LoftyInc: How A Prolific Local Tech Funder Looks To Crack An Uncertain 2023
One of the important themes captured in the just-released Venture Investments In Africa Report (2022) by WeeTracker – the latest in our annual series offering unvarnished data, an enlightening overview of emerging trends and opportunities in the African Startup and Venture Capital (VC) investors in African tech funding – is the rising prominence of local funders.
Last year, USD 3.6 B in venture capital was ploughed into African startups across 506 deals closed by 1000+ local and global VC firms and Angels, with investors increasingly keen on early-stage deals given that pre-seed and seed rounds particularly spiked.
And this is not unconnected to the emergence of prolific local funders, portrayed by data which shows that 8 of the 10 most active VC firms in the local tech scene in 2022 are African; quite remarkable given the historical patterns that show huge dependence on foreign capital. And today, LoftyInc Capital is one of the leading local funders backing African startups.
LoftyInc operates three funds that have deployed over USD 22 M into more than 150 African startups, including unicorns such as Flutterwave and Andela. In November last year, the firm announced that coming off its first unicorn exit via LoftyInc Afropreneurs Fund 2 (LAF2) investment in Flutterwave, the newly-launched LAF3 USD 10 M fund closed 40 percent oversubscribed at USD 14.2 M, which is well into deployment across dozens of deals.
One half of the duo who brought LoftyInc to life is the impressive Idris Ayodeji Bello (pictured in feature image) who goes by the official designation of Founding Partner & Portfolio Manager. And yours truly, Henry Nzekwe, recently got in touch with Bello for an interview with WT which delivered a deep inspection of LoftyInc’s manifesto and industry prospects vis-a-vis the tricky set-up of the landscape coming into 2023.
Now, here are the excerpts:
How would you describe LoftyInc’s investment model at present and what drives your interest in certain businesses?
Bello: LoftyInc is generally a sector-agnostic investor which means we have chosen to be open to a very broad range of tech solutions being built to address a wide range of human problems. Like any investor, however, there are areas where we have a history of strong support, or where we have built more comfort than in some other areas even though we are always learning more in every sector.
Fundamentally, we believe that regardless of region or country, Africans are traders and businesses that support large trade and commerce flows, and those that enable the movement of finance and money, and the actual goods and services traded are strong pillars for Africa’s continued advancement. For Africa to trade, with itself, or with others will require a smart, healthy, secure population.
And, so, businesses that aid education, improve health outcomes, and that secure food and livelihoods are also sectors that align strongly with our core beliefs, but as I said, as early-stage investors, we invest largely in the founder and good founders can be found in sectors where we have historically not been as active so we keep a very wide open door to all ventures.
What do you reckon is LoftyInc’s edge over other firms and what are you doing better?
Bello: In many ways, venture investing is about competing with yourself and not with others. We invest individually and play very collaboratively with others so we do not think about competition in that manner of ‘edges’ and such like. In reality, the founders we support are the ones in the most competitive battles and fortunately, we have helped build a very collaborative family of funds and firms in Africa that work together to give these founders an edge and help them do things better.
What I can say is that a founder who comes to LoftyInc Capital will find that our investment and operations personnel are among the most accessible professionals you can find. We work closely with founders, we respond quickly, we share our networks and contacts openly, and we engage often and informally with founders building the future. That is how we have been since we started angel investing, and our expanded network of over 250 angels and other investment partners still does this today.
What systems do you have in place for due diligence and research to identify viable companies and industries?
Bello: We are always improving our investment processes and always learning and researching. We have worked really hard over the past 2-3 years to build deal flow tools that put us among the top tier of venture groups in our ecosystem.
That operation performs reviews and diligence on a large volume of companies every year. In 2021 alone, the operation and tools we built were able to do this for over 1500 technology ventures from 34 different African countries. Over the past 3-4 years, we have always been among the top 3-5 investors in terms of investments made, so we think that is a testament to the system we have built.
As a founder, you do not need an inside introduction to get to our deal team. It is open to all and we look at everything that comes to us. As opportunities move through the various stages of our diligence process, among other sources, we rely on our internal community of 250+ Afropreneur Angels, senior and experienced investors and business leaders on the continent to help us diligence and research many of the companies we invest in.
What are some of the milestones that LoftyInc has achieved so far, and what would you say was the most challenging yet satisfying?
Bello: As LoftyInc Capital is one part of a much larger African group, LoftyInc Allied Partners, there are so many milestones that we have celebrated in our 13-year history.
Three milestones I think we are exceptionally proud of would be, firstly, 2010 when we launched the Wennovation Hub as the first and pioneering technology hub in Nigeria which still operates, mentors and incubates hundreds of founders and teams every year; secondly the exits we have achieved which is important for our mission as this returns capital to the people who entrust us with their money and this allows them to make more investments in new impactful businesses.
And, thirdly, the days that unicorn companies such as Andela and Flutterwave crossed the 1 billion dollar value threshold as it helps validate the belief we have and that is actually reflected in our name – that African founders with lofty ambitions can create large, significant, and hopefully global corporations.
What is LoftyInc’s approach to investing coming into the new year amid the subdued sentiments in the tech markets and less than favourable macroeconomic conditions?
Bello: We understand that there is a ‘subdued sentiment’ that many people focus on but frankly, we do not really have the same downward view and actually, the 2022 data was as strong and in some ways stronger than 2021 and shows that venture investing in Africa continues to grow.
