African VC investor talks opportunities in skincare, social commerce and more

FirstCheck Africa has invested in Kenyan skincare company Uncover.

FirstCheck Africa has invested in Kenyan skincare company Uncover.

Eloho Omame is co-founder of FirstCheck Africa, a venture capital fund investing in high-growth female-owned businesses across the continent. She is also a recently appointed partner at venture capital firm TLcom Capital, and former managing director and CEO of entrepreneurship community Endeavor Nigeria.

Omame speaks with James Torvaney about Africa’s venture capital industry and reveals the thinking behind two of the firm’s investments: skincare company Uncover and social commerce platform Tushop.

Can you start by giving us some background on the FirstCheck Africa fund?

We launched FirstCheck Africa in 2020. The vision was for something similar to Female Founders Fund or BBG Ventures (US-based venture capital firms investing in female-founded companies), but focused on the African continent.

There have been timely conversations throughout 2020 and 2021 – record years for fundraising globally and in Africa – about the lack of diversity of venture capital and the relatively small amounts of capital going to underrepresented founders, in particular female founders. Female-led companies raise on average 50% less per deal than non-female-led start-ups, despite research that suggests diverse teams tend to build better companies. This gap in access to capital creates a returns-driven investment opportunity for a fund like FirstCheck Africa.

We also think that the ecosystem is at an important inflection point where female-led companies are concerned. The market is shifting to become more founder-diverse. Both the volume and value of funding going to female-led African companies has increased fourfold over the last three to four years, and the share of funded companies with at least one female founder increased to 17% in 2021, compared to less than 10% in the decade to 2019.

Which kind of businesses do you look to invest in?

We invest at the pre-seed stage, alongside peer venture capital firms such as Ingressive Capital, Future Africa, Ventures Platform and DFS Lab.

Our initial cheques go up to $250,000 per deal, and there is capacity for further follow-on investment. We are open to investing in most African countries, and so far we have deployed funds in the big four markets – Nigeria, Kenya, South Africa and Egypt.

FirstCheck Africa is sector agnostic – we’ve already invested in businesses in healthcare, commerce, education, and financial services. The main criteria is that portfolio companies should be technology-enabled with very high growth potential. And to qualify as ‘female-founded’, the companies must have at least one female founder.

What is your view of the VC market in Africa currently?

I think that, despite some of the challenges on a global scale, the venture capital ecosystem in Africa is in better health than it has ever been.

There was a period of overheating, with a level of exuberance in the market. A lot of foreign capital came in over the last few years. But a lot of this was not strategic capital – it came with a higher tolerance for risk, but lower due diligence and less to offer in terms of relevant support and advice.

With what’s happening globally now (rising interest rates and lower tolerance for speculative, high-risk investments), a lot of this capital is starting to retreat. This is actually a positive sign because a healthy ecosystem needs discipline, and it needs capital that is rational.

Seven to 10 years ago, there were barely any Africa-focused venture capital funds. Now there is more capital, and there are more investors. We are seeing investors raising second and third time funds, and many investors have accumulated significant dry powder which they have yet to deploy. These are all positive signs. Now that we have been through the first phase of development, where the digital rails – B2B infrastructure, payments and logistics – have been put in place, it puts us in a good position for start-ups that build upon those rails.

FirstCheck Africa backed skincare company Uncover. Can you explain why this was an interesting investment opportunity?

One of our portfolio companies is Uncover, a really innovative skincare brand in Kenya who have combined K-beauty (a global skincare category originating in Korea, with products built upon cutting-edge scientific research, innovation and unique ingredients) with traditional African ingredients, formulating innovative and research-backed products specifically for African skin, and for 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 in order to build their brand’s audience amongst millennial women.

But building a successful direct-to-consumer brand in Kenya is different to building one in, say, the United States. Whilst social media reach is expanding very quickly, many purchases are still done via traditional means; through physical stores such as pharmacies and marketplaces. Uncover has a ‘hybrid rails’ approach, where 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 either through their website or in physical stores using a network of distributors.

Do you think this strategy would also work well in West African markets like Nigeria?

Yes, I believe the same strategy would work in Nigeria. The dynamics of the skincare industry there are similar.

Nigeria is a far larger market than Kenya, and lots of cultural trends around the continent are driven by Nigeria. Nigeria is a very trends-driven market and if you can build virality there, there is a good chance that the rest of Africa will follow.

There are a few skincare manufacturing businesses already operating in Nigeria already, but they tend to be small and artisanal, or cosmetics brands that have added skincare as opposed to being skincare-first brands. There are definitely opportunities for more.

Your firm has also invested in social commerce start-up Tushop. What was the motivation behind this investment?

We invested in Tushop, also in Kenya, which is a social commerce business selling groceries and household goods. They are using a model that has been very successful in China, where they work with a network of ‘community leads’ – individuals who are well connected in specific communities – to help sell their products.

The community leads find end users, aggregate demand, and organise middle-mile to last-mile delivery, enabling Tushop to place orders in bulk from manufacturers and wholesalers, and make significant cost savings for the end users. This means that Tushop can focus on purchasing economies without having to worry about last-mile delivery.

What I particularly like about this company is that the founder is hyper data-driven and focused on the underlying unit economics. It is a big red flag for us as investors when it’s not clear how the company’s economics work at scale – for example, what the customer lifetime value is, and how it compares to the cost per acquisition.

Both the companies you have mentioned have taken inspiration from East Asia. Do you think that is a trend?

Entrepreneurs realised a while ago that they could not just take models from the US and transplant them into Africa – the market dynamics are very different. People are no longer simply trying to create the ‘Amazon of Africa’.

I think there are some similarities between African and Asian markets, for example the significance of offline. A lot of entrepreneurs are looking to Asia and to companies like Alibaba and Baidu to see how they scaled.

What advice would you give to entrepreneurs who are trying to raise venture capital funding?

Founders should remember that investors meet a lot of different founders. They have limited capital and need to be convinced that your business is the best place to invest their next dollar. But they need to see that it’s not just an interesting business proposition, but a compelling investment case.

We look for three main things: first, a great founding team.

Second, we look for great companies. Is there a large enough addressable market? Are there good operating metrics?

Finally, it also needs to be a great potential investment – the valuation needs to make sense, and there should be realistic exit opportunities.

One of the things I like to see that makes founders stand out is being data-driven. As investors we want you to show us data that gives you an interesting perspective, and an insight no-one else in the market has. Even at the very early stages it’s possible to be data-driven. For example, if you are presenting a pre-revenue business with a limited operating track record, it’s possible to articulate that by discussing best-in-class metrics and benchmarking your aspirations against those.