“We did [private equity] for 10 years in Ethiopia, and it didn’t work. We have been through so many painful learnings and had to pivot and change up our investment model,” Matt Davis, Renew Capital’s CEO, told TechCabal.

The firm will invest between $50,000 and $500,000 in more than 40 asset-light and tech-enabled businesses within a year. It has opened its West African portfolio by investing in Affinity, a Ghanaian digital bank.

“We believe that the [Affinity] deal is going to open the gateway for us in West Africa,” said Chudi Ofili, Renew’s investment manager for West Africa.

Renew Capital runs two funds: a $6 million angel syndicate and a $15 million follow-on fund. The  $6 million fund powers an accelerator program that offers startup executives management training, digital marketing, and fundraising support. 

Startups that hit the metrics Renew Capital sets during the accelerator program will get up to $4 million in follow-on funding. 

“We invest $150,000 on average into a high volume [of startups],” Davis said. The firm will accept around 50 startups into the accelerator, with only 20% receiving the average follow-on check of $1.5 million. 

Besides investing in startups, it partners with foreign governments like Canada and the United States to promote investing in Africa. “We have this passion to change the way the world views Africa from a place of giving to a place of investing,” Davis said. As part of this partnership, Renew Capital invites foreigners to Africa as it pitches investing on the continent to them. 

“They have no clue what’s going on here, so we bring them here and they spend a week. It helps us because we need people to think differently (about investing in Africa),” Davis said. 

Matt and his wife, Laura Davis, the managing partner, run the firm together. “It’s our child,” Matt said about Renew. While acknowledging the risks of a couple running an investment firm, he told TechCabal that working with his wife has been “amazing.”

“Getting married [to Laura] is the best decision I’ve ever made. She has a unique set of skills that are very different from mine. I design and come up with the concepts and she executes them and turns them into results,” he said. 

TechCabal spoke to Matt Davis for this interview in which he shared Renew Capital’s investment thesis and why they are backing African startups. 

Most of your portfolio companies are based in East and Southern Africa. Why the shift to West Africa, especially Nigeria?

Davis: Our vision is to be in 27 countries and we are currently in 14 countries.  You have to be extremely intentional about country selection because each country has its own unique risk profile and opportunities. We spend a lot of time evaluating countries. As far back as 18 years ago, we knew we wanted to invest in Nigeria but we had to be ready. 

We had to learn and make our mistakes because when we go to Nigeria,  we would have to be on our A game. I didn’t feel we were even close till now. Nigeria is going to become one of the major global powerhouses, both from an investing and economic perspective.

Right now, I think the country’s leadership is trying a big shift and it is starting to make progress, although it’s painful because change is painful. The indicators we track allow us to monitor, on a fairly regular basis, the movements that are happening at the country level. Those indicators show that it’s a good time to start investing in Nigeria despite the current state of the currency and the macroeconomic environment. 

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Nigeria is going through one of the worst economic conditions in thirty years. How are you considering that when you are investing? 

Davis: I think it’s cyclical. I know it’s painful for the country to be going through this but I think it’s growing pains. In a way, it is a fortunate pain because the country has to rebuild fundamentals. 

Just like a business, Nigeria got overlevered by borrowing and spending a lot and now the revenue needs to catch up. During the global financial crisis when Spain, Portugal and Italy had to go through a painful period and now they are doing alright. 

Things will improve, judging by the sheer size of Africa and the size of Nigeria within that ecosystem. I won’t say you’re too big to fail, but the will and the strength of the population will make the gears start to click. It is going to take some time, but the country will get there. 

What is your investment thesis?

Davis: Finding amazing founders comes first. We think the future is Africa, but the people who are going to build that future are trustworthy,  focused, and very disciplined founders. We look for them in any market that we enter. We are sector-agnostic. 

We go after tech-enabled, highly scalable companies that are asset-light and disrupting industries by eliminating massive friction that has prevented those industries from getting to the enormous population that needs to be served. It all comes down to finding amazing founders. 

What do you think is the difference between the East and West African tech ecosystems? 

Davis: From what I see in our pipeline, I was surprised to realise that the Nigerian tech ecosystem is more mature and humble with valuations than I was expecting.  In East Africa, now, I feel like there’s a little bit too much hype and startup euphoria that needs to be hardened. 

Founders in West Africa understand that the trust band is low for startups generally in Africa. We all have to prove ourselves. In East Africa, you hear founders wanting a $10 million pre-seed valuation, which is ridiculous.  

You have been investing in Africa for a long time. What would you say are your biggest lessons? 

Davis: My biggest lesson learnt is that we are always learning. As soon as I think I’m smarter than the market, that’s when I fail. You have to constantly be in learning mode and walk into every situation with your eyes wide open. I always say to trust nothing but try everything. You have to just really be committed and you really have to be here. You need a great team and you need people you trust. 

What are your red flags? 

Davis: Transparency is the biggest one for us. I made some big mistakes early on so when founders are cagey and don’t share their pain problems quickly, we are worried that something else is going on and there’s a bigger risk happening. 

We have three criteria: coachability, scalability and trustworthiness. We have deeper levels of analysis that we screen founders on but it fails broadly under these three. The number one red flag is lack of integrity and we will walk away from the deal pretty quick if we sense that they are not trustworthy. 

Do you invest in startups without product market fit? 

Davis: Although it is very rare, we are willing to if the founder is very strong. We like to see that there’s market validation in the form of revenue but we will consider if it’s an exceptional team. Even if they don’t have product market fit, they should have a minimum viable product and show early indicators of great traction. 

They have to have some key performance indicator that shows that there is market interest in what they’ve built and revenue is wonderful. 

What does your investment process look like? 

Davis: We prefer convertible notes for $50,000 to $500,000. We write a fairly high number of those checks and for me, that’s better than any due diligence in the world. We put real money into a company, work with them and see how they perform. Then we get ready to invest in them again and this time we bring others around. We help them get through that funding raise as quickly as possible.

How do you pick the startups you invest in? 

Davis: We have a structured process. The first phase is an exercise where we want to see how the founders perform. A lot of companies might feel like they are beyond the stage of having to go through this but that’s not what we’re looking for.

Then our investment managers have their screening process and we let them focus on screening deals, then they present that to our investment committee. At this point, we start to engage our global network of investors. We often have deal calls where our investors can join in.

Finally, we sit down with the founders and talk terms and if everything goes well, they go through due diligence, which is heavy on the legal side. We are trying to make sure they are ready to get a bigger check from us in the future.

Partech Africa II attracted significant interest from individual and international institutional partners, such as family offices and development finance institutions (DFIs). This is partly attributed to Partech’s regional experience, as evidenced by the $500 million acquisition of a portfolio company, Sendwave, and the attainment of unicorn status by Wave, another portfolio company.

The VC fund is led by general partners Tidjane Dème and Cyril Collon, who, before joining Partech, operated several businesses in Africa.  They joined the VC firm in 2016—three years before its first Africa-focused VC fund, Partech Africa I, closed at $143 million.  

Partech Africa II invests across various sectors, with current holdings in e-commerce, healthcare, and real estate. The previous fund invested in 17 companies across seed to Series C stages. 

Partech II will priortise Series A and B rounds, with investment sizes ranging from $1 million to $15 million per startup. The new fund has already made three investments in Revio, a South African payment startup, an undisclosed e-commerce platform in Senegal, and an undisclosed real estate startup in Egypt.

TechCabal sat down with Tidjane Dème, one of the general partners. He described the firm’s investment approach in Africa, what Partech seeks in founders and the businesses they back, and how the fund is intentionally working towards exits.

TC: Before the Africa-focused fund, Partech Africa Fund I, was closed, the global VC fund made two investments in Africa: Yoco (a South African fintech) and TradeDepot (a Nigerian retail technology startup). Why was it necessary to create a separate fund for African Investment?

TD: Africa needed local investment; that is what we wanted the fund to be. 

Before joining Partech, Cyril and I worked extensively in Africa in positions that gave us a unique perspective on the emergence of a younger generation who, instead of seeking jobs, were starting companies to tackle fundamental problems in climate, energy, health, and more. 

However, they consistently complained about the lack of access to capital needed to validate and scale their innovations. Founders need a specific kind of capital: ‘smart capital’. Local banks are incapable of providing it, but venture capitalists can. At the time, however, the local VC landscape was quite nascent, and foreign VCs were not equipped to address this market because their funds were not dedicated to Africa. 

The other important point for us was that this investment needed to be based on commercial returns, and not [charitable] impact. That was the challenge that inspired our first Africa-focused VC fund. It is also why we started sharing those numbers in the form of annual reports.

Our hypothesis has been thoroughly validated over the years. The numbers showed that this ecosystem was growing faster than any ecosystem in the world. It grew 10x in the last eight years, and some returns have started materialising for some investors. Today, it is a no-brainer for any global investor; you can invest profitably in African startups. 