We do not generally change our approach to investing based on the direction of the wind today since we are generally supporting companies that are building solutions that must operate in both good and bad macroeconomic winds, and we are supporting these companies for 5-10 years in many cases so we know that conditions will rise and fall throughout the journey. We are as excited today by finding strong, determined founders who are trying to shape a new future, as we were when we wrote our first checks in 2013.
If you focus on the potential of a continent with 1.3 billion young, smart entrepreneurs getting better at using technology to change lives every day, then you will never experience the subdued sentiment that sometimes abounds. We see this as Day 1 still with a very bright outlook ahead despite bumps along the way.
What are LoftyInc’s goals in the near future and what is your strategy for achieving those goals? Also, are you dipping your toes in new areas?
Bello: I think our strategies going forward are the same as they have been for a while – creating and supporting Afropreneurs. As a founding partner, I coined that phrase over 10 years ago as we recognized that empowering a generation of African tech entrepreneurs would be the fastest way to accelerate the development of Africa, and that broad development remains our goal.
Of course, in the near term, one of our core strategies is raising newer funds for us to continue to support founders at later stages in their business journey, and as always, we will be aiming to provide healthy and attractive returns to our own investors. We will be sharing our track record and story with interested investors across the globe who are quickly coming around to the opportunities in Africa. In terms of new areas, we are always dipping our toes in new areas, and, for instance, we will be holding our annual retreat this year in Abidjan, as part of our increased focus on Francophone Africa.
In your view, which sectors are your top picks at the moment and what trends could potentially impact tech ventures in 2023 both at the organisational and commercial levels?
Bello: We have not generally made specific sector picks as we go into each year because, from our 10+ years of experience as investors, we know that predictions are always wrong. We do pay attention to strong trends that we think activate and motivate creative founders to build unique businesses where these trends are biggest but if we shared all the trends we monitor, we would now have to hire you….LOL.
Without giving too much away, it is clear to us that Africa has woken up to no longer relying on outside powers to address its challenges and there are clear trends around improving trade and health infrastructure, increasing mobile and internet penetration, expanding energy access more broadly, reducing business barriers and strengthening business environments in many markets. I think it is safe to say that we pay attention to all of these trends.
What’s your one big prediction on what’s in store for African tech this year?
Bello: The only prediction that we are sure will hold up over time is that this year will be unlike any other year before and we will be surprised by what African tech does in 2023. Every year since 2013 has surprised us so that is as safe a prediction as we can make at this time.
In conclusion, we share three of our common perspectives below to provide transparency to investors, and context to the LoftyInc Capital philosophy:
Africa tech has risen and continues to rise: We deeply believe that the ‘genie is now out of the bottle.’ Despite the likely strengthening and waning of the pace at which African economies adopt African technology solutions for business and consumer problems, we predict the trend will increase throughout the rest of this decade.
We trust that the emergence of geographic and virtual ‘hubs’ of African talent and business support is now proven, even as we acknowledge the need for strengthening these still-young ecosystems. Against this backdrop, we anticipate the continued creation and growth of several large African technology companies, as has happened in other global regions and has occurred repeatedly within the past five years in Africa.
Conviction before Comfort: As leaders in our space, our strategies are often counterintuitive. Our strong and independent investment convictions are based on data we consider reliable and repeatable. Considering the global spotlight on the Africa tech ecosystem and increased manager competition, it may be more comfortable for management teams to ‘follow the crowd’ in their investment thesis by deploying funds according to the approaches and signals of others. However, the word we most often use within LoftyInc Capital is ‘pioneering’ and it is a value we hold dear.
At LoftyInc, we believe the African landscape is still in a discovery and exploration phase. Our ethos is to seek to invest in places and opportunities where our intuition, experience, and a broad array of deep data sources have given us very strong convictions. At times this may be in unpopular or undiscovered opportunities, but we are in the risk management business, and we value conviction over comfort and will manage our investor’s capital based on independent views, not’ herd principles’. Going with the herd is deemed safe, until it is not, and it is often very wrong.
Winners are born AND THEN made: There has been a long debate in technology and investment circles as to how ‘winners’ come to be. Deep introspection into the almost 200 earliest-stage investments we have made both personally and professionally, across numerous geographies and a variety of market conditions, reveals a common perspective that our team shares and reinforces as the guiding purpose of the LoftyInc Capital team.
We recognize that the most successful, largest, and most prominent technology companies today were all forged by combining not only excellent components at inception, which include compelling solution visions, determined and focused founders, and very large problem-weary markets, but also excellent value creation systems and networks, such as customer-first execution strategies, business development networks that multiply early growth revenue, and rapid and repeatable market entry levers.
Good teams, ideas and business models inevitably reach a stage in their early growth where they stall out unless they continually improve strategic decisions, development pipelines, financial management, and operational processes. Without access to growth markets, these early winners will fail to reach the ‘star performer’ inflexion they should be capable of on the strength of the components they initially brought together.
Our first-hand experiences with African ‘star performers’ such as Andela, Flutterwave, Moove, and Reliance HMO support our team’s viewpoints. Hence, our strategy remains to seek out such ‘early winners’ with strong natural performance and assist them with the best strategic, financial, business development, and market expansion resources available.
CORRECTION: Changes made to the article in the fourth paragraph to reflect that LoftyInc has deployed USD 22 M+ into 150+ African businesses as of today, updating an earlier version of this article.