Oh the weather outside is frightful, but it’s not snowing in the south-western tip of Africa. The wind’s howling and four seasons are constantly…
If you’re reading this, chances are you’re a tech startup founder who is looking to raise venture capital (VC) funding.
The good news is as Africa’s VC sector continues to grow the amount of VC funding raised by startups this year is likely to keep growing.
As Africa’s VC sector continues to grow the amount of VC funding raised by startups this year is likely to keep growing
Even given the significant challenges that the continent’s VC sector faces — such as a lack of follow-on funding and angel investors — some have predicted that this year African startups could raise as much as $1.5-billion this year (see this story).
Ventureburn tracked down a couple of venture capitalists who are active on the continent and asked them what they look for in tech startups, their investment philosophies and what they want you to know about them. Here’s what they had to say.
Dotun Olowoporoku, Novastar Ventures
Dotun Olowoporoku is an associate director at Novastar Ventures, a VC manager with two funds investing in early and growth-stage businesses that address some of the biggest problems that the continent faces.
Prior to joining Novastar, Olowoporoku founded Starta, a startup advisory firm for high-growth businesses in Africa. The firm recently re-branded as Growthlab, an online membership growth programme with a co-working space in Lagos.
Olowoporoku says he started his career as a research fellow on air quality and climate change in Bristol, England.
In 2012, he founded an on-demand food delivery platform which raised $1-million in seed capital and scaled across three cities in the UK. Olowoporoku left the company after he facilitated a strategic partnership with Just-Eat UK in 2015.
He is also the host of the Building the Future Podcast where he holds one-one-one conversations with entrepreneurs, innovators and thought leaders that are shaping the future of the continent.
Novastar’s vision, he says, is to see sub-Saharan Africa populated with a growing number of entrepreneurs that are building and scaling innovative businesses that are serving the common good.
When approached by startups looking for investment, he and his team Novastar focus on three things — the founding team’s character, capacity and ambition.
“At that very early stage, we’re investing in people first and plan second, because the plan is bound to be wrong. The real question is, does the team have what it takes to know when to persevere and when to pivot,” he explains.
Novastar Ventures, Olowoporoku points out, has proven over the past five years that there is no absence of deal flow for its investment strategy.
“In fact, there’s been a big gap in the capital ladder for venture funding, that is, funding innovative businesses that are prioritising growth over profitability while seeking massive scale,” he says.
Mehak Malik, Beyond Capital
Beyond Capital investment associate Mehak Malik says the non-profit impact investment fund not only invests in social enterprises working to improve communities in India and East Africa, but also puts money into a variety of pro-bono services which help the fund’s portfolio companies become sustainable and successful.
Beyond Capital opts to invest in social entrepreneurs whose values and missions align with theirs, namely seed-stage startups working on innovative solutions in healthcare, clean energy, food security, sanitation and financial inclusion, she says.
“By harnessing the power of democratised internet access and the availability of lower-cost smartphones, these inspiring enterprises are levelling the playing field for those who may have been previously under-served,” says Malik
Beyond Capital, she says, believes that impact investing is the most rewarding way to invest because profits are aligned with purpose.
She says Beyond Capital looks out for pitches that convey a “sound business strategy”. She says the impact investor recommends that entrepreneurs start by simply defining the problem their idea seeks to solve.
“Then address how the business approaches customer pain points and define how big the market opportunity is for a given solution. It is important to reflect on the limitations of the business model and think about mitigation strategies that will combat the perceived challenges,” says Malik.
Malik says Beyond Capital faces three main challenges when looking for African tech startups to back. These she says are investment readiness, governance and a lack of understanding of investment structures by entrepreneurs.
She says entrepreneurs sometimes lack access to the right resources, knowledge and tools needed to execute their business strategy.
“Good governance is the key to winning investor trust. Setting up a board of directors and advisors early on can help an entrepreneur build a support system around them,” she points out.
Kenza Lahlou, Outlierz Ventures
Outlierz Ventures founding and managing partner Kenza Lahlou graduated as a computer science engineer and has a Masters in Business.
She’s lived in Europe, Asia and the US where she worked in consulting and private equity before she moved back to her home country of Morocco a few years ago to dedicate herself to boosting the country’s startup scene.
