Seasoned investor talks opportunities in Africa’s tech space, from healthcare to education

The Norrsken22 investment team (left to right): Lexi Novitske, Ngetha Waithaka and Natalie Kolbe

Natalie Kolbe is managing partner of the recently launched investment outfit Norrsken22, established by Klarna co-founder Niklas Adalberth and Hans Otterling, partner at Northzone. The firm has already raised $110 million for its Norrsken22 Africa Tech Growth Fund that will invest in tech-enabled business on the continent. The fund is also backed by 30 unicorn founders, including Olugbenga Agboola, co- founder of Flutterwave; Niklas Zennström, co-founder of Skype; Jacob de Geer, co-founder of iZettle; and Niklas Östberg, co-founder of Delivery Hero.

Prior to her current role, Kolbe was global head of private equity at investment firm Actis. She spoke to James Torvaney about the fund’s objectives and the areas where she sees the biggest investment opportunities on the continent.

Give us some insight into the establishment of Norrsken22. Why has the fund been set up and why did you come onboard?

The fund was borne out of the fact that there is a dearth of capital in the growth stage of technology businesses on the continent.

Although there is seed capital available to get businesses up and running, once they need large amounts of capital to accelerate their growth, they have struggled to find it on the continent, and often end up going to Silicon Valley, or other developed markets, in search of funding. These investors often lack the context or understanding of African markets.

Our management team brings together the worlds of early-stage venture capital and more established growth-stage investing. The fund’s management team includes Lexi Novitske (based in Lagos) who is the founder of Acuity VC and comes from the world of venture capital, as well as Ngetha Waithaka (based in Nairobi, also ex-Actis) and myself (in Johannesburg), who have more growth-stage investing experience.

What type of businesses are you looking to invest in?

We wanted to focus specifically on the major tech hubs in sub-Saharan Africa – Nigeria, Kenya, South Africa, and Ghana – and on the four sectors where we see the most exciting growth opportunities: fintech, edtech, medtech, and market enablement (businesses addressing inefficiencies in the B2B marketplace).

For this fund, we are looking for tech-enabled businesses that are light in capital with space to grow. The majority of the capital will be invested in series B and C rounds. We are not necessarily looking for businesses that are already profitable, but they should have revenue and an established client base. We want businesses that have great founders, good unit economics, and the potential to scale beyond their markets, and possibly even to other regions, such as India and South America.

In general, we have a preference for B2B businesses, because there you can acquire customers that already have scale and become profitable more quickly. However, we are still interested in B2C companies that can acquire customers in an efficient and scalable way; whilst they can be unprofitable for a long time due to spending so much money on marketing to acquire customers, if you get it right the potential valuation can be significant.

We plan to invest in around 20 businesses at an average ticket size of US$10 million each.

In which areas of the medtech segment do you see the biggest opportunities?

There is huge potential and an acute market need in the healthcare space. Private facilities – where they are available – are only accessible to a very small part of the population, whilst government facilities are often overstretched and of poor quality. Technology has the potential to improve physical and cost accessibility, as it can enable people to get quality healthcare from anywhere.

Remote diagnostics is one area that we are interested in. Covid has actually helped accelerate trends here, as people are now more confident in trusting online diagnostics. There are a number of interesting businesses already in the diagnostics space that are at the growth stage and can absorb capital.

We have also been looking at businesses addressing pharmaceutical supply chains, which are very inefficient. There are big opportunities for businesses that can cut out expensive middlemen and link the manufacturers directly to the retailer, or help retailers with inventory management and traceability, as counterfeit drugs are a big problem for many retailers and consumers.

Helping address inefficiencies in hospital and physician management, is another area with lots of opportunity. As an example, most hospitals still have manual processes and documentation management systems. However, this is a hard nut to crack because there are a lot of gatekeepers restricting access to the various institutions. As such, it’s not an area where we have seen many companies succeed.

And where is the potential in edtech?

As with healthcare, there is a two-tiered education system across the continent, with a large gap between the private and public offerings.

There are big opportunities in vocational training, and e-learning for people that are already in the workplace. That’s probably the easiest area to take online, because it’s a market that is already online and already 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.

As with healthcare, there is also scope for solutions that improve the efficiency of the organisations themselves; for example, products that support bricks-and-mortar universities to digitise their processes and take their curricula online.

We will definitely consider investment in each stage of education, although schooling and higher education are a bit more difficult because there is a higher regulatory burden. But there is still a massive opportunity with so many young people looking for quality education.

You’ve highlighted ‘market enablement’ as a segment in which you would like to invest. Please elaborate.

Market enablement is about breaking down barriers of cost and inefficiency, usually in the B2B space, and connecting informal to formal markets. This includes digital marketplaces, supply chain management, and also businesses that help other businesses acquire and engage customers. For example, there are already a few businesses doing ‘Uber for trucks’, connecting truck operators to new customers, and grouping together partial loads.

It also includes businesses creating efficiencies in warehousing and fleet management, or businesses using data and artificial intelligence to understand and ease bottlenecks in manufacturing processes. Cross border trade is an area with a lot of inefficiencies and high costs, and thus high opportunities.

How is the Norrsken22 fund structured?

The fund has a 10-year life cycle, with investments to be made over the first five years.

We have completed the first close at $110 million, and are ready to start investing. However, we expect subsequent closing to raise the total available capital to $200 million.

Although Norrsken22 is not an impact fund, 22% of the carry from the fund will go to the Norrsken Foundation to help support the African entrepreneurship ecosystem.

What is the exit strategy for Norrsken22’s investments?

Exits are most likely to be “strategics” – that is, companies being acquired by international businesses looking for access into the African market, as opposed to building from scratch. Stripe’s acquisition of Paystack is a good example of this.

In three to five years’ time, I also expect pan-African M&A to become a viable exit route. As businesses become successful in their verticals, we will start to see evolution and consolidation across various regions. For example, where one business has done very well in a specific vertical in East Africa, and another in the same vertical in West Africa. What we may see here is these different businesses combining to form a continental mega-business.

Are there any businesses you would be reluctant to invest in?

We would hesitate to invest in capital intensive businesses – such as heavy waste management, or solar home technology – or businesses using very deep tech with long development cycles.

It’s not that these are not good investment opportunities – there are a lot of very exciting tech-enabled businesses in those spaces – but these businesses do not fit perfectly in Norrsken22’s mandate.

What trends do you see in the tech investment space in Africa?

The only word for the tech space in Africa right now is “exploding”. The invested capital is doubling every year (except for 2020, due to Covid-19), and we expect this exponential growth will continue. As more technology businesses grow, there are lots of synergies between these different sectors that will drive further growth.

Up until now, the technology industry on the continent has been dominated by fintech. But it needed to be. Payment railways were the first layer that needed to be laid down for other tech-enabled businesses to work. Now that we have seen that, it paves the way for the next layer of digitally-enabled companies.