preferred return.

The Africa: The Big Deal data show why debt labels need more detail: the 2025 Kenyan total was heavily shaped by energy and asset-financing activity [1]. A facility connected to energy equipment could be economically sound and repayable even when it is not the type of venture capital often imagined in startup discussions. Conversely, a large facility can create concentrated risk if the company’s customer payments, imported equipment and debt service are denominated in different currencies.

Public transaction announcements can illustrate structure without giving every term. Sun King has disclosed debt and securitization arrangements involving development-finance and commercial partners [2]. A disclosed transaction can show that a capital market exists for a particular asset pool. It does not reveal the rate, repayment waterfall or remaining cash position of every company described as “solar finance.” To estimate those, we need the original agreement or a detailed issuer disclosure.

A worked debt case: check the first payment before celebrating the round

Assume an equipment distributor borrows KSh 100 million for 24 months at 18% nominal annual interest. It repays equal principal each month. This is an invented example; it is not a current Kenyan facility offer. Equal monthly principal is KSh 100m ÷ 24, or approximately KSh 4.167m. If interest is charged monthly at 1.5% of opening principal, first-month interest is KSh 1.5m and first-month total debt service is about KSh 5.667m.

Across the 24 months, the simple model produces approximately KSh 18.75m of interest and KSh 118.75m total principal plus interest, before fees, taxes, legal costs, arrears charges or hedging. The calculation assumes the lender uses a 1.5% monthly rate on a declining balance and that the borrower pays on time. A real contract may use another day-count convention, a flat rate, fees, a grace period, balloon repayment or different payment dates.

Suppose the financed portfolio generates KSh 6.2m of monthly cash available for debt service after necessary operating cost, tax, maintenance, collection cost and working-capital need. First-month coverage is 6.2 ÷ 5.667 = 1.09 times. If collections are 20% below plan, available cash falls to KSh 4.96m, and coverage becomes 4.96 ÷ 5.667 = 0.88 times; the monthly shortfall is about KSh 707,000. The measure is illustrative, not a recommended covenant. A lender’s agreement defines its own DSCR, permitted add-backs and test periods.

The borrower should now ask: do customers actually pay before the loan due date? Are the receivables enforceable? Will the portfolio require replacement equipment or servicing? Are taxes and collection losses included? Does the debt currency match the customer cash currency? Is there a reserve for late payments? The financing may be viable if the debt tenor matches asset receipts and the stress is manageable. It may be dangerous if the investor relies on the next equity round to cover every scheduled payment.

Equity buys a different kind of time, at a price

Equity does not require scheduled principal repayment, which can give an uncertain business room to test demand. But it is not free. The investor receives ownership, voting or information rights, and often contractual protections that affect future financing and a sale. A preferred-share class may have priority over ordinary shares in a sale or liquidation. A founder may be diluted in future rounds, option-pool expansions or conversions.

A basic dilution calculation keeps the pre-money and post-money values distinct. If an investor puts KSh 30m into a company at a KSh 120m pre-money valuation, post-money valuation is KSh 150m. The new investor owns 30 ÷ 150 = 20% on the simplified fully diluted basis. Existing holders collectively fall to 80%, before any option-pool increase, earlier convertible conversion, liquidation preference or later round. This arithmetic does not say whether KSh 120m is fair; it shows what the stated price implies.

A founder should read the whole term sheet: class and seniority of shares; liquidation preference and participation; anti-dilution; board and observer rights; protective provisions; founder vesting; option pool and who bears its creation; information rights; reserved matters; pro-rata rights; transfer restrictions; exit and drag/tag rights; and conditions precedent. “We raised $10m” does not tell the reader whether the company sold 10% or 40%, whether the investor has a guaranteed multiple on exit, or how much money is left after a secondary sale or debt repayment.

Equity is often described as “patient,” but the fund behind it has its own life, return target, governance model and follow-on capacity. A fund may encourage a rapid growth path because its portfolio is built around outcomes where a small number of very large exits drive returns. That can fit a scalable business with improving unit contribution. It can conflict with a slower route to profitability or a company whose investors cannot provide the next round. The founder should ask who will fund the next milestone and what evidence that decision will require.