You mentioned smart capital. Can you elaborate on what makes venture capital smart? 

TD: There are two fundamental qualities of VC capital, that are a necessity to drive startups everywhere, including in Africa. 

The first is the willingness to take early-stage risks. When investing in seed companies anywhere in the world, venture capital is smart enough to understand that roughly 80% will fail. This isn’t because they’re bad ideas; it’s because they’re so early-stage that inherent uncertainty exists. Venture capital is smart capital because it recognises that by picking the right 20% that succeed, they can make up for all the losses.

The second smart aspect of VC is the way it invests in early-stage startups. The typical founder is in their mid-twenties, and the startup might be their first job. If successful, the startup will grow from this small team to hundreds in the next five years. The founders will transition from “this is my first job,” to leading a team of hundreds or running a complex, multi-million dollar company. This is a journey of immense learning and growth for the entire team. They need experienced advisors, expertise, models, and frameworks to guide their thinking and building – all of which VC brings to the table. This is what smart capital means.

There has been a lot of talk about how venture capital, considering its growth-at-all-cost approach, is not suitable for building in Africa, where the business environment is riddled with regulatory uncertainty and economic hardship. What do you think of this?

TD: Venture capital funding can only work if the fund can expect a 10x return on the few (20%) that succeed. This needs to happen within a short timeframe (5-7 years). For this to work, the companies need to grow very fast. However, some companies do not grow as fast, despite being great businesses. Such businesses will not do well with just venture capital. They need other types of investors, such as traditional private equity, angel investors, family offices, and more.

Even for fast-growing startups, venture capital can’t cover all their needs throughout their journey. Why should a company give away part of their equity to raise funding for a short-term need? In such cases, what startups need is venture debt. Unlike traditional bank loans, venture debt doesn’t require significant existing assets. Instead, it’s secured by the purchased equipment and the projected cash flow return.

Unfortunately, access to venture debt and affordable working capital providers remains limited in Africa. However, the African market is still young. As it matures, we can expect a wider range of funding options to emerge, alleviating the current over-reliance on venture capital for needs that could be better served by other instruments.

 Beyond limited access to working capital, what non-financial hurdles do African startups encounter at different stages (seed, growth, etc.)?

TD: There are numerous challenges facing African startups, and I understand this firsthand – I’ve been there and failed too. The first one that comes to mind is infrastructure: Africa’s lack of established support systems creates operational friction.

Imagine launching an e-commerce platform in the US, even 20 years ago. Customers already have internet access, reliable payment systems, established delivery services like UPS, and a robust warehousing industry – everything you need to hit the ground running.

Now, compare that to launching an e-commerce company targeting mom-and-pop stores in Lagos. Reaching them online might not be an option. Instead, you may need to go door-to-door to onboard them on the app and train them on its use.

Furthermore, to ensure daily inventory orders from these traders, the startup might need to manage its logistics due to unreliable existing delivery networks, and this is very capital-intensive.

The infrastructure problem is both a problem and an opportunity. There is a problem because startups have to build on this infrastructure to function. But it is also an opportunity because many startups solve the problem of access to infrastructure. For example, mobile money companies across Africa exist because people in Africa don’t have access to bank accounts.

There are also regulatory problems. Startups often face a lot of administrative hassle with regulators. 

 Given all these challenges, how does Partech decide which companies will survive long enough to scale and deliver outsized returns to the fund?

TD: At Partech, we leverage a unique framework to evaluate potential investments: the four Ms. The first M is management. Successful startups require strong management teams that can navigate challenges, find solutions, and execute their vision. This assessment is arguably the most crucial yet the most challenging, as there’s no one-size-fits-all approach to evaluating it.

The second M stands for Market. We look for companies addressing a large, established market with significant growth potential. After all, VC success hinges on our portfolio companies scaling rapidly. Take Trade Depot in Nigeria, our first investment, for instance. They’re tackling inefficiencies in the massive Fast-Moving Consumer Goods (FMCG) sector, a market generating hundreds of billions of dollars annually. Solving these inefficiencies creates an opportunity for significant growth.

The third M is Model. Can you build a business, not just a product? While profitability might not be immediate, a clear path to eventual profitability is essential. This involves scrutinising the technology, marketing, operational, and overall business models, particularly in the early stages when much remains undefined. The difficulty of doing VC is in being able to make those decisions on very little data.

The last M is momentum. If you believe that this company is going to grow very fast in the next few years, we expect the company to exhibit strong growth trajectories. Momentum tells us that they’re doing something right. For instance, a Series A company might need a user base growing 10-20%  month-over-month. This momentum is crucial to achieve the exponential growth needed to compensate for inevitable investment losses.

But there is a caveat: even the most comprehensive framework can’t guarantee success.  Sometimes, despite a compelling model and strong execution, unforeseen market forces can derail a company. This is a reality that both founders and investors must acknowledge.

While every startup has potential, what initial signs might suggest a company wouldn’t be a strong fit for your fund’s long-term goals?

TD: Seed-stage investors will tell you that one of the biggest reasons startups fail is team breakdown. Existing team dysfunction is a red flag.

In addition, young teams often encounter problems they haven’t faced before. The inability of a founder to listen and learn from those around them is a major red flag for me. A coachable founder who actively seeks guidance is far more likely to succeed.

Another worrisome factor is out-of-whack unit economics. Early-stage startups can achieve rapid growth by throwing money at marketing, but this might mask an unsustainable business model. High customer acquisition costs coupled with rapid customer churn – meaning you’re losing customers faster than you’re acquiring them – and low customer lifetime value all point to bad unit economics, which is a major red flag.

We also look out for companies struggling to attract or retain top talent. High employee turnover suggests problems within the organisation.

Another indicator that a company might not be a good fit for investment is if it is skirting regulations. Avoiding regulations isn’t a viable long-term strategy. 

However, it’s important to acknowledge that even with careful evaluation, mistakes are inevitable. You’ll encounter companies that you decline investment in, only to see them become huge successes. Conversely, you’ll invest in some startups that ultimately fail. Accepting this fallibility is crucial in the venture capital world. You have to be at peace with both successes and missed opportunities.

 Have you turned down any companies that went on to be successful?

TD: Investors keep a mental record of companies they regret missing out on – the “Had I Known” portfolio. Paystack is an easy example for me. When they were first raising capital, we at Partech simply didn’t have the funds yet, as we were still fundraising ourselves. 

There are also promising companies I’ve declined to invest in that I’m following closely, hoping to see them succeed. While I can’t disclose their names at this point, keeping a watchful eye on such companies is a common practice among investors.

You spoke briefly about unit economics. There are a lot of sectors that have remained loss-making for years as they need to continue subsidising the cost of their services. A popular example is the food delivery startups. What is your opinion about such companies?

TD: As I mentioned earlier, Africa’s underdeveloped infrastructure creates additional costs for businesses, making it particularly challenging for delivery companies to build and turn profitable. For example, for a food delivery company, key unit economics metrics include customer acquisition cost and gross margin per delivery. The crucial question is: can this gross margin be positive, and how long will it take to recoup customer acquisition costs? 

The hope is that as these companies scale, they can achieve efficiencies that push their negative gross margins into positive territory, ultimately covering the cost of customer acquisition. Many players are innovating in interesting ways to tackle this challenge, but a definitive solution remains elusive.

E-commerce presents another interesting case. While the eventual dominance of online commerce in Africa is undeniable, as an investor in Africa today, it’s challenging to envision oneself supporting a company for the potentially 15 years it might take to achieve full maturity. 

You need to believe that you will support this company for a while, and hand it over to another investor who will fund it for the next leg of the journey, and so on until it reaches where it needs to be.  

I don’t see the growth stage investors in Africa that can take these capital-intensive startups to the next stage. So [the unit economics of some of these sectors] will be a problem for founders and investors for a while until we figure it out. 

What you have described sounds like a relay race. Are there any sectors that have a shorter journey ahead of them? Does Partech place bets on these sectors?

TD: We’ve placed bets across all of these sectors. But if you look at the whole VC industry in Africa, basically half of the money has been invested in fintech. This is because fintech is the only sector where we’ve seen companies go from seed to exit reliably. Even though it is only in a few markets: Nigeria, Egypt, and South Africa. 

However, we believe opportunities exist beyond fintech. For example, our portfolio company, Reliance Health, in Nigeria, tackles healthcare access through insurance. It’s one of the few profitable health insurance providers in Africa, and it’s expanding regionally. Similar companies exist, but they only serve a small portion of the vast, underserved healthcare market across the continent.

In Silicon Valley, VC investment often focuses solely on highly scalable software solutions. But the African startup landscape demands a different approach—a successful combination of technology and on-the-ground operations. 