“This happened after an eye-opening experience in Silicon Valley where I was immersed into the startup scene and was working with startups from emerging markets looking to scale into the US.
“This is where I decided to go back home and change the status quo,” says Lahlou.
After spending five years working on the ground with entrepreneurs in Morocco to build one of the country’s largest startup community Startup YourLife, she decided to set up Outlierz Ventures.
“It came as an answer to a need and an eagerness to solve a problem in the ecosystem, access to smart capital with a pan-African approach to building bridging between Francophone and Anglophone African markets,” she says.
Lahlou says she sees venture capital as a tool to unlock human potential by enabling talent to spend their time and energy into solving a real problem and bringing something to the world that can create tremendous value and ultimately, transform the whole economy and society.
Outlierz Ventures, she says, looks for founders who have a “big vision”and the eagerness to achieve it.
“They need to be motivated by something bigger, as structuring an industry, becoming the leading player, transforming African economies, otherwise, they will hardly have enough drive in regards to the many challenges they will face to make it,” she adds.
Muthoni Wachira, EWB Ventures
EWB Ventures investment director Muthoni Wachira is a qualified finance professional with senior executive and non-executive board leadership experience.
As the youngest board member of the Kenya Markets Trust, she says she is proud of the work the organisation is doing in transforming the country’s agricultural sector.
As an entrepreneur in microfinance and an intrapreneur in fintech she says she knows “all too well” the struggles and triumphs of delivering critical services, products and technologies to under-served populations.
Her startup experience, she adds, allows her the empathy, humility and agility of mind requisite to developing winning strategies for thriving under evolving economic and competitive landscapes
She says EWB Ventures is a “catalytic investor”. She explains that as a pre-seed and seed stage investor, EWB tends to be the first institutional investor in startups prototyping innovative tech-enabled solutions that address the needs of a large under-served segment of the market.
The investor then employs what Wachira describes as a “high-touch portfolio” management model that deploys human capital in the form of highly skilled Canadian fellows to support investees in reaching product-market fit, operational efficiencies, revenue growth and gender inclusion.
EWB Ventures then seeks a sustainable exit to a larger investor, strategic partner or back to the owners themselves at the earliest possible opportunity.
She says though the EWB Ventures team is based on the continent, as a foreign investor, the investor has to be careful not to impose unworkable foreign investment strategies and expectations of exits and returns.
“We are constantly challenging ourselves to develop screening processes and financing tools and strategies that are tailored to the realities in the markets on the continent we invest in, that are not ‘copied and pasted’ from other markets,” says Wachira.
Takuma Terakubo, Leapfrog Ventures
Leapfrog Ventures founder and CEO Takuma Terakubo, who also doubles as CEO at Samurai Incubate, kicked-off his career with an internship at Grameen Bank in Bangladesh.
After that he worked with Japanese venture capital firm and helped startups in Japan and Israel, specifically focusing on the mobility and healthcare verticals.
Terakubo says he invests and builds businesses with entrepreneurs that have a solution that addresses a difficult that many people face.
The entrepreneurs themselves, he says, must have some experience with the problem to solve it seriously.
Terakubo says when approached for investment, founders must be clear about how unique their solution is, who their users are, as well as how they will provide the solution, even if they don’t yet have business traction.
He says as a Japanese investor he sometimes doesn’t fully understand market and user issues. “That’s why we verify the business with entrepreneurs and clarify the real needs of the market together,” says Terakubo.
Eric Osiakwan, Chanzo Capital
Chanzo Capital managing partner and founder Eric Osiakwan has in the past worked with Ghanaian e-commerce platform Hubtel. He’s also an angel investor and has launched Angel Africa List and Angel Fair Africa.
Osiakwan also has experience in the internet service provider (ISP) sector. He has helped co-found and build submarine and terrestrial fiber cables including the The East Africa Marine Systeams (TEAMS) in East Africa, as well as others in Nigeria and Ghana.
He runs Chanzo Capital with Ian Ziddah and Tinyiko Valoyi. The VC firm, he adds, has partners that have both operating and investment backgrounds gained from their combined 20 years of building and investing in telecom and tech ventures across 35 African countries.