Convertible notes, SAFEs and “we will decide later”

A convertible instrument can postpone setting a valuation, but it does not remove the economic terms. Review the principal, interest, maturity date, valuation cap, discount, conversion trigger, qualified-financing threshold, repayment or extension options, most-favoured-nation clause and treatment at a sale or shutdown. Model several conversion prices with the existing option pool and earlier notes included. A low cap combined with a discount can give an investor a larger share than a founder expects from the headline cheque.

A SAFE or similar future-equity contract may not accrue ordinary interest or have a maturity in the way a conventional note does, but it still creates a future claim on ownership. Kenyan legal treatment, tax and foreign-law governing provisions should be reviewed by qualified counsel. Never label a convertible as plain equity before conversion or plain debt without checking repayment rights and local enforceability.

A company may also have several bridge instruments outstanding. If every investor expects the next round to convert them, one delayed equity close can create a maturity wall or negotiation over waivers. The cash forecast should list actual due dates and legal claim priority, not just a single “funding balance.”

Grants and blended finance have restrictions and reporting obligations

A grant can fund a public-benefit pilot, customer affordability programme, research milestone or market entry where a purely commercial investor would not yet fund the activity. It usually does not give the grantor ordinary ownership. But grants often restrict eligible costs, require matching funds, set delivery milestones, allow audits and require repayment or clawback if conditions are not met. An award announcement does not equal unrestricted cash.

Blended finance can combine grants, concessional debt, commercial loans, guarantees and equity to share risks. That can bring a new service to customers or make a capital asset financeable. The analytical question is whether each tranche has a clear purpose and whether the business can continue after a subsidy ends. Count the grant on the date it is received and usable. Do not include a pending reimbursement in current cash unless the claim is accepted and payment timing is supported.

For founders, keep a grant register with agreement date, amount, currency, eligible budget, disbursement milestones, matching requirement, reporting date and restricted balance. If a grant pays for a pilot but salaries or customer acquisition continue afterward, include the post-grant cash requirement in the base plan. A successful pilot is not the same as a funded operating model.

Asset finance, securitization and receivables funding

Asset finance uses an identifiable asset or pool of cash flows to structure the repayment. A company may borrow against equipment, lease vehicles or sell/pledge future receivables through a securitization. The facility may sit at a special-purpose vehicle rather than the brand customers recognize. The investor, servicer, originator and legal borrower can be different entities.

A receivables facility should be tested against the pool's quality and the cash waterfall: eligible invoice rules; customer concentrations; payment delays; dilution from returns or disputes; first-loss reserve; servicing fees; overcollateralization; collection account control; recourse; and conditions that stop new borrowing. If customer collections fall below the assumed loss rate, the borrowing base may shrink just as the company needs more working capital.

Asset-backed finance can be more suitable than ordinary venture equity for a mature receivable pool. It can also leave the operating company with less flexible cash and a new set of covenants. A founder should build three schedules: assets originated or sold; collections by customer cohort; and facility draws and repayments. Do not infer the rate or risk-sharing terms from a transaction headline.

Match currency and tenor to cash receipts

Currency mismatch is a real financing cost even when the interest rate looks low. If a company earns shillings but owes dollars, a shilling depreciation can increase the shilling value of principal and interest. If revenue is in dollars but payroll and suppliers are in shillings, that mismatch may work differently. Record the currency of each significant revenue stream, input cost, debt, lease, customer installment and bank balance.

Tenor matters as much as rate. A 12-month facility financing an asset that pays back over three years creates refinancing risk. A five-year facility for inventory that turns in 60 days may be unnecessarily expensive. Map scheduled repayments to the cash-conversion cycle and useful life; model first payment, grace-period end, balloon and covenant test dates. Put the downside cash trough beside the repayment schedule.

A simple currency stress can be framed without forecasting exchange rates: recalculate debt service under a 10%, 20% or 30% adverse movement, using the actual exchange rate at the model date and clearly labeling the shock as a scenario. If the company has a natural hedge or a forward contract, document notional, tenor, collateral, rollover and counterparty limits. The shock is a resilience check, not a prediction.