Even seemingly simple fintech solutions require building agent networks to bridge the gap between cash-based reality and the digital world. All these companies need to actively onboard users, which requires operational legwork.

Any company in any sector that effectively combines technology and operations has the potential to become a champion. 

Considering how long and tenuous the journey to an exit is, how does Partech think about returning significant multiples of profit to its investors? 

TD:  We’re currently expanding our team with a portfolio growth manager dedicated to helping our companies develop clear exit strategies. This proactive approach is essential because, unlike the US market, where established giants like Google or Facebook might make opportunistic acquisitions, building a successful exit in Africa requires intentionality.  

Companies are typically acquired by entities that have tracked their progress for several years, recognising the value they’ve built. This means if you envision an exit in three to five years, you need to start building relationships with potential acquirers today.

At Partech, we’re fortunate to have a network of potential strategic buyers among our investors, including large corporations like telecommunications groups, retail giants, and industrial groups. These existing relationships allow us to have ongoing conversations with potential acquirers, gaining insights into what makes companies attractive long-term. We then share these insights with our portfolio companies.  

Bridging the gap between VC and private equity is also crucial, as they are potential acquirers of our mature and profitable portfolio companies. 

Also, we are very careful about valuations. Companies with inflated valuations in 2021 struggle to raise funds now. Overvaluation can tamper with the capitalisation table and cause conflicts with investors. We avoided this by being disciplined in our investments and encouraging the same in our portfolio companies. We are proud to share that none of our portfolio companies are having a difficult time raising follow-up investments.

Editor’s note: This interview has been edited for length and clarity.

In November, Surayyah Ahmad and Sanusi Ismail announced the launch of Aduna Capital, a $20 million fund targeted at discovering and nurturing early-stage tech founders across Africa, with a keen focus on the northern Nigeria startup ecosystem. For this edition of Ask An Investor, TechCabal spoke to Ahmad and Ismail about why the fund will focus on northern Nigeria, their experience in raising a fund during a VC crunch and more.

Please share a bit of background on your VC journey

Surayyah Ahmad: I’ve been a founder for almost 10 years, having started an e-commerce and fulfilment service company that was based in Abuja. Back then, I honestly didn’t like the support that I could get in the ecosystem probably because there was no ecosystem to start with. So it was quite a struggle raising funds and I ended up raising around $250,000. In 2019, I had to do an M&A deal because the economy wasn’t aligning with the company’s growth. We merged with a company that was trying to enter the same market.

After that, I started another company in the UK. That is when I accidentally got into VC, mostly due to my knowledge of the African market and serving as a venture partner to a couple of VCs in London. But what was clear at the time was that though I was sourcing deals, I couldn’t source deals from my community in northern Nigeria. There were incredible founders but the issue was that they were more technical and could not put a story together to get investors to be interested in their companies.

It struck me that I was working in the wrong environment where I wasn’t making a lot of impact. I was doing TTLabs, in the UK, as a venture partner sourcing deals for VCs. So I decided to repurpose TTLabs into something that could become an accelerator helping founders in northern Nigeria. So we would incubate them for six months, and then put them through our process to getting funded. Now, I think it was like a Pandora’s Box in that the more we did those things, the more we realised that the problem was deeper.

So Sanusi and I as well as a few other friends aligned on solving this problem. We functioned as business angels because we’ve been investing in other companies. So we thought, how about we come together as an angel syndicate and start to invest in these companies ourselves? So what started as an angel investment syndicate got a lot of traction and interest and eventually evolved into the fully-fledged fund  Aduna Capital is today.

Sanusi Ismaila: I think that all of my experience has led up to this. Firstly having started my own software company in the past and gone through the struggles, knowing where the shoe pinches at times, understanding what it is like to have a vision and want to get it done but not have people think that it’s possible.

Having seen people from a certain region with brilliant ideas that are built into products, and then seeing them struggle to raise capital, I can relate to the problems we are trying to solve as Aduna Capital.  So all of that all of that experience aligns with the firm’s mandate to take some bets that most other firms will not take. We are looking at a region that most other firms are not looking at. We know that there’s a lot of potential in northern Nigeria and we hope that by pioneering investing in the region, eventually, other firms will follow suit. 

TC: The fund will have an explicit focus on northern Nigeria startups. Please elaborate on this decision

SA: So part of what we realised was that Lagos has gotten so much traction and investor interest that although there are incredible founders in Lagos, there are also people who can get funding just because they’ve started a company with a lot of noise. I’m sure you’ve seen the recent news on founder dishonesty and whatnot going on in the ecosystem. 

Northern Nigeria is different in that it subscribes to what is called the honour system. It’s a very high-trust environment and there are a lot of founders doing some amazing things quietly. Additionally, over 60% of Nigeria’s population currently resides in the north so when people put on their pitch deck that Nigeria is a massive market, the majority of that market resides in the north. But as Nigeria is also predicted to become the fourth largest country in the world by 2050, 70% of our population will recite in the north.

SI: There is a geographical advantage in that the north is surrounded by Francophone countries, Niger, Chad, and Cameroon and a lot of trade happens between these countries. I think as other companies are focused on expanding to Ghana, Kenya, South Africa, etc, we are looking to explore the potential of expanding from northern Nigeria to other Francophone countries. It’s about looking at the other side of opportunities that not everybody is looking at.

So we see the North as a ready market to launch products and expand to other parts of Africa. We want to support outliers that are currently in this region. A lot of them have been bootstrapping and have raised small ticket funds but have not raised anything after that. And it’s not because they’re not bankable companies. When you see their books, you’ll see that they are doing very good numbers and are sustainable as well. It’s just because they don’t know how to raise and that we haven’t built an ecosystem of raising VC funding in northern Nigeria. And that’s what Aduna Capital is trying to change. 

What has been your experience raising funds in the current funding winter when LP funds are hard to come by?

SA: It’s an ongoing experience because we have not closed the fund but the good news is that we’ve gotten a fair bit more than half in commitments. One of the strongest things going for us has been our track record. We are both people that have been in this ecosystem for a while and we have shown that given whatever resources we have access to, we can show output and impact that is in several multiples.

For example, our innovation hub bootstrapped all the way and for most of its lifecycle actively turned down grant opportunities. Today, it’s probably one of the biggest sources of technical talent in Nigeria. So people knowing that track record softens the conversation. But it’s also interesting because we’re focusing the fund on an area a lot of people don’t understand. So we get a lot of questions around “Are you sure you can make multiples back?” “How can you assure us?” There is also a bit of hesitance because there are people who are like “Let’s let’s see what you do with your first fund”. To those people, what I always say is this: if this first fund goes the way it’s supposed to, we won’t need your money for a second fund. 

SI: We are indeed in a funding winter and I think it’s important to acknowledge that it’s a difficult time to raise. People might ask why we are doing this. We’re doing what we’re doing now because we believe it is the right time to do it. We’re not the only ones who have launched a fund for northern Nigeria. You might have seen another one that was launched right after us. And I think it validates the fact that we’re seeing this opportunity and we think the time is now. And whether it’s the funding winter, whether everybody’s finding it hard to raise from LPs, we think it’s time to do this now.

In terms of the disbursement of the fund, there is also a keen focus on female-founded startups. Can you expound more on that?

SA: We’re not doing a favour to female founders by deciding to fund 50% of them or deciding to allocate 50% of our fund to companies with at least one female founder. Data shows that these startups have done 64% better than companies with all-male founders. So it is a strategic thing to do because they do return more money to funds.

Part of the problem is that a lot of funds like ours that decide to allocate a significant portion to female founders sometimes don’t even find the female founders to fund. That’s where our accelerators and incubators come in to do some of the groundwork to support those female founders who want to start companies. 

At the end of the day, female founders are incredible and should be funded but there is a need to address the issue of the lack of these entrepreneurs. We need to put structures in place to support female founders to start companies. I’ve had to let go of a lot of things because I had a baby midway and a lot of female founders have had to let go of their dream because of things like this. So I think it’s not even the question of whether we should find more female founders. It’s about creating the right environment for female founders to be able to start companies and thrive.

SI: If you think about things, from just a product perspective, it doesn’t make sense, at least to me, that half the world isn’t being represented in the products that are being built and backed. And that is sure to cause some problems, whether in the near or distant future. I’m hoping that as we start to address this issue, more people will look into it. 

The fund also has a pan-Africa focus. That is always a challenge because Africa has 54 countries with varying cultures and regulatory requirements. How do you plan to traverse through this?

SA: Part of our strategy is to co-invest in rounds. That means for the rest of our deals coming from Africa, we would like to be co-investing with our trusted VC partners. But also, we have an incredible deal flow sourcing system, whereby we’re sourcing some of the best deals from a very wide range of partners across the continent.