He says the firm is backing “the next generation: of entrepreneurs that are building tech and tech enabled ventures — focused on fintech, edtech, healthtech and agritech — in Kenya, Ivory Coast, Nigeria and South Africa.
“We look for business models that employ a low margin high volume approach utilising scalable platforms with an economic digitisation moat that is global,” he explains.
Since launching in 2014, Chanzo Capital has invested in 16 tech startups. Osiakwan says the firm provides its portfolio companies with the “3Cs of entrepreneurial success”, namely capital, capacity and community.
When approached for investment, he says the firm looks at the startup’s team and whether they can execute on the product to generate and grow revenue with the right timing.
“I think most startups on the continent tend to think that money solves everything, when in fact, the quality, experience and commitment of the founders as well as the business model or market fit is much more crucial.
“Money will generally follow a great startup that is solving a serious challenge and the founders know what they are doing,” says Osiakwan.
Yassine Oussaifi, AfricInvest
AfricInvest director Yassine Oussaifi is a seasoned end-to-end early-stage investor.
When he joined AfricInvest in 2012, Oussaifi was entrusted with the management of a Tunisia-focused early-stage fund, which was successfully launched in 2013 and has been fully deployed since then.
He has led more than 15 transactions, investing in a wide range of sectors in North and Sub-Saharan Africa.
Oussaifi has an engineering background, having graduated from the Ecole Polytechnique and Ecole des Mines in France. He also holds an MBA from College des Ingénieurs.
Prior to joining AfricInvest, Oussaifi worked in business development in the energy space in both Europe and the Gulf Cooperation Council.
He says pan-African late stage VC fund Cathay AfricInvest (CAI) targets companies that are building scalable solutions in and for Africa, across a wide range of sectors.
“The fund’s positioning complements the existing offer of other VC firms on the continent and relies on AfricInvest’s rich investment expertise —with over 150 investments made in 26 African countries during its 25-year history—as well as its local presence, boasting offices in eight of the major economic hubs of the continent,” says Oussaifi.
Oussaifi explains that as an pan-African investment platform, AfricInvest creates synergies in the private equity, private credit and innovation fields, and provides its partners the advantages of a network built over two and half decades of investment activities in Africa and Europe.
“AfricInvest’s partnership with Cathay brings a further network in Europe, the US and China as well as global expertise in the innovation space, all helping to build bridges between Africa and the rest of the world and allowing the fund’s investees to grow to become regional and global champions,” he adds.
He believes that as Africa is mostly composed of small and fragmented economies, entrepreneurs need to look to expand outside of their home countries at an early stage in order to succeed to scale, become competitive and build sustainable businesses in the long run.
But this is no easy thing, he admits. “Finding and funding the startups and founders that have developed a business model that could scale, build healthy operations in multiple countries and environments is one of the main challenges that we try to tackle as a late stage investor in Africa,” says Oussaifi.
Oui Capital partner Oluwaseun Oyinsan has a degree in business and also holds an MBA where he focused on finance and strategy.
Oyinsan started his career working in a Nigerian commercial bank, before working as a technology consultant in venture banking in the US with Forrester and Silicon Valley Bank.
“I’ve been an entrepreneur since my days in university. I was also president of an investment club on campus where we pooled money together and invested in publicly traded companies,” he says.
He has also founded two companies in the US, one of them is an e-commerce fashion business that is still running. The second is an internet startup he started with Oui Capital partner Francesco Andreoli which Oyinsan says didn’t do very well “for regulatory reasons”.
Oui Capital backs pre-seed and seed-stage startups. Oyinsan says he likes to invest in companies that will either fail or do exceptionally well.
“Early failures save your portfolio management time and follow-on resources as an investor and the whole aim of being in VC anyways is to back companies that are willing to do something audacious enough to change the way we live for the better,” he explains.
When approached for investment, he says the firm looks at the market and the founders.
“If we find an early stage company playing in an attractive market with a team we believe can execute and iterate, we are most likely to back them,” he says.
Startups that manage to secure a meeting with Oyinsan must be aware of one thing — to always be on time. He says he finds it difficult to believe in a founder’s drive if they arrive late for a meeting.