What the research says—and what it does not say about Kenya

Robb and Robinson examine capital-structure choices among new US firms using the Kauffman Firm Survey and show that external debt, especially business debt, was more prominent in startup finance than a venture-capital-only story would imply [4]. Cole and Sokolyk find that in their US startup sample, firms using business debt at startup were more likely to survive and have higher revenue three years later than all-equity firms, while personal debt did not show the same pattern [5]. Those are observational results in defined datasets. More creditworthy firms may be more likely to obtain business loans, so the estimates should not be read as proof that debt causes survival or that the same results hold in Kenya.

Berger and Udell describe how small-business financing changes across firm growth stages and how private debt and equity markets serve different information and risk profiles [3]. De Rassenfosse and Fischer study venture-debt lenders and report the importance of venture backing and intellectual property in lender decisions in their US lender survey [6]. These studies are helpful for framing a due-diligence conversation. They do not establish terms available to Kenyan borrowers or the repayment performance of African solar portfolios.

A funding article should therefore use peer-reviewed research to explain possible mechanisms, then use contracts and cash records to analyze named transactions. The local deal tracker describes transaction amounts and instruments; it does not substitute for a borrower’s loan agreement, bank statement or audited financials.

A practical capital-fit scorecard

A founder and investor can review each financing offer with six tests:

If two or more answers are unknown, the next action is not necessarily to reject the offer. It is to request the agreement, model, legal-entity map and repayment schedule before accepting it. If the provider will not disclose a material term, record that limitation rather than assuming the most favorable version.

Compare instruments with the same capital need

To see why debt and equity should not be ranked by a single “confidence” label, hold the cash need constant. Imagine the equipment distributor needs KSh 100m for a two-year portfolio. Under the invented debt terms above, scheduled repayment totals about KSh 118.75m over two years, assuming the company pays on time and incurs no extra fees. The lender has no ordinary ownership in the upside, but may have security and default rights. Under a simple equity alternative, the company could issue 20% for KSh 100m at a KSh 400m pre-money valuation, producing KSh 500m post-money. If the company later sold for KSh 1bn and no other dilution, preference or transaction cost existed, that shareholding would correspond to KSh 200m of gross value; if the business failed, equity could be worthless.

Those numbers are not comparable returns. Debt receives a contracted claim and is exposed to default and recovery; equity receives a residual claim and is exposed to dilution, valuation and exit timing. The debt also requires cash on specific dates; the equity may require governance concessions and future rounds. A founder comparing the two should model company value and cash under several outcomes, not compare the interest percentage with the projected exit multiple as if both were certain.

A useful financing decision asks whether the funded activity can produce a return that exceeds the full financing cost after operating risk, taxes, downtime, losses, collection costs, currency changes and working capital. If the project generates cash after the first debt payment but not before it, the long-run return may be positive while the company still defaults in month one. Equity can bridge that timing gap, but if the enterprise has little chance of reaching the next milestone, new shares may simply postpone a necessary decision. The right mix is specific to the asset and forecast.

Capital needs change as the business learns

At idea stage, the founder may be financing research, incorporation and a prototype. At pilot stage, the company pays for customer tests and early delivery before repeat economics are known. At scale, it may finance inventory, receivables, hiring, infrastructure and expansion. At each stage, the uncertainty and cash cycle change. A line of credit that is useful after recurring invoices exist may be unsuitable before any customer contract has been delivered.

This does not mean startups must follow a fixed sequence from grant to angel to venture capital to debt. A profitable trading business may use customer deposits and trade credit from the beginning. A climate hardware company may need equipment finance when it has signed offtake. A deep-technology venture may require equity for a long research cycle. A platform with fast growth but slow collections may need working capital even after it has raised a major equity round. The funding source should follow the cost and risk being financed, not a fundraising chart in a pitch deck.