We’re not limiting ourselves to the Big Four because our diversification strategy is partly a risk mitigation strategy. We want to ensure that we get the best deals from Africa and what we’re doing is building the network to ensure that we source very good deals. Co-investing with a local VC that is better positioned to carry out some of the due diligence is a vital part of our strategy.

SI: One of the things that we were very clear on from the onset is that in a lot of cases, we won’t be leading rounds. This is useful because if you have local partners, you are better able to address some key issues like market dynamics, regulatory requirements and business development through them. 

Throughout the funding crunch, global VCs who have over the years led cheque-writing into Africa have slowed down. Does this present a deal flow opportunity for African VCs like Aduna Capital?

SA: Our thesis is built on the idea that there are opportunities that exist that need to be unlocked but are not being unlocked. Even at the height of what many people call the zero interest rate phenomenon where money was being thrown around, there was still not a lot of investment in northern Nigeria and women startups.  We’re basically first movers in unlocking value in some of these opportunities. So in short, it is not about filling in a gap left by retreating investors but rather unlocking opportunities which have traditionally never been explored before.

SI: The opportunity now is to invest in genuine businesses. Any company that’s able to survive in this market is likely sustainable and has a rigid business model. Valuations are more realistic and people are now building for their market which is an advantage to investors.

Anything else you would like to add?

SA: We’re looking for founders who have already built something and have some traction. We also want founders who are looking to build for the local market as well as the African market in general. In terms of teams, we’re looking for a team with at least one experienced founder with industry experience.

Additionally, we are looking for founders who aren’t necessarily building just a software product. So if you’re in manufacturing or processing and incorporating tech, we are interested in backing such ventures. In terms of our ticket sizes, we do pre-seed tickets starting from $50,000. We also do follow-on $200,000 tickets at the seed stage.

SI: We are also looking for businesses building unique products. I’ll give you an example. There’s this fantastic business that I know making animal feed from waste. And it’s it’s the most efficient use of capital and biotechnology I have seen. We are looking for people who see something random happen in nature and are trying to figure out why that thing happens and the way it happens. Businesses like that are typically what we prefer to back. I think beyond payments, there are still a lot of foundational problems that Africa has and I’d like to see more people take stabs at some of the really hard ones.

In January, Convergence Partners, a pan-African ICT investment firm, announced that it closed its Convergence Partners Digital Infrastructure Fund (CPDIF) at $296 million, surpassing its initial target by over 18%.

The fund was backed by a combination of existing and new investors, which include global and regional development finance institutions (DFIs), pension funds, and financial institutions based in Europe and Africa. The Convergence Partners Digital Infrastructure Fund is the firm’s biggest fund to date and brings its total funds under management to over $600 million.

The fund is focused on investing in digital infrastructure opportunities across sub-Saharan Africa, including fibre networks, data centres, wireless networks, towers, cloud, Internet of Things (IoT), and artificial intelligence (AI). Additionally, the fund aims to develop and support initiatives that promote access to education, financial services, healthcare, and other essential services through digital technologies.

The fund has invested in numerous companies including Yellow, 42Market, inq, SEACOM, and most recently, CSquared. In this week’s edition of Ask An Investor, Andile Ngcaba, chairman of Convergence Partners, talks to TechCabal about the importance of infrastructure investment, the company’s investment philosophy, and more.

TechCabal: Please share more information on the CPDIF

Andile Ngcaba: According to the ITU Partner2Connect Digital Coalition study, the world currently has a $428 billion digital infrastructure gap, the majority of that being in developing regions like Africa. Africa’s youthful population, the majority of whom are digital natives who require the internet to study and work, makes addressing this need more pressing.

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With that in mind, the CPDIF is designed to invest capital in digital infrastructure such as optic fibres and data centres. Having closed the fund, we have started deploying capital in several companies including Yellow, 42Markets, and CSquared. It takes a lot of time to build digital infrastructure so we as Africans need to start now if we want our continent to partake in the Fourth Industrial Revolution. It is only after building the infrastructure that we can be successful in adding applications like fintech, e-commerce, and healthtech solutions on top and driving digital adoption.

How important is it that Africa builds its own digital infrastructure?

AN:  It is important to understand the macroeconomics of Africa including the demographics. The fact that we have so many people moving into the cities means they have to be connected. They need the internet and they need to be online to access education, healthcare, and agriculture services. 

We today talk about generative AI and large language models which need data centres to process huge volumes of data. But to be able to do that, we need to build our own data centres, so that African data can be in the African continent. But these data centres cannot live in isolation because they need optic fibre from the data centre to another data centre, a 5g tower or base station needs optic fibre to your home, etc. So there is a need to fund all these various infrastructure components because we understand what the future is going to look like.

The fund has invested in numerous companies so far. Please share the rationale for how you decide to invest in companies.

AN: We are an impact investor. That means we want to invest in companies that are cognizant of their environmental, social and good governance requirements. We are not only about how successful the company is but also its level of impact on society. I mean, there must be profits and generate returns to shareholders but their impact beyond that must also be clear.

They must treat staff well, look after the environment and adjacent communities, and operate within the right governance frameworks. If you take a company like Yellow, they are helping finance home solar panels in Malawi which changes the lives of people there. If you take CSQuared, they are building fibre in some of the remotest areas in countries like the DRC, Togo, and Liberia which connects those people to the rest of the world. This is what we want to see as an impact investor.

At the moment, do you think that Africa’s infrastructure is on pace to meet the continent’s innovation needs?

AN: I wouldn’t even start to say that this is enough. We need more capital in Africa because as I stated beforehand, the world has a $428 billion infrastructure gap with Africa being one of the areas with one of the leading deficits. The way technology is evolving means that we will always be playing catch up. An example is the transformer models needed to train large language models. Even developed nations are struggling with chipset shortages to go into the servers which train these models. And these countries have been building infrastructure way before us. 

There have been supply chain problems in the world so in Africa, we need to secure our supply chain. Basically, we need to build data centres and put servers for AI and machine learning in those data centres and much more. Unfortunately, because of global macroeconomic issues affecting supply chain and chipset shortages, the world is also slowly getting behind that curve of innovation today because it takes six or seven months to access some of the servers required to run these complex processes. So what I’m saying is that Africa is not the only one impacted by such challenges. We need to rethink about supply chain and resources. 

With these challenges in mind, Africa must think about producing its own chipsets. Africa must think about how to use the rare earth elements around and be able to produce electronics and chipsets. Africa will have two and a half billion people by 2050 and we cannot be a net importer of servers, phones, computers, and the like.  To be able to do that, we need to have stronger research and development efforts.  We need to understand that we have all the rare elements needed to produce such and have to figure out how to process them.

The journey for Africa’s development into building that future digital ecosystem lies in our hands. We must think about producing ourselves. We need servers produced in Africa, we need chipsets produced in Africa, we need semiconductors produced in Africa, we need all these devices for the future of communications to come from Africa. 

The fund’s investment partners include development finance institutions. How important are these in your mission?

AN: Extremely important and their role will remain crucial into the future. Pension funds too. The capital requirements for building out digital infrastructure are extensive so it always helps to have as many partners as possible. 

As an investor, how do you help your portfolio companies traverse through the various regulatory environments as they seek out a pan-Africa presence?

AN: I think what regulators are realising across the continent is that digital connectivity is key to advancing the continent’s development ambitions. So the collaborative effort to have friendly regulatory frameworks is perhaps improving. There’s also a paper published by the Africa Free Trade Agreement which I’m confident will be applied to our industry and harmonise regulations and policies across the continent. There is no need for Africans to roam between each other and pay roaming fees. The movement of data in Africa must be free between one part of Africa and the other

The internet is also one so we should all assist in making people have access to that. And that the Internet belongs to all of us. No one has a claim over this part or that part of the internet because it belongs to all of us. There must be a multi-stakeholder model and that is why you will also see that there is what is called a global internet governance model. These come out of the internet community to make sure that this resource must be protected and preserved because it belongs to all of us. So each country anywhere in the world needs to understand this context. It’s an important issue that we as practitioners must communicate all the time to regulators and policymakers.

Vula is a fundraising assistant that automates the fundraising process for founders. Users input their website URL and the AI-powered platform will craft an application for selected funding opportunities. Founded by Nicholas Rawhani and Alex Goff in 2022, Vula seeks to transform the fundraising process for the continent’s startups and SMEs at a time when raising funds is proving to be tough.

In this episode of Ask An Investor, TechCabal talked to co-founder and CEO of Vula, Nicholas Rawhani, to get more details on how the platform works, what convenience it brings to the fundraising process, and what role platforms like Vula can play in boosting fundraising on the continent.

TechCabal: Please share how Vula works.

Nicholas Rawhani: Vula seeks to answer the question of how we can enable locally-owned African companies access to capital which will enable them to scale up. 

