$50m Lateral Capital to review 1000 possible deals a year to back six investments

Lateral Capital, a $50-million Africa-focused venture fund plans to sift through 1000 potential deals a year to invest in six of these, says co-founder and managing partner Rob Eloff.

Earlier this month, Lynk — a Kenyan online marketplace for artisans — announced that it had raised an undisclosed amount of funding in a round led by New York based Lateral Capital.

Eloff (pictured above) told Ventureburn in an email yesterday (30 July) that the firm is looking to make up to four more deals this year.

Altogether Eloff says the firm, which he founded last year together with managing partner Steven Grin, aims to conclude up to six investments a year.

Lateral Capital, a $50-million Africa-focused venture fund, was founded in 2018 by Rob Eloff and Steven Grin

The investments will be in the form of equity finance that ranges between $250 000 and $1-million, as well as debt investments of between $1-million and $5-million.

Eloff said as so far this year the fund has closed two new deals. These include the Lynk deal and a $300 000 debt investment in Nairobi workspace provider Workstyle Africa.

In addition, Lateral Capital also made two follow-on investments in portfolio companies Koko Networks and Sparkmeter which both took place in the first half of the year.

Last year the firm made what Eloff said is its largest investment in Nigeria when it invested $500 000 in Appzone Group.  Lateral Capital’s other portfolio companies include 4g Capital, Asoko Insight, and Medsaf.

In 2017, Lateral Capital exited SA investors Silvertree Internet Holdings (which has investments in various SA startups) via a secondary share sale to a strategic investor.

This, after investment firm’s founders invested an undisclosed amount at the company’s inception in 2013.

Dealflow mostly from local offices, portfolio firms

So how does the New York based firm source deals on the continent?

“We have a target of reviewing 1000 deals per year. Currently 65% of our dealflow comes from introductions by our existing portfolio founders and our local offices,” explained Eloff.

Lateral Capital has offices in Nigeria, Kenya and South Africa.

The firm’s Nairobi office is led by Samakab Hashi, this while in Johannesburg it is supported by healthcare focused venture partner Garikai Govati.

In Lagos, Lateral Capital is led by Ochuwa Akhigbe-Ogionwo and supported by fintech-focused venture partner Barbara Iyayi.

Eloff explained that the fund aims to invest in founders that are building critical infrastructure through technology, particularly in the commerce (fintech), human capital (edtech and healthcare) and asset-backed ventures (cleantech and urbantech).

“We look for companies that have built and achieved product or market fit in essential products and services. We screen for proprietary technology, balanced, agile teams, attractive unit economics with the potential to scale, and alignment with our mission,” he said.

Although Lateral Capital focuses on the entire sub-Saharan African region, the firm prefers to think of the continent in terms of cities and their technology systems, rather than countries.

“Priority cities are Abidjan, Abuja, Accra, Addis, Dakkar, Daar es Salaam, Joburg, Kampala, Kigali, Lagos and Nairobi where we see the potential for technology ecosystems to mature and scale, but we are open minded to learn and grow at the city level,” said Eloff.

Lifecycle financing partner

Lateral Capital portfolio companies benefit from more than just funding. Eloff said the firm partners with its portfolio companies as a “lifecycle financing partner”.

“This means we have the ability to support them from seed stage to Series-B (funding) with a flexible capital model across the major hubs of sub-Saharan Africa

“We are in the process of helping a handful of our portfolio companies scale across the continent and regularly assist with hiring, structuring, capital raising and mentoring,” he explained.

The firm, he added, also believes it is important to “have a view” and share it publicly to develop thought leadership on the continent. As part of this, Lateral Capital publishes monthly thought pieces which include Lateral Matters and State of Logistics in Africa.

Great company tonight hearing from the leaders of the Nigerian technology revolution ⁦@adiaspeaks⁩ and ⁦@etopty⁩ – thanks for joining us at Capital Club pic.twitter.com/tPcvoUmp1w

— Lateral Capital (@lateralcap) July 18, 2019

Earlier this month, the firm held a knowledge sharing and networking event in Lagos and Eloff told Ventureburn that Lateral Capital will in the upcoming months host additional events in Lagos as well as Nairobi.

‘Built to meet SSA market’s needs’

Eloff believes the fund is different from others operating on the continent in that it was built to meet sub Saharan Africa’s market with what it needs today.

He explained that unlike the traditional venture model, Lateral Capital has the ability to make its portfolio investments evergreen.

“We make venture equity and growth (debt) investments to solve the valuation or dilution or exit disconnect in Africa,” he said.

He added that Lateral Capital’s presence in Nairobi, Lagos, Johannesburg and New York allows the firm to be “locally led but globally relevant”.

‘Traditional VC may not be answer in Africa’

Eloff said the fund has seen highly talented mature founders successfully navigate market challenges in the past three to four years without getting distracted by noise.

“African companies tend to be profitable at an earlier stage than in any other environment — but are punished for slower growth due to the difficulty of operating across various disparate markets,” he added.

He said the firm is focused on fixing the model of capital deployment to the opportunities presented by sub-Saharan Africa.

“It may be the case that traditional venture capital or private equity isn’t the only or optimal model to do this,” he said.

Eloff’s advice to entrepreneurs looking to tap funding from Lateral Capital?

“Proprietary technology, traction and balanced teams with meaningful skin in the game are far more important than which awards you have won, who is in your cap table or how much money you have raised,” he says.

Editor’s note (31 July 2019): The article has been updated to include additional information by Lateral Capital managing partner and co-founder Rob Eloff on the firm’s investments in Workstyle Africa and Appzone.

Featured image: Lateral Capital managing partner and co-founder Rob Eloff (Supplied)