“Not to say circumstances beyond your control do not happen. But as prospective investor in your company, I’ll be inclined to believe that this is the same attitude a founder will bring to interactions with their customers and that’s not good for business,” he says.
Oyinsan explains that one of the challenges Oui Capital faces is making sure the firm is visible to entrepreneurs. He says with how dispersed quality companies are across the continent, it can get “a little challenging and expensive” for smaller funds.
“You need to get creative. We don’t have much of a difficulty around funding brilliant entrepreneurs.
“The only problem you experience sometimes is dealing with companies that are incorporated in many different African countries with different regulations,” he says.
Oyinsan hopes the African Continental Free Trade Agreement is about to change that and make it much easier.
Florian Kemmerich, Bamboo Capital Partners
Bamboo Capital Partners managing director Florian Kemmerich says the impact investing platform’s core focus is investing in commercial companies that benefit low income populations in emerging markets.
He points out that Bamboo Capital Partners’ last mile investing approach typically targets rural areas in developing countries.
“As an impact investor, all our investments have to subscribe to a theory of change, for example, climate change mitigation.
“Our investments have to increase the livelihoods of people living in emerging markets. We invest using both debt and equity,” he says.
Like all investors, Kemmerich points out that when approached for investment Bamboo Capital Partners considers the viability of the market, the innovation grade and the potential impact of our investments.
“But we pay close attention to management, with a particular focus on the entrepreneur. We like to know their background, whether they have skin in the game and the makeup of their team. We want their team to be cohesive and complement them.
“Ultimately, we want to see whether a startup is bold enough to stand out in its market, while being feasible and having realistic goals,” he adds.
Bamboo’s big challenge, he says, is to find the next generation of “African champions”.
“Finding a company with a founder who has the right level of education, with an experienced team behind them is challenging.
“A lot of the deal flow on the continent consists of entrepreneurs with an exciting idea, but no viable business,” says Kemmerich.
Funding a startup in Africa, he explains, depends on the country you’re investing in.
He says many African countries don’t have legislation in place to support early-stage investment. Kemmerich says there are some organisations, like Smart Africa, that are working to change this.
“We like to collaborate with innovators and accelerators because it de-risks the investment. We understand that entrepreneurs are not born and that there is a skillset they need to learn,” says Kemmerich.
Justin Stanford, 4Di Capital
Justin Stanford is probably what you could call a veteran in the VC sector in South Africa, having invested in tech startups since the early 2000s before formalising this into 4Di Capital with a group of fellow venture capitalists.
These include SA startups Snapt, Aerobotics, Lumkani, and LifeQ, as well as exits that include Skyrove and Motribe (which was acquired by MXit at the time). The VC has also invested in a number of East African startups.
In 2009 Stanford, together with Silicon Valley based SA entrepreneur Vinny Lingham set up Silicon Cape, Cape Town’s startup initiative.
Stanford’s story began in the late nineties, when he started out as a tech entrepreneur, which he quit high-school to pursue.
After many struggles he eventually built an online pan-African cybersecurity software company in the early 2000s, and became a reseller for Slovakian security specialist firm ESET. He has since partially exited the reseller business.
“We became early angel investors in young tech startups in the very nascent local SA ecosystem starting around 2004, and I’ve angel invested in dozens of companies since, but at the time that led us to begin visiting Silicon Valley in the mid-2000s.
“This ultimately spurred us into creating and launching the Silicon Cape Initiative in 2009, aimed at catalysing the ecosystem in SA and spreading the idea of the possibility of a ‘Silicon Valley in Africa’.
“Off the back of that we started the initial experiments that would later become 4Di Capital, aimed at formalising our investing activities and creating a true Silicon Valley inspired early-stage VC firm, which formally launched its first fund in 2011. Since then 4Di launched its second fund in 2016, and now most recently its third fund this year (with capital from the SA SME Fund — see this story).
Outside of investing in tech firms, Stanford likes keeping active. He enjoys boating and watersports, mountain biking, playing guitar, film and audio, braai’s in the bush — and says he’s interested in anything with engines or a mechanical or design element, like cars, aircraft, architecture and interiors.