We spoke to more than 500 founders and realised that the process of applying for financing, whether it’s for a grant, pitching to VCs, or applying for a loan, had so much friction and headache. And it takes up so much time for founders that they stop being able to focus on running their business.

So I (coming from a background of helping startups traverse through funding challenges) and my co-founder Alex (coming from this background of using big data to enable automation) started Vula. We realised that if we can start to parameterise the reality of companies and really get the information of companies to be a single source of truth, then we can train an AI for every company, and help that AI to basically be a relationship banker and investment banker for each and every company on the continent. Once it understands the company well enough, it can output what the best possible route for funding is and who can actually fund it. It also helps them apply for that funding. 

But on the other side of this funding gap are the financiers themselves. We had this assumption that development financial institutions, pan-African banks, and others would have sophisticated processes and systems for bringing in businesses and finding opportunities to finance them. But we found that that’s not the reality. So we realised that Vula needed to build for both sides of this funding gap. What makes this model amazing is that we can provide our startup and SME support tools for free to founders while making our revenues by helping these large financial institutions digitise their onboarding processes. 

How does Vula plan to catalyse investment into the continent?

NR: In the USA there’s this concept called the  Common Application where when you apply for university, you do one application, and it basically filters you out and pre-matches you to the universities that suit your profile. Vula brings that same convenience to founders. Searching for opportunities one by one, going through all these different applications, filling in the same questions, and getting the same documents, is all a schlep. We have this powerful platform that not only reduces this process but also helps them engage with financiers in the best way. We believe that by figuring out the best way to facilitate investment, we can 10x the amount of investment on the continent.

What challenges have the Vula platform faced and how have you conquered them?

NR: I’d say on the founder side, there haven’t really been challenges because we’re providing a free service that’s super futuristic to founders and, so far, they love it. I would say however that there is a bit of slowness which comes from the side of financial institutions.  You can imagine how incredible the experience would be if you log in as a founder and immediately see all of the financing opportunities that lie before you. Historically in Africa, financial institutions have been financing very large corporations in mining , telecoms, and not really SMEs and startups.

Our banks make a lot of their money just from transactional banking, but what they are starting to realise is that SME financing is extremely profitable. SME financing that takes place in Europe or in the US is the single most profitable sector of any banking segment, and our institutions are becoming more cognizant of that. So, in the short term, you’ve got banks who don’t really want to engage with SME financing that much, which slows our uptake, but then you have these really innovative banks and financial institutions who are playing the long game and seeing the value Vula adds.

On the other hand, what opportunities are Vula looking to exploit in the funding facilitation market?

NR: We have a very clear three-step plan. The first step is to enable this next generation of digital tooling for financial institutions and once we hit a critical mass of those and it basically becomes a marketplace, the amount of investment inflow will grow exponentially. In the 1950s, in the US, the way that mortgages started to become popular was that instead of the local bank handling all the mortgages, all the bank would do was package up clients who wanted mortgages, and then large institutional investors like JP Morgan would buy that package as a private equity asset. We want to be able to do the same thing for companies across Africa because they’re highly uncorrelated assets. And that’s super promising for our future. But right now, we just don’t have the tools or the data on the continent to make that a reality. So Vula also sees itself as the tool through which we can start to parameterise companies on the continent and create a united vision of what’s really going on, in order to help the very large institutional players in the US or in Europe be able to invest in African businesses as an asset class. And that’s where we’ll really start to see liquidity flow. 

What role will platforms like Vula play in the future of fundraising in Africa?

NR: I don’t think that there’s anything special about a platform in and of itself because we’ve seen many platforms in the past come and go. The idea that you can just put companies up on a platform and bring financiers to the table, and it all magically works out is a bit of an urban myth in the African financing space. So it’s not about a platform. I think it’s about properly understanding what the real barriers are for enabling financing. In reality, the biggest barriers are trust and bankability. There are too many entrepreneurs who just aren’t actually investor-ready. They have been convinced by this VC model that the only way that they can start a business is to go out and convince somebody else to give them money. And that, I think, has actually done a disservice to the continent because we have a culture of starting cash flow-positive businesses ourselves. We have a culture of hustle and grind and making it happen. 

So the future is not about any particular technology or any particular platform, but about ensuring that both financiers and entrepreneurs feel empowered and feel a sense of trust in the market. We want to make them feel that they can actually back ideas that they love, that they can actually build solutions that are going to solve problems, and that they’re going to be able to get the support that they need to continue to do that.

According to data by ChainAnalysis, Sub-Saharan Africa has the smallest crypto economy of all regions, accounting for 2.3% of global transaction values between July 2022 and June 2023. In that period, the region received an estimated $117.1 billion in on-chain value. However, in terms of volume, countries like Kenya, Nigeria, South Africa, and Tanzania had some of the highest grassroots adoptions in the world and ranked in the top 20 Global Crypto Adoption Index. Figures show that transaction volume made up of retail-sized transfers in Africa is at 7%, against the global average of 5.5%.

Despite the fact that African blockchain startups raised $474 million in 2022 to build solutions for the increasing adoption of the technology—up 429% in a year—this is still a pittance relative to the rest of the world. This is a challenge that Crypto Valley VC (CV VC) is trying to solve through their $20 million Africa Fund. The fund invests in early-stage founders across the African continent who are solving some of the emerging markets’ largest problems using blockchain technology.

To understand the history of CV VC’s Africa involvement and to get a better understanding of its investment philosophy, TechCabal caught up with Brenton Naicker, principal and head of growth of the firm’s Africa operations. As part of the Ask An Investor series, Naicker speaks on the state of crypto innovation and funding in Africa, how to accelerate adoption as well as the unique opportunities that the continent holds for crypto innovators.

Please tell us about the work you do at CV VC

Brenton Naicker: I’ve been quite privileged to be in the Web3 space for about eight years now. I was part of the industry organisations that founded the South African National Blockchain Association and the Crypto Assets Association of South Africa. I also spent two years leading business development, growth and expansion at Binance where I launched the sub-Saharan African markets including Francophone Africa.

During that time, I became passionate about the ability of blockchain technology to solve real-world problems for everyday people. And that’s what sort of led me to join CV VC (Crypto Valley Venture Capital) where I have been for two years now. 

So we started back in 2015-2016 in Zug, Switzerland, also know as the Crypto Valley. CV VC was an ecosystem business focused on creating an environment for the startups to come together and learn from each other through workshops, webinars, and industry reports. As the ecosystem started growing because the technology became very popular, there was a lot of economic value that was created. Our founders realised very quickly that unless we were investing, we weren’t participating to the highest level.

So fast forward a couple of months and we set up our first global fund out of Switzerland which was sector-agnostic and investing in companies that used blockchain technology. As the world and the industry started maturing, a lot of stuff started happening outside of the ecosystem in Switzerland and so to remain at the heart of everything, we had to start expanding our footprint out of Switzerland. So we launched our hubs in Berlin and Lisbon.

Our presence in Africa started circa 2020. We were approached by the Swiss Economic Cooperation Organisation to recreate the same Crypto Valley model in Africa and they gave us some seed funding. With a lot of support from the Swiss government and embassies in Africa, we launched in mid-2021 to create a thriving Web3 ecosystem based out of Cape Town, South Africa, with a Pan-African focus. And that’s when I joined the team. 

It became clear very soon after that that the use cases that we were seeing in Africa, as well as the maturity of the startups, were unlike anything that the global team was used to. And off the back of that, we decided that the opportunity was so great in Africa that this ecosystem warranted having a fund of its own. So we raised a $20 million Africa Fund focusing on early-stage African Web3 startups. It is paired with an accelerator program running out of Switzerland. It’s a 10-week program whose content comprises 50% MBA-type content and 50% industry-specific content. We have used our relationships and our networks in the space to bring in some of the best technical talents to come and teach about aspects of building blockchain products.

In terms of our chequewriting,  we offer $135,000 investments for 7% on a convertible note. We also do direct investments in seed, pre-Series A, and Series A but it’s very unlikely that our first ticket will be in a Series A round but rather will most likely be a follow-up. And those ticket sizes are generally anywhere between $200,000 and $500,000. Although I stated we are sector-agnostic, we tend to focus on four verticals which are fintech (remittances, micro-payments as well as SME lending and credit), infrastructure, healthcare and the creative economy which includes NFTs, the metaverse, etc.

To date, we’ve made 14 African investments. Six of those were before we actually had the Africa Fund and eight of them are from the Africa Fund with six being via our accelerator, and two of them being direct investments.

What would you say is the state of Web3 innovation in Africa at the moment?

BN: In terms of the maturity and depth of the Web3 space in Africa, I think it’s almost a tale of a two-edged sword in the sense that the grassroots adoption of the technology is very significant. Although the total aggregate volumes are not the same as in US or European markets, if we look at it from a population penetration perspective, crypto as a technology is far more popular in most African countries than it is in most of the big developed markets. 

