More private equity firms to participate in later stage million-dollar VC deals

This year, we are likely to see more private equity firms participate in later stage million-dollar VC deals, so believes the African Private Equity and Venture Capital Association (Avca) director and head of research Enitan Obasanjo-Adeleye.

Obasanjo-Adeleye made the prediction in an interview with Ventureburn late last year, in a response to a question on what trends we are likely to see in the African venture capital (VC) industry in 2019.

Obasanjo-Adeleye said last year she noted what she described as an “interesting trend” in the increasing number and rising participation of private equity firms in later stage transactions in the “tens of millions”.

Avca is set to release its inaugural venture capital report in June at its second VC in Africa summit

Examples she cited include the $47.5-million Series-C round in Nairobi-based payments company Cellulant led by The Rise Fund — a $2-billion impact investment fund managed by US-based private equity firm TPG Growth — as well as the $55-million Series-D round into Tanzanian-based solar startup Off Grid Electric led by London-based Helios Investment Partners.

“Looking ahead, we expect to see more transactions of this nature in 2019, as more businesses look to scale-up after proving the viability of their business models,” said Obasanjo-Adeleye.

Avca VC report set to be released in June

Although Avca’s activities were previously focused on the private equity industry — where funds mostly invest in mature firms with established business models — the organisation is looking to pay more attention to venture capital on the continent.

Obasanjo-Adeleye said Avca initiated its coverage of the African VC industry with an inaugural VC in Africa Summit which the organisation held in London last October.

“We are currently tracking the VC activity on the continent, so that we can provide the same market intelligence and reporting that we are able to do for African private equity,” she said.

Avca is set to release its inaugural VC report in June at its VC in Africa summit (dates for which are yet to be finalised). Obasanjo-Adeleye said the report will look to provide insights on emerging themes, trends in the VC industry, as well as quantify and qualify activity in the industry across fundraising, deals and exits.

In addition, this year Avca also has plans to provide more training on the VC industry in Africa to both investors and fund managers.

‘Consumer theme prevalent in VC in Africa’

Obasanjo-Adeleye noted that the consumer theme is prevalent in venture capital on the continent as it is in private equity. She explained that 32% of the transactions from 2012 to the first half of 2018 were involved tech-enabling solutions in the consumer discretionary space.

“Information technology and financial services, particularly technology driven financial solutions, are also attracting investment, representing 19% and 18% of transactions respectively,” she added.

Obasanjo-Adeleye said examples of deals that took place last year in these sectors include AfricInvest‘s $1.7-million investment into Morrocan adtech firm Buzzkito, TLcom Capital‘s investment in Kenya’s mSurvey and Alitheia‘s investment in Nigerian fintech Lidya.

“Investors are attracted by the potential for enabling technologies to tap into and drive the African consumer growth story,” she explained.

‘African VC industry will evolve to suit startup opportunities in the local environment’

Obasanjo-Adeleye believes Africa’s VC industry will evolve and be adapted by industry players to suit the startup opportunities in the local environment.

“We saw this happen in the private equity industry, where the buyout model that is more common in the US is not so common in Africa due to local conditions.

The Silicon Valley model, she said, will be modified to suit the market as understanding is gained of what works in Africa.

“For example, the ‘unicorn’ concept may not be very well suited for emerging markets at present, and a fixation on this can be distracting, while exit options are still to be established,” she pointed out.

She added that the African VC scene also has the opportunity to learn from some of the problems in Silicon Valley. “Such as the challenge of better gender representation, and to lead the way in terms of inclusivity and social innovations,” she said.

Featured image: African Private Equity and Venture Capital Association director and head of research Enitan Obasanjo-Adeleye (Supplied)