For each planned raise, the board should distinguish four needs: cash to keep the current service reliable; cash to fund growth that has positive incremental contribution; cash to cover losses while a product or market is tested; and cash to refinance or settle old claims. Those uses should not be hidden under “working capital.” If equity is paying old debt, say so. If a new facility is financing inventory required by a signed contract, identify the invoice and collection schedule. If the company is funding an unproven market test, decide in advance what evidence ends the test.

The questions to ask when a company announces a round

When reading a funding announcement, use it as a prompt for seven concrete follow-ups:

• Is the amount the headline size, the signed commitment, the cash drawn or the cash cleared in the operating bank account?
• Does the named investor provide all the money or participate in a syndicate with conditions?
• Is the legal borrower or share issuer the same entity that employs staff, sells to customers and owns the financed asset?
• Does the capital add new cash to the company, refinance an older lender or purchase shares from an existing investor?
• What is the exact currency, disbursement calendar and restriction on use?
• What monthly cash obligation, ownership dilution, liquidation preference or reporting duty follows?
• Which customer, asset, grant milestone, refinance or later round repays or justifies the capital?

The answers will often be private. In that case, the responsible article can state what the announcement identifies and what remains unavailable. A source gap does not mean the instrument is bad; it means the reader cannot judge its fit yet. The company can improve its own capital planning by building this transaction ledger before the next announcement, because the same fields help reconcile a board forecast, a bank covenant and a future investor's due diligence.

Workbook map

The Startup Funding Market and Outcomes workbook contains the worked schedules discussed here. Instrument Guide separates equity, loans, asset finance, receivables finance, convertibles, grants, supplier credit and customer advances. Debt Service schedules a hypothetical KSh100m, 24-month equal-principal loan at 18%: principal totals KSh100m, base interest KSh18.75m and scheduled repayment KSh118.75m before fees. Its combined stress raises the rate to 23% and cuts monthly CFADS from KSh6.2m to KSh4.96m; first-month stressed DSCR falls to about 0.82. Equity Dilution reproduces KSh30m at KSh120m pre-money as 20% ownership and the separate KSh100m/KSh400m pre-money illustration. Deal Ledger remains blank until a named transaction's legal recipient, instrument, timing and receipt are evidenced. Appendix 02 reproduces the formulas and tells the reader why debt service and equity value are not equivalent returns.

Technical appendix

• Appendix 02 — Instrument fit, debt service and equity dilution

References

[1] Africa: The Big Deal, “2025 in review: Mapping the money,” January 13, 2026, https://thebigdeal.substack.com/p/2025ir2.

[2] AVCA / British International Investment and Stanbic Bank Kenya, “BII, FMO, Norfund et al. jointly invest in Sun King,” transaction announcement, https://www.avca.africa/news-insights/member-news/bii-fmo-norfund-et-al-jointly-invest-in-sun-king/.

[3] A. N. Berger and G. F. Udell, “The Economics of Small Business Finance: The Roles of Private Equity and Debt Markets in the Financial Growth Cycle,” Journal of Banking & Finance, vol. 22, nos. 6–8, pp. 613–673, 1998, https://doi.org/10.1016/S0378-4266(98)00038-7.

[4] A. M. Robb and D. T. Robinson, “The Capital Structure Decisions of New Firms,” Review of Financial Studies, vol. 27, no. 1, pp. 153–179, 2014, https://doi.org/10.1093/rfs/hhs072.

[5] R. A. Cole and T. Sokolyk, “Debt Financing, Survival, and Growth of Start-up Firms,” Journal of Corporate Finance, vol. 50, pp. 609–625, 2018, https://doi.org/10.1016/j.jcorpfin.2017.10.013.

[6] G. de Rassenfosse and T. Fischer, “Venture Debt Financing: Determinants of the Lending Decision,” Strategic Entrepreneurship Journal, vol. 10, no. 3, 2016, https://doi.org/10.1002/sej.1220.

[7] P. Gompers and J. Lerner, “The Venture Capital Revolution,” Journal of Economic Perspectives, vol. 15, no. 2, pp. 145–168, 2001, https://doi.org/10.1257/jep.15.2.145.

Companion resources

The workbook and technical appendices are available with research membership. The video production guide maps this article to a planned episode; a published video is not yet available.