The problem we are seeing from the venture side is twofold at the moment. One is the macro environment challenges which have seen a massive slowdown in crypto and Web3-specific VCs deploying capital. The lack of availability of capital is a big hindrance to startups being able to go from zero to one, which is the core process to get them to mature. The second problem is that a lot of the capital in the space sits in those developed markets that I spoke about. Those investors don’t understand the African continent and because of that, they are very hesitant to invest in early-stage startups here. Additionally, because of bad actors in incidents like FTX, Voyager, and Celsius, even the traditional VCs, incubators and accelerators who were traditionally open to this technology have now become a little bit sheepish because of the sentiment and the perception around the industry at the moment. The other issue is also a need for more regulatory clarity on crypto which makes adoption by corporates a bit of an issue.

In terms of the challenges facing blockchain innovators and investors on the continent, which ones would you say are the most prominent?

BN: I think they are on two fronts. One is that certain soft skills aren’t quite as common as they are out in the developed markets. And I think this is just a function of entrepreneurship education. So in the developed markets, the resources, the knowledge, and the education are there. But in Africa, when it comes to sort of things like putting together a pitch deck, understanding unit economics, and financial and business models, there is still a long way to go.

And this is where the importance of programmes like incubators, accelerators, and open-source education are key. The second factor is the hype created by low interest rates which saw massive investment inflow that led to the overvaluation of some businesses which have now crumbled.  This has created an almost sour taste and a poor sentiment for foreign investors which led to capital drying up. And that’s really unfortunate because we don’t have a mature enough ecosystem yet in Africa to fund our innovators. 

On the other hand, what opportunities would you say are available in the Web3 space on the continent?

BN: The biggest opportunity is the resilience of African founders. While everybody else is shouting doom and gloom with the current situation, African founders have always had to do more with less. So this environment is not new to them. We’ve seen that they are still progressing with gaining traction and onboarding users, and they’re able to pivot and change their models quite effectively. So they’re able to face adversity much better than their global counterparts. 

But the biggest opportunity unique to Africa is the willingness to adopt new technologies which significantly improve lives. The perfect example is Africa skipping the whole fixed-line telco and going straight to mobile. And the reason is that people don’t have pre-existing functional legacy infrastructures to hold onto. The existing solution is so bad that people are welcoming to new technologies which is great news for innovators.

What else can you share about what CV VC is up to?

BN: We’ve got the next cohort for the accelerator coming up and it will kick off in March, and applications close at the end of November. And what’s great about that is we want that same sort of YCombinator benefit where you’ve got this global alumni network that you can lean on. The accelerator is a global cohort with a couple of the first weeks being based out of Switzerland. I think this is an unrivalled opportunity for African founders, specifically in the crypto space where they might feel sort of underserved. We also have a massive ecosystem hub that’s based out of Cape Town at the V&A Waterfront so if you’re looking to connect with like-minded people in the space, come through!

Interview has been edited for length and clarity.

In this episode of Ask An Investor, TechCabal caught up with Francois Malan, the incubator CEO at South Africa-based venture capital firm, Savant. Founded in 2004, Savant makes investments in hardware and deeptech startups in South Africa.

Savant was founded on the need to bridge the funding gap which existed for technology businesses. It initially started offering incubation support for startups, and in 2019 added a venture investment element after it raised its first fund.

With over 20 portfolio companies, Savant has invested in sectors ranging from agritech to spacetech , with a keen focus on also providing technical support via an in-house advisory incubator in addition to the capital injection. The firm has so far raised one fund, the Savant Venture Fund I, which is almost fully deployed. A second fund worth R500 million is in the pipeline.

Please share more about Savant

Francois Malan: Savant was founded in 2004, by Nick Allen and Kate Turner Smith who were, at the time, coming out of the government-funded Life Sciences incubator and realising they were very limited in their abilities to really help technology businesses. So we started off as an incubator and operated as an incubator up to 2019. 

By that time, we were also managing a seed fund on behalf of the Technology Innovation Agency and finding funding for our companies otherwise. We then established the Savant Venture Fund I based on the pipeline that we had available, with support from the SA SME fund, the IDC and TIA   along with additional LPs. So we’ve got various components to surround the venture fund, one being the incubator where we build businesses and then also an investment readiness programme, which we launched for the first time in 2022. We’ll be running a second iteration of that in the coming year.

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Can you please expound more on the fund and the type of investments it makes?

FM: We have approximately R155 million (~$8 million) in assets under management in this component of funding available to us. We have invested in 23 businesses over the last four and a half years, varying in stages from pre-seed to seed and pre-Series A. We invest in hardware and deeptech-focused businesses solving real-world problems with strong science and engineering innovations. Our portfolio has startups in agritech, healthtech, cleantech, and much more. We are in the process of investing in a semiconductor startup based in Pretoria. We have found a range of really fantastic innovators and scientists and engineers in the local market who are doing really fantastic  work and that’s where we like to play.

You recently made an investment in a startup called BurnStar. Can you please share more details on that

FM: BurnStar is an early-stage business in the hydrogen space. They make clean hydrogen which is extremely cost-competitive and carbon-friendly. It is a world-leading technology in the renewable energy space not only as an energy carrier but also to replace dirty hydrogen in other applications like steel manufacturing and industrial processing. It was founded by Johan Brand about four years ago based on his PhD research and we bought into the novelty of the technology and the commercial application of it.

What would you say is your investment strategy?

FM: The Savant Fund 1 strategy is focused on finding South Africa-developed science and engineering innovations, based on strong science and engineering technologies. Although developed by SA teams, we are also looking for businesses that we can take into other markets, whether that’s across the continent or into other parts of the world. 

We’re looking for companies that have innovative solutions to real problems. Companies that understand who their customer is, and what problem they’re solving for that customer. Those are  really the key understandings. We want to see differentiation. We try not to invest in businesses that are doing B2B solutions. We like to see strong technical teams with a component of business understanding. 

We have now almost fully deployed Fund 1, having committed the fund we had available. And we’re now in the process of raising Savant Fund II which will be a green economy-focused fund. We are targeting R500 million (~$26 million)  with a keen  focus  on South African startups. We will also be targeting other regions on a 70:30 ratio so as to play to our strengths which is our experience in the SA market.

What challenges have you faced in your operations?

FM: I would have expectations in terms of valuations. We’ve been very thorough and conservative in our valuation approaches. The opportunities haven’t gone away in the market but expectations of significant valuations have changed over time particularly when you move from one round to another. There have been some scenarios where people went in at valuations that were unsustainable in the long run, and perhaps have been burnt a little bit. 

We did see a number of deals that we really liked over the last couple of years that we didn’t invest in because their valuations, in our opinions, were out of sync with what we felt those companies should be. But I think by and large, the investments that we have made have been well-valued. And we expect that when we go into the next rounds, we do expect reasonable significant upticks in our valuations. So I think we’ve done well to weather the challenges and I think playing in a niche has kind of insulated us a little bit. Playing in the hardware and deeptech space means that we have been a bit insulated from a lot of the hype in other industries.

What would you say is the future of hardware and deeptech innovation in South Africa?

FM: Savant was founded on the back of a realisation and acknowledgement that there’s a significant amount of innovation taking place in South Africa. Particularly, a significant amount of innovation was taking place but just didn’t reach the market because it didn’t have the right kind of support or funding. So we’ve always been extremely bullish on the opportunities available.

From a market perspective, we believe where there’s a need, there’s a way. As the energy crisis grips the country, for example, we see more and more innovation popping up to resolve that particular challenge. So there’s a huge amount of innovation that keeps going on and we are very fortunate to see a lot of it at a very early stage.

According to reporting by Harvard Business Review, black founders receive roughly 1% of VC funding. The publication further states that one of the reasons for this is that venture capital investors, who are largely white, aren’t good at recognising and developing black entrepreneurs. This is a problem that I’M IN Accelerator is trying to address.

Founded in 2015 and based in South Africa, I’M IN Accelerator focuses on launching black-founded, high-growth start-ups into the African technology sector by providing opportunities to technically apt founders with limited access to resources. 

The accelerator, through its programmes, partners with entrepreneurs to build technology-enabled solutions, facilitating access to various early-stage funding vehicles in conjunction with business development support and one-on-one mentorship from industry specialists.

For this episode of Ask An Investor, TechCabal caught up with Palesa Tabai, programme lead at the accelerator, to get more information on its acceleration strategy, challenges and opportunities in South Africa’s early-stage startup ecosystem and much more!

Please share more about the work that you do at I’M IN Accelerator.

Palesa Tabai: I’M IN Accelerator was established in 2015. One of the co-founders realised that most startups in South Africa were not investment-ready. What we do is that we partner with black tech startups in South Africa with limited resources to help them become investment-ready when they go into the market for fundraising.

