Finding new money

As Tech Billionaires Back African Startups, A Novel Push Taps Local HNIs

By  |  November 25, 2020

Barely a week has passed since the world got to know that the richest man on the planet, Jeff Bezos, has thrown the weight of his personal VC fund, Bezos Expeditions, behind an African startup.

The recent development sees Bezos take a spot on the cap table of an African startup, having participated in Chipper Cash’s USD 30 Mn Series B round. Founded in 2018 by Ugandan Ham Serunjogi and Ghanaian Maijid Moujaled, Chipper Cash is enabling P2P payment services in seven African countries.

And by backing the startup, Bezos became the latest entrant into what has quickly become a high-profile list of high-level tech billionaires and CEO who, through their actions, have portrayed some form of interest in African tech, and some of whom have demonstrated intent by going as far as backing African startups. 

That list has big tech names like Facebook’s Mark Zuckerberg, Microsoft’s Satya Nadella, Alibaba’s Jack Ma, Google’s Sundar Pichai, Twitter’s Jack Dorsey, and most recently, Amazon chief, Jeff Bezos. Better late than never, eh?

Big tech courts the big continent

On one hand, the interest and investment from these global tech leaders, who also happen to be some of the world’s wealthiest people, bodes well for the African tech scene.

The State Of FinTech In Africa – 2020

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In many ways, it’s an endorsement that spotlights the potential of the continent not only as a market but as a repository for innovation, talent, and vision-driven startups with the chops to become world-beaters.

But on the other hand, the growing list of global tech billionaires that are betting on African startups also amplifies a contrasting situation on the local front: the apparent apathy and indifference of Africa’s richest people towards local tech ventures.

Simply put, it’s the foreign billionaires who seem sold on African tech while locals who fit the high net-worth individuals (HNIs) profile seem to not be as enthusiastic.

Old money looks the other way

Besides the fact that much of the capital that fuels African tech is foreign-sourced due to insufficient local funding sources, African billionaires and HNIs largely continue to display a very small appetite for tech startups.

In fact, significant investments in the local scene from global tech titans like Facebook CEO, Mark Zuckerberg, have done little to get “old money” flowing into the ecosystem. 

Time and again, this sort of foreign investment has given a ringing endorsement to the African tech scene. But it has done little to loosen the purse strings of Africa’s super-rich class who command a deep but yet-untapped funding source. And the reason for this may not be far-fetched.

How so?

Unlike the global trend where six out of the world’s ten richest people amassed their fortunes through tech — and also have significant equities in several tech businesses — Africa’s wealthiest individuals are holders of the so-called old money.

The continent’s richest people are mostly industrialists and tycoons who built their fortune from traditional asset classes like the oil industry, banking, real estate, and other commodities. 

Indeed, only one out of the ten richest people on the continent grew rich from a business that is not exactly tech but is perhaps the closest thing to a technology service business owned by an African billionaire. That would be Egypt’s Naguib Sawiris’ who’s cut it in the telecommunications industry.

As such, the unfamiliarity and uncertainty of African billionaires with the asset class that is tech startups might be keeping them away from tech.

However, sparing a moment to look past the problem and propose possible panaceas for both the funding gaps in African tech and local HNI disillusionment, it turns out an elegant solution may already be taking shape in Africa.

Reimagining venture funding

Thanks to a new crop of African startup funding conduits that are democratising venture funding by unlocking previously out-of-the-equation funding segments, African startups are now able to get the sort of backing that was unavailable in the past.

Such new funding conduits as rolling funds and are making micro-limited partners (micro-LPs) out of individuals in the high net-worth, upper-class, and upper-middle-class segments of the economy.

Although the continent’s super-rich class made up of dollar billionaires in the elite category may still hard to reach, enabling other HNIs and reasonably wealthy persons to participate in profitable venture funding while solving some of the continent’s biggest problems is certainly a win for everyone.

One such novel funding initiative is the effort from Future Africa which recently announced investments in 9 African startups in the third quarter of 2020. The fund invested USD 1 Mn across these startups.

Co-founded by tech entrepreneurs Iyinoluwa Aboyeji, Olabinjo Adeniran, Adenike Sheriff, and Chuba Ezekwesili in 2019, Future Africa’s latest investments include fresh and follow-on funding for startups across fintech, health, service, and remittances subsectors. Future Africa says its portfolio now holds a total of 35 startups.

The firm also says it is pioneering new venture models in Africa by pooling funds from Future Africa Collective; a syndicate for angel investors, Future Africa Rolling Fund; an investment subscription product, and the Future Africa Fund; its own fund.

Switching up the model

Currently, Future Africa Collective boasts an existing syndicate of 125 angel investors. To simplify, the Collective is its community of co-investors who fund African startups.

That is, the initiative gives members the opportunity to invest in African startups alongside Future Africa on a deal-by-deal basis through investment syndicates. It’s like funding startups through a pool of capable, willing, and vetted persons.

Basically, such new initiatives collectivize the process of funding startups, up to the point where people with the pocket depth and the background can invest as individuals with the firm coordinating the process.

And the reception has been quite impressive since inception as deals from these sorts of initiatives are typically oversubscribed within minutes. In fact, just two days ago, on November 23, Future Africa Collective announced a new record: deal closed in 20 minutes and oversubscribed.

Another similar initiative, a rolling investment fund christened Nkali Fund, which was unveiled in August by Nigerian tech veteran, Victor Asemota, saw a similar rush.

This speaks to the availability of individual-borne pro-startup capital that has stayed latent for far too long. And this reimagined cum reinvented model might be the best shot at getting more African HNIs into venture funding.

Also, as high-profile exits begin to manifest (as in the much-celebrated recent deal that saw Silicon Valley’s Stripe acquire Nigeria-based Paystack), the scene appears to be getting more attractive. And it can be expected that this will encourage the increased participation of historically latent funding sources.

Update: A comment previously attributed to Olabinjo Adeniran of Future Africa in an earlier version of this article has been withdrawn to avert misunderstanding and misinterpretation.

Featured Image Courtesy: Joe Cummings/Financial Times

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