African startups significantly increased their reliance on debt fundraising in 2025, nearly doubling the amount secured through credit instruments even as equity financing from venture capital firms experienced a slowdown. According to the African Private Capital Association (AVCA) 2025 Venture Capital report released on Thursday, this shift reflects a changing investment landscape.

The AVCA report indicates that startups across the continent raised $1.8 billion in debt last year. This represents a substantial 91% increase compared to the $ amount raised in 2024. Debt financing accounted for 46% of the total $3.9 billion secured by African startups in 2025, highlighting its growing importance as a funding source.

In contrast, equity fundraising experienced a downturn. Startups raised $2.1 billion in equity during the year, a 21% drop from the previous year. This decrease reflects more cautious investor sentiment and tighter capital conditions globally.

Nadia Coulibaly, Head of Research at AVCA, commented on the report, noting that the growing shift toward credit is consistent with broader global trends. Coulibaly described debt as “becoming a defining anchor for the venture capital landscape” in Africa, adding that the shift signals a maturing ecosystem that will likely support a broader range of financing instruments in the years ahead.

Startup equity funding in Africa had surged through 2022, but accelerating inflation, higher global interest rates, and economic uncertainty triggered a pullback from investors, particularly foreign venture capital firms.

This retreat has created opportunities for domestic financiers and alternative funding providers, especially development finance institutions.

Landmark funding rounds by Kenya’s Sun King and Senegal’s Wave were among the largest transactions, underscoring how established, high-growth startups are driving much of the credit expansion.

Amid declining equity funding, Law firm, The New Practice (TNP), recently urged Nigerian startups to rethink their approach to scaling by embracing debt markets as a viable growth tool. At a roundtable on debt financing organized by the firm, financial experts dissected why debt is now a better alternative to equity for Nigerian startups, noting that debt forces startup founders to stay alert, responsible, and more financially disciplined. They stressed that debt compels founders to plan, meet timelines, and maintain financial hygiene, creating a foundation for sustainable growth.