We engage our in-house fund managers and investors to identify sectors where there are pertinent problems which can be solved via technology. We then identify startups in those sectors and bring them for acceleration and pre-seed funding where we write cheques up to R2 million (~$106,000).

We also host various events as part of our pipeline development. During these seminars, we identify potential portfolio companies. We also do calls for applications each year. 

Why is the sole focus on just black startup founders?

PT: What we’ve seen from the research we have conducted is that less than 2% of venture capital goes towards black-owned, and women-owned tech startups because investors deem them not investment-ready. So no one wants to take a risk with these startups. So that’s why that demographic is our main focus.

How exactly does the accelerator take a startup to a point of investment readiness?

PT: We have outlined criteria for startups to be part of our programme. Tantamount to that criteria is that we focus solely on accelerating black South African startups which have some significant traction. By traction, I mean that we need to see that they actually have customers who bring in some revenue. We don’t take anyone who does not have a tried and tested product because we need to have an idea of whether the problem you are trying to solve does exist and is worth solving from a business sense.

The acceleration programme itself is 10 months. Initially, after the vetting process, we engage in an intensive due diligence process where we partner with technology experts, market experts, and business experts and take a deep dive into each business to ensure whether this business actually has the possibility to scale. 

During the acceleration, we have a template called the “Growth Strategy Template”. This actually highlights everything about the businesses; the weaknesses, the strengths, and the plan of what they need to do to actually convince investors to put money into their business.

We also have seasoned and matured startups which we pair with mentors or give them the interventions that align with  where they are in their lifecycle. For instance, we actually just worked with a startup which graduated and went on to raise R7 million. So the kind of acceleration services that you’d give that particular startup would be completely different from the ones that you’re given to those who are still very new. 

You stated that you provide up to R2 million (~$106,000) in funding. How much equity do you take for this investment?

PT: What we do is use convertible notes with our portfolio startups. So how a convertible note works is that we’re giving you money today, seen as a loan, then after five years, we can convert that loan into equity. So we don’t take equity right away.

How much traction have you garnered in your eight years of operations?

PT: Since we have been in the market, we have accelerated over a hundred tech startups. So accelerated doesn’t necessarily mean that you are going to get funding. It just means that we have given you the resources to help build your business to be market-ready. So out of those hundred, about 50 of those startups were able to get the pre-seed investment from IDF Capital. The minimum check we’ve given over the years is a minimum of R1 million (~$53,000) and a maximum of R2 million (~$106,000). Out of those 50 startups, 30% were able to raise additional follow-on funding to a combined total of R67 million (~$3.5 million).

From your operations, what challenges and opportunities have you identified in the South African tech ecosystem?

PT: The challenge we have seen is that we have a lot of tech startups in the ecosystem, but there aren’t as many tech accelerators that are able to help them. Also, there aren’t as many fund managers who are willing to actually deploy capital in these startups. 

In terms of opportunities, we are in discussions with different corporates to give us as much money as they can so that we can deploy it into these tech startups. We have spoken to the likes of Telkom, PwC, FutureMakers, IDC and many more who have been receptive to our mission. We have also closed a deal with JPMorgan which wants us to go to universities without that much entrepreneurial activity. We are to identify with women entrepreneurs to spot viable ideas and help them from the ideation stage to proof of concept and then MVP. 

What do you think is the future of the startup ecosystem in South Africa, especially for marginalised demographics?

PT: I’m still very much hopeful, and I think that the work that we do is important in the ecosystem. Technology is the best next thing for us as a society, as a country and as the world at large. For us, it’s just about how we go about the interventions that we offer these startups. Also, I think, what’s important is corporates, fund managers as well as accelerators and incubators coming together to have a conversation on how we can support these startups to the best of our abilities.

Interview has been edited for length and clarity.

Madica, which stands for Made In Africa, is an investment program launched in December 2022 by global venture capital firm Flourish Ventures. Focused on backing pre-seed-stage startups, the program offers funding, technology support and mentorship to underrepresented founders across the continent.

To achieve this mandate, the program is looking to invest $6 million in up to 30 African startups, each receiving up to $200,000 in exchange for equity, availing the much-needed funding. The initial investment phase is scheduled to run for three years.

Some of Madica’s requirements for interested founders include having to be working on their idea full-time, having a minimum viable product, and having received little or no institutional funding.

To understand more about the program’s investment philosophy, on this episode of Ask An Investor, TechCabal caught up with the program’s head of portfolio success to get more insights into the workings of Madica.

TechCabal: Please share more background on how you ended up in the VC industry.

Brenda Wangari: My journey started around ten years ago at Co-Creation Hub while I was part of the AIESEC Nigeria team. I was immersed in the vibrant ecosystem and had the opportunity to work on many exciting projects, including an idea challenge in partnership with Sussex University, targeting university students with ideas on solving education and unemployment challenges in Nigeria. 

Once back in Kenya, I dabbled in tech reporting. I was an operator at two startups and pivoted to being a supporter for five years at Village Capital and now a venture capitalist. I have always been curious about how investors make investment decisions, so to answer this question, my career journey is a natural progression.  

What does your role at Madica encompass?

BW: Madica offers a 12-18 months structured support program for all companies we invest in. I take care of the day-to-day running of this. My role involves keeping a pulse on what our portfolio companies are up to and providing them access to resources they need as they build their businesses. Being a founder can be a lonely journey, so I am always keen to maintain an active community of support that our portfolio can tap into.

As an early-stage investor, what is Madica’s investment strategy?

BW: We care about supporting African founders who have traditionally been overlooked and under-represented in the venture capital funding space. They would typically be considered risky investments based on their sector choice, gender, geographical location, and education status.

Has the current VC downturn in any way altered this investment strategy?

BW: We recognise that the market downturn hasn’t been easy, especially for founders looking for investment capital to keep their lights on. While our strategy has not changed, we are keen to back founders who can efficiently use investment capital to build resilient businesses. 

From the early stage pitch decks you receive, what would you say are the constant lacking elements? 

BW: I will distil this into three things. At the stage at which Madica invests, the team composition is most important to us. While we have seen some very good decks, we’ve also come across some with little to no information on the team to convince us that they have the expertise and understand the problem they are trying to solve. 

Secondly, it’s supply and demand. What is the real problem the company is trying to solve, and is it important enough that customers are willing to pay for it?  At the very early stage, showing some traction is essential evidence, especially if entrepreneurs believe the market is big enough to provide an investor with good returns.

Thirdly, the unique selling proposition (USP) is essential. What makes the company exciting? Is there enough in the product to make people interested and willing to pay for it? The harsh reality is that some ventures are simply not venture-backable. They might be too similar to what already exists or even require a different type of funding that’s not venture capital.

How can startups address those to position themselves to be attractive for VC investment?

BW: We see many founders treat talent as an administrative function instead of a strategic one. How a founder positions their team is critical to how an investor evaluates them. What makes the team the best at solving the problem? Do they have lived experience of the problem? Do they have differentiated skill sets? Do they have a deep understanding of your product and the value chain?

A strong team from the onset will help build investor confidence, especially if their skills align with your business milestones. 

What would say are the things that early-stage startups get right in Africa?

BW: Startups on the continent are very clear about the challenges in their communities and regions. They are in touch with the gaps and are aware of the transformative power of technology to provide leapfrog solutions.

Whether it is access to medical care and professionals, solving supply chain gaps for SMEs, or providing educational materials to youngsters in distant places using low-tech solutions, there is a thirst and an eagerness that startup founders on the continent possess. 

That willingness to learn means that when provided with information and the right resources, these founders can grow their solutions exponentially.

What is the future of early-stage investing in Africa?

BW: There is still a bright future ahead for early-stage investment in Africa. With venture capital and private equity still relatively new on the continent and backing some fascinating tech innovations, it proves there is promise. 

With Madica playing its part, we will unearth gems across sectors on the continent with solid and viable solutions that more investors will find worth investing in.

What role does Madica hope to play in that future?

BW: Madica sees itself as a catalyst in the African ecosystem. We see ourselves not solely as investors but as ecosystem propagators working with other private equity, venture and ecosystem support organisations to ensure more African startups build the global solutions we genuinely know the continent can provide. 

Anything you would like to add?

BW: The continent is rich with ingenious founders with transformative tech innovations. It is essential that founders take the time to perfect their minimal viable products (MVPs), ensure their solution has potential scale, and they do genuinely understand their customers and build strong teams. These are vital things investors look for, among other areas, to back startups. Startups must learn more about what draws investors to back their solutions to ensure they can realise their dreams.

Madica means Made in Africa, so we won’t deviate from our role of unearthing Africa’s best investment opportunities. We hope our work will draw more investors to consider alternative regions and sectors across the continent.