It hasn’t been easy being a venture capitalist, he admits.
“Looking back 15 years, I believed that because I was a successful entrepreneur that I probably had the knowledge and experience needed to become a successful tech investor. But in truth, it’s not so — it’s an entirely new and different discipline, and it takes a long time and many mistakes to truly and deeply learn, like any specialist trade,” he admits.
Keet van Zyl, Knife Capital
Another “veteran” venture capitalist in South Africa, is Keet van Zyl. Together with Anthea Bohmert, he serves as a managing partner of Knife Capital.
Knife Capital invests via a consortium of funding partnerships, including a Sars section 12J Venture Capital Company, KNF Ventures and select family offices. The VC in 2017 set up a UK office, managed by former Springbok rugby player Bob Skinstad (see this story).
The VC also builds high-growth technology enabled SMEs through its Grindstone Accelerator (a fifth cohort was launched recently — see this story) and aims to fill critical gaps in the local entrepreneurial ecosystem through education and enterprise development initiatives.
Van Zyl trained as an accountant with an MBA and is qualified in intellectual property (IP) law.
Before founding Knife Capital with Bohmert in 2010, he helped structure various private equity funds in Southern Africa for a US fund-of-funds investor and worked at industry-leading companies such as Procter & Gamble, Investec and Mark Shuttleworth’s “Here Be Dragons” (HBD) Venture Capital. He is also on Savca’s board.
Things are going pretty well at Knife Capital. Says Van Zyl: “We currently have amazing deal flow and one of our key challenges at the moment is which opportunities to pass on. Next investment is in the edtech space and should be announced soon, with likely one more closing later this year.”
In addition, Knife Capital has since exited from all seven companies that made up part of the R150-million HBD Fund that Knife took over and managed (see this story). The seven were: CSense, Fundamo, Clicks2Customers, Moyo restaurant group, SA Cab, FlightScope and orderTalk.
With summer approaching Van Zyl will likely be celebrating — by either cruising around the Cape Winelands and coastline on his Harley Davidson or surfing with his wife and two young daughters.
Ketso Gordhan, SA SME Fund
Meet South Africa’s new heavyweight shaking up the VC scene.
In August last year former PPC Cement head Ketso Gordhan (pictured above, left with Spartan SME Finance CEO Kumaran Padayachee) took the helm as CEO of the SA SME Fund (see this story) and he’s already creating waves in the VC sector.
The R1.4-billion SA SME Fund is capitalised presently by 54 JSE-listed firms (having grown from 48 who’d committed earlier). The Public Investment Corporation (PIC), which manages government employees’ pension funds, has also approved a R500-million equity funding commitment to the fund.
The fund lends and invests via other investment funds, including VC funds (see this story on the list of funds).
In November last year Ventureburn confirmed that a VC deal concluded by Knife Capital’s KNF Ventures earlier that same month in SA healthtech firm 5nines Technologies had effectively become the first investment that the SA SME Fund was involved in.
In a report in March SA business daily Business Day, the fund said R725-million of the R1.4-million pledged has already been committed with the balance expected by August (this month).
The newspaper quoted Gordhan as saying that by August the fund is expected to be the “largest” institutional investor in venture capital in SA.
It said the total amount will support 10 significant black businesses, 200 SMEs, and five black entrepreneurs over the next five years.
Gordhan — a former anti-apartheid activist — has previously served as the head of private equity at FirstRand for almost a decade. He has also managed a personal impact investment portfolio with a focus on education in SA and Rwanda and has served as Africa advisor to the Omidyar Network.
He has also served as head of Africa for the Commonwealth Development Corporation where he led the Africa investment strategy for the UK government’s development finance arm.
Among his other roles, Gordhan was also first post-apartheid director general in the Ministry of Transport and served as the city manager for the City of Johannesburg in 1999 and 2000.
At the time of his appointment Gordhan told Ventureburn that he hopes to match his experience as a senior government official and private equity and impact investor to the mandate of the SA SME Fund. “This is to create and grow mainly black entrepreneurs and businesses,” he said.
*Ventureburn editor Stephen Timm also contributed to this piece