African VC funds in for a bonanza, with Germany’s €1bn Africa fund [Updated]

African venture capital (VC) funds are in for a bonanza. VC funds in at least 12 African states, will be able to tap up to €400-million in funding from a €1-billion Africa development investment fund set up by the German government.

This, according to German business publication Handelsblatt.

The newspaper reported in an article earlier this month that €400-million of a €1-billion Africa development investment fund announced by German Chancellor Angela Merkel in October last year will flow into the AfricaGrow Fund managed by development bank KfW.

A document sent to Ventureburn by the German Federal Ministry of Economic Co-operation and Development  (BMZ) explains that AfricaGrow Fund will work with Pan-African, regional and country-specific funds with “proven track records and capacities” primarily in Compact-with-Africa countries.

Of the €1-billion investment fund, €400-million has been allocated to the AfricaGrow Fund

At least 12 African states form part of the G20 Compact with Africa initiative. They are Benin, Togo, Ghana, Ivory Coast, Burkina Faso, Guinea, Senegal, Morocco, Tunisia, Egypt, Ethiopia and Rwanda.

According to the same publication, a further €400-million of the €1-billion has been allocated for investments in German and European small business through the AfricaConnect programme which offers loans of between €750 000 and €4-million.

The fund is now operational and interested companies can apply for loans through the German Investment Corporation (DEG).

“Fund of funds”

The AfricaGrow Fund, the article explained, is meant to be a “fund of funds” for African VC  funds, with the KfW providing a “first loss tranche” to encourage additional investors on behalf of the German Federal Ministry of Economic Co-operation and Development (BMZ).

New 1 bn @BMZ_Bund Dev Invest Fund by @deginvest_DE w/ focus on #CompactWithAfrica countries! 3 pillars 1) 400 Mio Africa-Connect 2 support German/EU SME investments in Africa 2) 400 Mio Africa-Grow 2 support African start-ups & 3) @developppde 4 sus biz practice @SanBilal1 https://t.co/QmirCxUiXJ

— Sebastian Große-Puppendahl (@SebGroPup) June 5, 2019

In a statement earlier this month, the economic ministry explained that the development investment fund will consist of the AfricaConnect Programme, AfricaGrow Fund, as well as the Economic Network of Africa.

The network is meant to facilitate market entry of German small businesses and the expansion of businesses in African growth markets by informing European companies on investment opportunities in Africa and support instruments by the German government.

The Economic Network of Africa will be financed through the remaining €200-million of the €1-billion development investment fund.

AfricaGrow Fund will target ‘market-oriented funds’

The ministry said KfW will invest in African VC and private equity funds so that they can support additional companies. This, the economic ministry said, will promote local financial market structures on the continent.

The fund is designed to address the financing needs of small businesses and tech startups pursuing innovative business models with high growth potential and export focus including cluster-based growth models.

In addition, it will also provide funding for technical assistance in building managerial capacities.

AfricaGrow Fund will benefit entrepreneurs in sectors like fintech, off-grid energy, agritech, healthtech, mobility and ecommerce.

The ministry also explained, in the same document, that the AfricaGrow Fund will generally invest in “market-oriented funds” with a strong private-sector approach.

The German Investment Corporation (DEG) will also be involved in the AfricaGrow Fund.

Earlier this month, Ventureburn reported the German ambassador to Ghana Christoph Retzlaff’s announcement that the German government had launched the €1-billion Africa fund (see this story).

At the time, Retzlaff said in a tweet, that the fund will support African startups and small businesses, as well as German and European companies.

The German Government starts a 1 Billion EURO Africa fund today. Supporting African startups and SMEs as well as German and European companies. #delivering on G20 Compact with Africa. pic.twitter.com/iM0krfZ4ET

— Christoph Retzlaff (@GermanAmbGhana) June 4, 2019

Read more: German government launches €1bn Africa fund

Editor’s note (28 June 2019): The German Federal Ministry of Economic Co-operation and Development (BMZ) subsequently explained in an email to Ventureburn on 27 June that the structure of the AfricaGrow fund, which aims to support equity investments in African startups and small businesses, is currently in development.

It added that the first investments in venture capital and private equity firms are anticipated to take place before the end of the year.

Featured image: PublicDomainPictures via Pixabay