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With a decade of experience in the South African startup ecosystem, Amina Patterson’s work has seen her engage and collaborate with over 60 startups. In her role as head of business operations at AlphaCode, one of the country’s leading accelerators, she acquired hands-on and first-hand experience in the challenges facing startups.

From that experience and insights, she has continued her ecosystem-building work as founder of Solve4x, a firm focused on helping corporates efficiently support startups. She is also an entrepreneur-in-residence at the Allan Gray Orbis Foundation, assisting startups with business model validation and commercial resource accumulation as well as facilitating market, funding introductions, and ecosystem progression.

On this episode of Ask An Investor, TechCabal caught up with Patterson to learn more about her work as well as the state of the early-stage startup ecosystem in South Africa.

TechCabal: Please share more about your journey in the SA startup ecosystem

AP: Over the past decade, my journey in the South African startup ecosystem has been a dynamic and transformative one. I’ve had the privilege of designing innovative solutions for corporates aimed at supporting and empowering small and medium-sized businesses. This experience has allowed me to witness first-hand the immense potential and creativity that startups bring to the market.

At the core of many ground-breaking solutions are startups that possess an unwavering dedication to addressing the most pressing challenges faced by their customers, all while maintaining a strong client-centric focus. It’s this spirit of innovation and tenacity that has consistently inspired me throughout my career.

In 2018, I took a pivotal step in my journey by becoming deeply involved with the AlphaCode Incubate Programme. This decision marked a turning point in my career, as it allowed me to immerse myself in the world of startups more intimately than ever before. Since then, I’ve never looked back. Working closely with AlphaCode and its startups has been an incredibly enriching experience.

Over the lifespan of my career, I’ve had the privilege of collaborating with more than 60 startups across various sectors. This hands-on involvement has given me valuable insights into the challenges and opportunities that startups face in South Africa’s dynamic business landscape. It’s been a journey filled with learning, growth, and an unwavering commitment to nurturing the entrepreneurial spirit that drives our nation’s innovation.

Looking ahead, I’m excited to continue my work in the South African startup ecosystem, leveraging my experience to support and mentor the next generation of visionary entrepreneurs. I firmly believe that startups are the lifeblood of innovation, and by empowering them, we can collectively contribute to the growth and success of our nation’s economy.

What motivated you to pursue a career in the ecosystem?

AP: I’ve always been deeply captivated by the world of entrepreneurship. It’s a realm that’s defined by its roller-coaster ride of highs and lows, its potential to transform communities and nations, and the unwavering mindset required to build a business from the ground up. From a young age, I found myself drawn to the stories of visionary individuals who dared to dream big and take risks.

What truly ignited my passion for the ecosystem was the realisation that being a part of it grants you access to some of the brightest minds on our continent. These entrepreneurs, driven by their boundless creativity and determination, are on a mission to tackle pivotal socio-economic challenges head-on. Their resilience and innovative thinking inspire me every day.

I chose to pursue a career in the ecosystem because I wanted to contribute to the remarkable journey of these entrepreneurs. I wanted to play a role in helping them turn their ambitious visions into reality. It’s not just about fostering economic growth; it’s about being a catalyst for positive change and progress.

Over the years, as I’ve worked closely with startups and witnessed their transformative potential, my motivation has only grown stronger. I’ve seen first-hand how nurturing and guiding these entrepreneurs can impact their businesses, the broader community, and the nation. The satisfaction of being a part of this journey and witnessing the ripple effects of their success is what drives me every day.

In essence, my career in the ecosystem is a testament to my unwavering belief in the power of entrepreneurship as a force for good. It’s a journey that keeps me inspired, motivated, and deeply committed to supporting the brilliant minds that shape our future.

What is your favourite part about the work you do? 

AP: Being exposed to exciting solutions that challenge the status quo. Meeting new entrepreneurs and working with them to overcome the hurdles in achieving product market fit and building thriving, scalable businesses.

What is the most challenging part about the work you do?

AP: The most challenging aspect of my work is witnessing promising businesses grapple with market access hurdles due to outdated corporate processes. Startups often face lengthy sales cycles as they strive to validate their concepts, significantly impacting their time-to-market. Additionally, the fragmented nature of support within the startup ecosystem, coupled with similar mandates, can create competitiveness. We need to re-evaluate the value chain of support that can be offered to growing startups. Entrepreneurs become jaded by receiving the same kind of support over and over again.

Early-stage investments are still hard to come by in SA. What do you think needs to be addressed to increase the level of pre-seed/seed investing in SA?

AP: To foster greater pre-seed/seed investing in South Africa, we must address the risk-averse nature of current investment mandates. These mandates often prioritise maximising returns and lack flexibility. A fundamental mindset shift is required among LPs (Limited Partners) and corporate sponsors, primarily institutional or international investors with limited knowledge of the South African startup ecosystem, to overcome this challenge.

More flexible, patient- and milestone-driven funding models are needed. These models should accommodate the unique market dynamics and challenges faced by startups in South Africa. By encouraging a shift in the investment landscape towards a more supportive and adaptable approach, we can create an environment that better supports early-stage ventures, ultimately driving innovation and economic growth.

What role does early-stage capital play in growing SA’s startup ecosystem?

AP: Investing in early-stage startups is investing in innovation where, globally, we can compete. Pipeline for VCs, PEs etc., would become thin in the next few years if we do not continue to invest in early-stage startups.

What role do accelerators play in ensuring that startups are investment-ready?

AP: Accelerators play a pivotal role in preparing startups to be investment-ready. Their responsibilities encompass several crucial elements:

Viability Testing: Accelerators assist startups in rigorously evaluating the viability of their business model, ensuring it can withstand scrutiny from potential investors and the market.

Founder Engagement: Accelerators facilitate essential conversations among founders, promoting alignment and clarity in their vision and roles within the startup.

Value Proposition Enhancement: They help startups refine how they articulate their offerings, ensuring they can effectively communicate their value to both investors and customers.

Competitive Advantage: Accelerators work with startups to solidify their competitive advantage, helping them differentiate themselves in the market.

Gap Identification and Resolution: They assist startups in identifying weaknesses or gaps in their business strategies, operations, or market approaches, enabling them to address these issues proactively.

Milestone Achievement: Accelerators guide startups in setting and achieving critical growth milestones, demonstrating progress and value creation to potential investors.

Capital-Raising Preparation: Accelerators prepare startups for their capital-raising efforts by refining their pitches, financial models, and investor presentations.

Accelerators serve as crucial support systems for startups, equipping them with the tools, knowledge, and readiness required to secure investment and thrive in a competitive business landscape.

Over the last two years, we have seen numerous accelerators unfortunately close up in SA. What is not working about the model and how do you think it can be addressed?

AP: The challenges faced by accelerators in South Africa over the past few years are reflective of the evolving nature of the startup ecosystem in the country. Several factors contribute to the difficulties faced by traditional accelerator models and suggest potential ways to address these issues:

Misalignment with Local Context: Many early accelerators in South Africa tried to replicate Silicon Valley models that may not have been well-suited to the unique characteristics and challenges of the emerging South African market. This misalignment could lead to unrealistic expectations and outcomes.

Solution: Adapt accelerator models to the local context, considering the specific needs, challenges, and growth trajectories of startups in South Africa. Tailor programs to address these factors effectively.

Funding Expectations: Some accelerators may have set overly aggressive growth and funding expectations for startups, which could be challenging to achieve in the local market.

Solution: Set realistic and attainable milestones and growth targets that align with the local market’s dynamics. Focus on sustainable growth rather than rapid scaling.

Evolution into Venture Studios: The transition of accelerators into venture studios and venture builders indicates a recognition of the changing needs of startups. These models may offer more comprehensive support and resources.

Solution: Embrace the evolution of accelerator models to better align with the needs of startups in South Africa. Provide a broader range of services, including funding and operational support.

Sustainability Challenge: Ensuring the self-sustainability of accelerator programs can be a significant challenge. Finding ways to cover operational costs while supporting startups effectively is crucial.

Solution: Explore sustainable funding models, such as early-stage investments in the startups that participate in the accelerator. This approach aligns the success of the accelerator with the success of the startups it supports.

In summary, the challenges faced by accelerators in South Africa can be addressed by adapting models to the local context, setting realistic expectations, evolving into comprehensive support structures, and exploring sustainable funding mechanisms. Despite the challenges, accelerators have played a vital role in advancing the South African startup ecosystem, and their continued evolution can contribute to its growth and success.

Anything else you would like to add 

AP: Let’s unite and collaborate for South Africa’s startup ecosystem! It’s time for all stakeholders – corporates, universities, government, startups, accelerators, investors, and ecosystem players – to collaborate effectively. Together, we can compete on the global stage and work towards a common cause: fostering innovation and prosperity in our nation.

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