Due Diligence: ‘Investing in Africa cannot be done from New York or London’

Tidjane Deme

How we made it in Africa’s Due Diligence series asks top players in Africa’s private equity industry about how they are mastering the art and science of profitable dealmaking and fundraising. Doing the due diligence on those who do due diligence for a living.

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Partech is a global investment firm focusing on tech and digital companies. The Partech Africa Fund recently led South African-based point-of-sale payments provider Yoco’s $16m series-B investment round. Michael Avery asks Tidjane Deme, who co-leads the Partech Africa Fund, about his investment philosophy and the continent’s untapped opportunities.

What is it you look for in an investment?

First of all, we look for companies that fit with our investment strategy – ventures who want to raise between $1.5m to $7m and who are solving pan-African problems.

Then, we look for great teams who have experience, a vision, and the ability to execute; great products with a large addressable market in Africa; and a company with good momentum.

Tell us about the greatest investment lesson you’ve learnt.

The best teams can do anything: they’ll pivot, switch the product or adapt their go-to-market strategy. Based on that, the greatest challenge for a VC is to identify the best entrepreneurs that are tackling interesting problems. Being on the ground is crucial in many ways; you need to create the connection with the founders, believe in their vision, assess their ability to execute and then help them when they need you. Investing in Africa cannot be done from New York or London. Therefore we have our office in Dakar and are travelling 10 days per month across the continent.

Identify an untapped opportunity for venture capital investors in Africa.

Many sectors are still underserved in terms of capital. But the investment gap is decreasing. The African tech ecosystem is moving very fast. Some industries, such as fintech, are further ahead, while other up-and-coming segments, including digitisation of the informal economy and tech-enabled supply chain solutions, are seeing a growing number of interesting projects.

We chose to build a generalist fund to seize all these opportunities and support entrepreneurs in different verticals.

What is the biggest misconception about your job?

People are often misled about the economics of venture capital, especially the start-up failure rate and the requirements in terms of a potential exit. In our case, we need to see a credible path to a 10 times’ return to be able to invest.

Part of our job is also to share with the ecosystem what we look for as a venture capital firm so that entrepreneurs better understand our expectations and the value we bring. It’s key for entrepreneurs looking for capital to have a good vision of what type of investor invests at which stage of the start-up’s life cycle: from business angels to growth equity.

Name the one deal you wish you invested in.

When we were still fundraising, we missed Yoco’s series A as we were not ready to invest. They brought on board great investors, including Quona Capital and Velocity. But 18 months later we were glad to join them and to lead Yoco’s series B that was announced at the beginning of September 2018.

As you only know that you missed a good deal when the exit comes, we will need a few more years to consider the ones that we may have missed.