Venture capital is fundamentally about identifying outliers—the rare portfolio company capable of returning an entire fund. But apply that logic to Rwanda, a landlocked market of fewer than 20 million people, and, as Magnifique Ishimwe observes, no startup fits the profile. Revenue may be growing, but a billion-dollar exit remains unlikely, prompting most investors to walk away. The companies may be investable, but the conventional venture capital model was simply the wrong fit.

Ishimwe, a fund manager at the Development Bank of Rwanda (BRD), is attempting to build an alternative. Based in Kigali, he currently manages a microfund with approximately $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 additional equity, is the missing ingredient in frontier African market investment. The initiative comes at a time when African startup funding has contracted from its 2021–2022 peak, intensifying the search for financing structures that do not depend on ballooning valuations or rapid exits.

A Contrarian Proposition

The proposition challenges conventional venture capital thinking. Rather than pursuing the next billion-dollar company, Ishimwe aims to back a concentrated portfolio of businesses capable of reaching $20 million to $50 million valuations, providing them with patient debt financing and leaving equity investors to support subsequent growth stages.

The new fund will be sector-agnostic and focused on technology and tech-enabled businesses. It will write cheques ranging from $300,000 to just under $1 million, without requiring collateral. Grace periods will be measured in years, and repayment terms will stretch from six to eight years. 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 include an equity kicker, allowing the fund to participate in upside if a portfolio company reaches a significant valuation at a liquidity event. Critically, the fund is structured as an evergreen vehicle: because its capital originates from a development bank rather than limited partners seeking an exit within a decade, repayments can be recycled directly into new investments.

Capital Formation and Risk Structuring

The capital is still taking shape, and Ishimwe is candid about where things stand. To date, the Development Bank of Rwanda is the fund's sole committed backer with $6 million. However, Ishimwe reports that a high-net-worth individual is close to committing an additional $3 million, while discussions continue with two development finance institutions (DFIs).

Raising capital, he says, is not the primary challenge. The greater difficulty lies in structuring. Banks remain cautious about absorbing venture-style risk onto their balance sheets, which has led Ishimwe to explore special purpose vehicles in partnership with Convergence Africa and the African Guarantee Fund to ring-fence that risk.

He views the entire initiative as a proof of concept—one that, if successful, could unlock the substantial pools of pension and development finance capital held by African institutions but rarely deployed into technology companies. Rwanda's government has positioned the country as a regional technology hub through initiatives such as Kigali Innovation City and regulatory reforms aimed at easing business registration and cross-border operations, making the viability of alternative startup financing models a matter of broader policy interest.

The Mismatch at the Heart of African Venture Capital

The urgency behind the model stems from a structural mismatch Ishimwe repeatedly emphasizes. In many African markets, he argues, startups can take 15 to 17 years to mature, while the typical venture capital fund is designed to return capital within 10 years. That disconnect, he believes, explains why many funds reach the end of their lifespans before their most promising portfolio companies have realized their full potential.

This interview has been edited for length and clarity.

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," Ishimwe explains. "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."

The fund will deploy a minimum of $300,000 to just under $1 million. The hypothesis centers on identifying companies where this capital can be transformative: "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?"

Ishimwe emphasizes revenue generation as central to the venture debt model: "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 standard fund cycle is ten years plus one plus one, but African businesses can take 15 or 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," he notes.

The solution is an evergreen structure: "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."

The structural challenge, however, is significant. Banks are reluctant to set up special purpose vehicles for equity-related transactions outside their balance sheets. "What they do not want is these businesses failing to perform, with the resulting non-performing loan landing on the balance sheet," Ishimwe explains. "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."

Collateral, Repayment, and Pricing

The fund's approach to collateral is notably flexible. For early-stage and mid-growth-stage technology companies that lack substantial assets, the fund will waive collateral requirements 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."

Repayment terms are similarly patient. The fund does not require repayment in under 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," Ishimwe says. Payment cycles can extend six to eight years, with flexible grace periods.

On pricing, the development bank's mandate allows for concessional rates: "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."

The equity kicker provides additional upside potential. "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," Ishimwe explains. "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."

Defining Success

For Ishimwe, success has several dimensions. First is operational viability—structuring the fund so that the bank's risk is properly isolated. He notes that senior bank officials and government ministers are monitoring the initiative closely, recognizing its potential as a model that could inspire broader market adoption.

The fund aims to complete 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," he says.

The second measure is capital recycling. "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."

The fund plans to take a highly hands-on approach, providing what Ishimwe calls "bottom-line-aligned support" to help companies scale across Africa.

Why a Concentrated Portfolio

The decision to limit the portfolio to 8 to 12 companies, rather than the typical 30 to 40, is deliberate. Ishimwe argues that support for technology companies needs to evolve beyond traditional mentorship.

"Entrepreneurs have grown to a point where they need support that contributes directly to the bottom line of the business," he says. He cites Rwanda's passporting licences with Ghana and Kenya as an example: "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."

Additional support includes facilitating integrations with banks, payment gateways, and other institutions—activities that directly contribute to the profit and loss statement.

Ishimwe also sees the fund as a potential catalyst for unlocking local African capital. "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."

The Exit Question

The fund's exit model is unconventional. With the development bank as the primary backer, there is no traditional LP seeking returns within a fixed window.

"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," Ishimwe explains. The bank is in discussions with other development-focused banks across Africa to explore collaboration.

If other investors enter the fund, return models would be structured based on deployment timing. But for the bank and DFI partners, the objective is keeping the fund operational and benefiting more companies over time.

What the Fund Looks For in Founders

Ishimwe prioritizes execution above all else. "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?"

The fund seeks founders with a scalability mindset from the outset, given Rwanda's relatively small domestic market. "We want to see a scalability mindset from the outset: how big do you think this can go?" Ishimwe says. He also looks for relevant operational experience and demonstrated networks that translate into monetary value.

Red Flags and Cautionary Notes

Ishimwe identifies several patterns that give him pause. One is the founder who cycles through multiple accelerator programs for small grants over several years without producing results. "If it has not brought results, it changes the way I look at you," he says.

He also expresses measured skepticism toward African AI startups that raise successive equity rounds without a credible path to revenue. "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."

He clarifies that this is not a judgment on the technology itself, but rather a matter of instrument alignment. "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."