Tech investor Launch Africa bets it can beat venture-capital industry to the punch

The Mauritius-registered fund has raised $24.6m as of mid-December and expects to close the fundraising with more than $25m, du Plessis says in Johannesburg.

Du Plessis says a common joke is that the venture-capital industry is run by private-equity funds writing small cheques. He sees scope to redefine the model and aims to identify and invest in start-ups before they are on the venture-capital radar.

Venture-capital funding for Africa has surged in recent years. Du Plessis puts the current annual rate at about $4b and estimates that about 55% is foreign capital.  In Nigeria, some start-ups are overvalued due to investment from the US, he says. “That’s a risk. We want to get in before them.”

Candidates for the fund’s investment have to have completed an accelerator programme. Even for a promising start-up, raising $1m can take between six and twelve months, du Plessis says. “We can do it in six to eight weeks, leaving the founders free to run the business.”

• The fund has invested in 85 companies over the last year and aims to increase that to about 110 by April.
• Investments include the Fixit online marketplace in Nigeria, the AlphaDirect insurtech in Botswana and Kenyan fintech company Stax.
• Fund administration services are provided by global financial-services provider Apex, which has representatives on the fund’s board.

Faster Exits

Launch Africa’s investment committee typically provides up to $300,000 in seed funding and seeks other investors to join.  The fund’s corporate network enables it to add value beyond the financial investment, du Plessis says. The fund’s net asset value increased to $12.2m at the end of September from $8.4m at the end of March. Companies in the portfolio are valued at between $2m and $10m.

The fund’s mandate is to invest only in B2B and B2B2C early-stage technology-driven start-ups. Launch Africa has investments in 15 African countries. Holdings are heavily concentrated in Nigeria, followed by Kenya, South Africa and Egypt. Fintech accounts for about a third of the portfolio, followed by health-tech on 15% and edutech on 11%.

Africa has an opportunity to raise venture capital to a level on a par with the rest of the world, du Plessis says. The process, he says, is held back by concerns over the rule of law and currency instability.  “Fintech is definitely threatening banks,” du Plessis says, adding that healthtech and edutech also have the potential to mount challenges to incumbent players.

Launch Africa says that the small ticket sizes involved create an opportunity to “democratize” access to venture-capital opportunities previously only accessible to institutions or high net worth individuals. It tries to encourage smaller investors by allowing them to either commit capital upfront or in tranches.

The fund also has a shorter investment cycle than usual.

• The fund tenure is five years with an optional two-year extension, compared with a global venture-capital norm of 12 to 15 years. Such long cycles in Africa, the fund says, are dictated by development finance institutions with very little need to achieve liquidity.
• Launch Africa aims to return capital to investors much faster. For most of the portfolio companies, the fund has an option to partly or fully exit in subsequent equity rounds.

Bottom Line

Launch Africa sees African tech as a one-way bet and is snapping up stakes as fast as it can.