African start-ups are attracting growing interest from investors. According to the African Private Equity and Venture Capital Association, the value of venture capital (VC) deals reported in Africa reached US$5.2 billion in 2021. This equates to a 4.9x year-on-year increase from 2020 and corresponds to 51% of the total value of VC deals recorded on the continent in the eight-year period between 2014 and 2021.
How we made it in Africa asked a selection of start-up investors to share some of their top investment ideas.
1. Eghosa Omoigui: From organising the offline to removing daily friction
In an earlier interview with How we made it in Africa, Eghosa Omoigui, managing general partner of EchoVC, said his firm focuses on tech-enabled companies that fit within its four investment theses.
Organising the offline. “We think companies that can successfully operate within and across African countries are those that truly understand local markets and can help organise them because almost all these markets are still offline… We firmly believe in the concept of iceberg microeconomies, i.e. 99% of these ‘real’ economies sit below the surface and mapping and navigating them in 3D is a prerequisite to winning. These business models are defensible because while someone sitting in San Francisco or London might be able to write better code, the local insight is something that must be acquired by operating on the ground in Africa. It requires experience, expertise, relationships and networks,” Omoigui explains.
Fragility. “African consumers and SMEs are incredibly fragile. The stuff they have a tough time dealing with is exacerbated by the lack of infrastructure. We are looking for companies, which can create antifragility and resiliency for consumers and SMEs. An example of this is a company called Lifebank, which delivers blood to hospitals across parts of Nigeria. In a first world country, it is never an issue that there won’t be any blood at a hospital. But in many African markets, this is not the case. Oftentimes, Lifebank is literally the difference between life and death.”
Lift. “We have a third leg called ‘lift’, which focuses on investments that allow people to improve their economic circumstances. An investment that ties in with this thesis is Kukua, an early-age education platform, which empowers children to learn through engaging experiences at the intersection of technology and entertainment.”
Lubricants. EchoVC’s fourth thesis, ‘lubricants’, recognises that in many sub-markets within Africa, friction is a standard mode of daily life. “Therefore, we are investing in companies with products or services, which act as lubricants to mitigate or eliminate friction. This could be anything from connectivity to improved logistics or financial inclusion. Investments that fit into this bucket include digital payments company Cellulant, transport data provider Ma3Route, and Easyshop Easycook, which is a Nigeria-based farm- to last-mile fresh produce play,” Omoigui adds.
2. Maurizio Caio: Africa’s evolving e-commerce industry
“E-commerce is going through a very interesting phase,” says Maurizio Caio, founder and managing partner of TLcom Capital, an Africa-focused VC firm with offices in Nairobi, Lagos and London. “The first phase was digitising trading. The second phase is where e-commerce platforms branch out in different directions and, in some cases, completely change their business models. For example, there is a trend for the financing component of e-commerce businesses to become more relevant.
“An example of this is Autochek … The company was born out of an entrepreneur’s horrible experiences buying vehicles. It was initially created as an online live auction platform to buy and sell vehicles. But the team realised if they wanted to provide a seamless experience, they couldn’t just provide a trading platform. So, the business evolved to provide services such as vehicle registration, insurance and financing. That was the key because, based on this market feedback, the financing of the vehicles has become their core business, which is very different to the original model. It is a good example of an entrepreneur taking a very old-fashioned business – automobiles – and doing something very new.”
3. Natalie Kolbe: E-learning for those already working
Natalie Kolbe, managing partner of investment outfit Norrsken22, believes there is a dearth of capital targeting the growth stage of technology businesses on the continent. One of the sectors where she sees attractive opportunities is edtech.
Within the edtech space, Kolbe has identified significant opportunities in vocational training and e-learning for people who are already in the workplace. “This is probably the easiest area to take online because it’s a market that is already online and has the means to pay for the product. Corporate training is another vertical that can be digitised quite easily, as well as online tutoring and e-learning marketplaces.”
Kolbe says there is also scope for solutions which improve the efficiency of the organisations themselves; for example, products that support brick-and-mortar universities to digitise processes and take their curricula online. “We will definitely consider investing in each stage of education, although schooling and higher education are a bit more difficult because there is a higher regulatory burden. Although, there is still a massive opportunity with so many young people looking for quality education,” she adds.
4. Olumide Soyombo: ‘Gen Z are not going to walk into a branch to open a bank account’
In October 2020, Nigerian start-up Paystack was bought by global payments giant Stripe for more than $200 million. The deal is regarded as the biggest start-up acquisition in Nigeria to date. Investor and entrepreneur Olumide Soyombo was one of Paystack’s early backers and realised a stellar return on his bet. “In terms of the exit multiple, the only thing I would say is, you wouldn’t make as much money on the odds at a roulette table,” is how Soyombo responded when asked about the return he made on the Stripe deal.
Despite the numerous Nigerian fintech outfits that have opened shop in recent years, Soyombo believes the fintech industry is still at the bottom end of its growth trajectory.
“When people look at my portfolio, they say it leans towards fintech. While this has been more coincidental than deliberate, many things in the financial sector can be done better. Start-ups like Carbon and Piggyvest are taking individual functions of traditional banks and improving these. For example, Carbon took lending as a function of the business of a bank and is trying to do it better than the banks. Piggyvest made savings more convenient. These companies have taken core functions of the bank and made it more efficient, fun and convenient to the digital natives.
“In terms of the market in general, Nigeria is still in the early days. There is a huge group of people that is going to transact online in the coming years. When Generation Z – those who were born with a tablet in their hands – reach working age, they are not going to walk into a branch to open a bank account,” he explains.
5. Eloho Omame: Digitally powered consumer brands
One of venture capital fund FirstCheck Africa’s investments is Uncover, a skincare brand in Kenya, which has combined K-beauty – a global skincare category originating in Korea, with products built on cutting-edge scientific research, innovation and unique ingredients – with traditional African ingredients, formulating innovative and research-backed products specifically for African skin and the African market.
“They have a digital-first brand-building strategy that’s really unique in their space. The company uses social media very effectively; they have successfully created viral moments to build their brand’s audience among millennial women,” explains Eloho Omame, co-founder of FirstCheck Africa.
“But building a successful direct-to-consumer brand in Kenya is different to building one in, say, the United States. While social media reach is expanding quickly, many purchases are still done via traditional means; through physical stores such as pharmacies and marketplaces. Uncover has a ‘hybrid rails’ approach; they use community building and targeted social media strategies to reach customers at the top of the funnel – the ‘discovery phase’ – and then make it as easy as possible to buy through their website or in physical stores using a network of distributors.”