Noru Capital, which was launched last month to invest in tech startups in Benin, has raised $800 000 of its targeted capital of $10-million, EtriLabs CEO Senam Beheton has revealed.
Beheton told Ventureburn earlier this week that the evergreen impact investment fund will invest between $25 000 and $500 000 for between 5% and 15% equity.
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The fund aims to invest in four startups this year, with the first investment round set to take place before the end of this year.
Beheton said of the money raised so far, EtriLabs had contributed $200 000. He added that the organisation will reveal the names of all of its investors when it closes its current deals around mid-July.
EtriLabs has invested $200 000 of the $800 000 that Noru Capital has raised so far
“There are some matching fund mechanisms and we can’t really name some investors at this point because their investment is conditional to actual receipt not just pledges from parties they are matching,” he said.
Much like the Benin Business Angels Network (see this story), which was also launched last month at the EtriLabs-organised inaugural Early-Stage Investment Conference (ESSIC), Noru Capital will initially focus on investing in Beninese startups in the verticals of fintech, edtech, software-as-a-service, mobile, agritech and renewable energy. Thereafter it will add other verticals.
He stressed that Noru Capital will adopt an innovative, flexible and informed approach to impact investing.
“It will incrementally offer equity and quasi-equity investments to startups in combination with technical assistance and skills development provided by EtriLabs,” he explained.
Fund borne out of EtriStars programme
EtriLabs runs an acceleration programme called EtriStars — and Beheton said the fund is a result of EtriLabs experience in Benin’s tech startup community since 2009.
He said based on lessons from its EtriStars programme, EtriLabs identified a “financial gap” in the country’s startup sector which is preventing startups from securing follow-on investments that will enable them to scale.
After two EtriStars cohorts, EtriLabs found that the short-term loans or debt instruments that EtriLabs was using had often proven problematic.
Beheton said many founders were reluctant to accept loans, while those who did had difficulties paying back because of cashflow issues which in turn threatened to hinder their growth.
“Convertible notes or equity investment are challenging for EtriLabs as these options require a minimum three to five years wait for an exit.
“Given its relatively small size of €100 000, EtriLabs’ fund would be depleted in a very short time frame if it were to use equity investments,” he explained.
Follow-on investments, he said, are rare in the absence of angel investments.
“The major investors present in the Francophone West African region rarely invest in early-stage startups. Banking institutions aren’t offering loans to SMEs due to risk factors,” he said.
Noru Capital, he said, will target a wide variety of investors including bilateral and multilateral development institutions, financial institutions, commercial banks, private foundations, investment funds and insurance companies, among others, to raise capital.
“The fund will help better support startups with viable and scalable business models by investing the right amount and ensuring investees are ready for follow-on investments,” he added.
Noru Capital will also appoint a professional fund manager to oversee a team of investment professionals.
In addition, an investment committee will be in charge of oversight as well as development and reviews of the fund’s investment objectives and policies.
“However EtriLabs will be part of the limited partners (LPs) because we are also investing in the fund,” he said.
Investment criteria
The fund aims to invest in startups that fulfill the following criteria:
- Operate in Benin
- Have the potential to create meaningful jobs while solving problems locally and internationally
- Are at an early stage and are looking for product or market fit and are still defining or validating their business model
- Be able to prove scalability in Benin and several other markets
Noru Capital will also work with other investment funds to ensure that potential investees fit the needs of local and international venture capitalists (VCs) and are eligible for follow-on investment
Added Beheton: “Pre-revenue or idea-stage startups will be thoroughly assessed based on the teams’ ability to execute, market-size and overall impact”.
So, in the greater scheme of things, what does the launch of this impact investment fund mean for Benin’s tech startup community?
Beheton believes it directly addresses challenges faced by entrepreneurs who are trying to access early-stage funding in the country. The fund also enables access to follow-on capital to scale, while creating a deal-flow pipeline for larger funds.
He also believes the fund, which will focus on young and female founders, will also play a crucial role in solving local problems, job creation, poverty reduction and could be an answer to risky migration.
The new fund — along with the newly launched Benin Business Angels Network (BBAN) — could mean things are looking up for tech startups in Benin.
Read more: Newly launched Benin Business Angels Network to make five deals this year
Feature image: geralt via Pixabay
