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Democratising Africa Venture Investing: Catalysing Startup Operators and Emerging Market Investors

5 Mins read

Access to private early-stage investment opportunities in Africa has often been limited to investors with the trifecta of significant deployable capital, deep industry understanding and local context, networks and understanding. These investors (incredible individuals who I get to collaborate regularly with in my role leading Growth at the Catalyst Fund) have really been transformational for VC in Africa, driving 7.3x growth in funding to the continent in just 5 years according to Partech’s 2019 funding report.

Africa is the fastest growing region among all emerging markets when it comes to venture investments. This is according to EMPEA’s latest numbers reporting that, between 2018 and 2019, venture investment in Africa grew at more than 3x while South-East Asia grew at 0.5x and India at 1.1x over the same period.

Despite this growth, venture investment in Africa still represents less than 2.7% of total venture investment in emerging markets. Attracting 5% and 17% of the venture investment that China and India received despite having comparable population sizes and a population growth rate of 2.7% (India’s is 1% and China at a fast decelerating 0.5%).

We have the momentum of growth behind the African startup ecosystem, recent exits like Paystack’s $200m acquisition by Stripe, have increased confidence of the availability of clear pathway to liquidity events, donor backed impact initiatives like the Catalyst Fund continue to further de-risk early stage investments with flexible grant capital and expertise, but what more can we do to build on this and make the next 5 years and even stronger growth sprint for startups in Africa?

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source: Partech Partners — “2019 Africa Tech Venture Capital Report”

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Source: EMPEA Data

Creating Access to African Startups

I believe that critical to continue this momentum are 2 groups who have not yet experienced ready access to private investments in startups in Africa.

  1. Startup Operators and Founders
  2. Global Emerging Market Investors

I’ve had 100s of conversations with these groups of individuals in the last decade and have experienced our shared and continually validated excitement for investing in startups in Africa continue to amp up year over year.

Together with my partners Alastair Curtis, who launched and grew Uber in Kenya and Nigeria, Nik Patel, who has led the Pan-African expansion of industry leading startups like iROKO, we launched Sherpa Ventures, a fund dedicated to smashing 2 of key barriers these 2 groups have faced.

  1. Community: We’re building a community of investors who are either investing for the first time or operating in Africa for the first time, committed to supporting each other and combining their efforts to make an impact on Sherpa’s portfolio.
  2. Access + Alignment: Just for founders and startup operators, we’ve dramatically lowered the minimum investment size of investment from $200k to $5k. We’ve also charged startup operators and our founding investors ZERO management fees, which together with us being one of the largest investors in the fund, align incentives completely with the community, alongside the entrepreneurs we back, we’ll grow the value of the our businesses together and will only take earnings, together. #StrongerTogether

I’ve been personally investing in startups in Africa for the last 7 years, with a portfolio startups like OkHi in Kenya (building a digital first addressing and KYC solution) who have gone on to raise $1.8m in a round that included African payments unicorn Interswitch, and Nala in Tanzania (building a lightning fast, stunning payments solution) who were also Accel’s first investment in Africa.

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Blown away by the velocity + discipline that enabled Nala to launch their 1st cross-border pilot in Uganda ??

Startup Founders and Operators

Each and every time I meet startup operators in Africa who’re part of teams truly in their growth phase (post-Series A), the conversation regularly turns to how they can be more involved in supporting entrepreneurs who are just starting out, they’ve just been through an intense exhausting ascent and are immediately eager to share lessons learnt from their bruises and scars. They’ve seen the impact of judiciously directed venture capital on the businesses they’ve been a part of and have been looking for ways to invest and be a part the next wave of solutions being built.

What has kept them from being more active investors?

  1. Investment Size: With direct deals, many founders, rightly so, prefer simpler cap tables and hence regularly have minimum investment sizes of $25k and up — this is still a high threshold. The barrier for fund investing has been even higher, with funds often requiring minimum LP investments of $200k and up.
  2. Time and Skillset: Sourcing and due diligence, done right, are time and focus intensive activities. While incredibly skilled in their craft, many startup operators don’t yet have significant direct experience due diligencing venture deals as angel investors.

These barriers were key contributors to how we designed Sherpa Ventures’ Africa Basecamp Fund, we’ll continue to strive to smash these barriers through slashing of thresholds as well as delivering more hands on investing experience to these operators and founders, pairing them with seasoned global emerging market investors.

Some of our first startup operator investors include Alastair Sussock, Co-CEO of GO-JEK backed SafeBoda, and Josh Sandler, CEO of Lori Systems.

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SafeBoda raised a $1.1m round led by GO-JEK’s Go-Ventures and Allianz X (their 1st in Africa)

Emerging Market Investors diving into Africa

It’s not just Accel, GO-JEK and Allianz that are making their first investments in Africa in the last 2 years, there’s been a steady rise in global investors experienced in the trajectory of emerging markets that are increasingly excited about Africa.

TechCrunch has brought their Startup Battlefield franchise to Africa twice, highlighting entrepreneurs on the continent to a global audience. Facebook and Google both run incredible world-class programs strengthening startups with local programs, and of course, YC who have been aggressively bringing in more African startups into their cohort year after year.

What are some barriers that I’ve heard them face in deploying more capital and attention to Africa:

  1. Reliable local due diligence: Reliable data and partners to due diligence startups on the ground in Africa is challenging and often incredibly expensive for global investors who would like to do more in Africa. Many transactions are faced with significant sell-side advisory fees which while more common at later stage rounds can be deal-breakers at pre-seed and seed.
  2. Reliable local support networks: With only a dispersed and thin portfolio in Africa, many global emerging market investors have not yet built a deep local context as well as a network of corporates, government and community stakeholders who can be essential in portfolio support.

My partners at Sherpa having built and scaled significant technology businesses across the continent and have built up a strong understanding of local commercial ecosystems. I’ve due diligenced 100s of startups in Africa, led 20+ pre-seed and seed deals in Africa alongside 3 acquisitions. Together with our soon to be announced Venture Partners and Advisory Board, we couldn’t be more excited to be an African investment partner to some of the world’s most active emerging market angel investors like Varun Mittal, author of Singapore the Fintech Nation, and Sajid Rahman, ex-CEO Telenor Health.

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The 2nd edition of TechCruch Battlefield Africa in Lagos, Nigeria ??

It takes a village

“Omwana takulila nju emoi” or “ A Child does not grow up in a single home” — Bunyoro Proverb

Our hope is that our community of Sherpas, successful startup operators in Africa and beyond, paired with some of the world’s leading emerging market investors, can contribute to another record breaking 5 years for African startups.

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Some of our founding investors and advisors, L-R, Sajid Rahman, Marianne Mwaniki, Varun Mittal, Raja Al Mazrouei, Nnena Nkongho, Alastair Sussock, Lexi Novitske, Johan Bosini

We’re overwhelmed with excitement at (1) what the power of one generation of startup operators backing the next can unlock and (2) what partnership and learning opportunities we’ll uncover to strengthen south-south collaboration and growth.

It takes a village, truly, we’re all in this together and I can’t be more grateful to those of you out there who backed us from the very start. #StrongerTogether

Join the community!

If you’d like to get in touch about being a part of the Sherpa community please fill in this quick form here — https://bit.ly/hellosherpa

If you’re an entrepreneur in Africa and are building industry transforming technology we’d love to help! Reach out to us here — https://bit.ly/pitchsherpa

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