Afrigather *James, a first-time fund supervisor elevating a $50 million fund, shares insights on discovering the correct traders and learn how to persuade them to signal these cheques.
Elevating cash isn’t any simple feat—simply ask any startup founder who has closed a funding spherical. These conversations can stretch on for months, typically years, and discovering the correct traders usually seems like trying to find a needle in a haystack.
These similar challenges additionally prolong to enterprise capital corporations when they’re elevating capital. Whereas there isn’t a scarcity of tales concerning the difficulties of elevating funds as an African startup founder, little has been stated concerning the distinctive issues of African traders elevating their first funds.
On this two-part collection, an African entrepreneur and guide who has partnered with an accelerator supervisor and an skilled tech operator to launch his first fund shares his expertise. Whereas he has clear objectives—growing a mannequin that can change how African VCs return capital to their traders and investing in “neglected” early-stage startups that haven’t raised growth-stage capital—the journey to reaching them has been tough.
(This interview has been edited for readability)
TC: What’s the dimension of the fund you’re concentrating on?
*James: We wish to lead and co-invest in offers. We’re concentrating on a fund dimension of $50 to $70 million and plan to write down checks starting from $2 million to $5 million on common. Which means that even for Collection B rounds, we’ll be co-investing alongside different traders.
TC: How did you attain that quantity?
James: We began by contemplating the variety of corporations we needed to help and labored backwards. We assessed our capabilities, community, and general sources, in addition to the kind of transformational help we goal to supply. We intend to have a really intentional platform technique for our fund, providing significant help fairly than spreading ourselves too skinny with an excessively giant portfolio. By estimating the ballpark variety of corporations we plan to help, we performed monetary modelling and arrived at that fund dimension.
Moreover, we’re leveraging our backgrounds, sources, and sectors of experience primarily based on our earlier experiences. This consists of the networks we are able to present to the businesses we spend money on and the direct help we are able to supply. All these components knowledgeable our final alternative of fund dimension.
TC: How a lot of your personal cash did it’s important to put up on your fund?
James: 1%-3% of the fund.
TC: What made you consider beginning a fund?
James: I’ve a background in entrepreneurship and technique consulting. Though I wasn’t an entrepreneur for a very long time, my experiences and a few challenges with the African VC trade led me to begin a VC fund.
First, the VC ecosystem on this continent is kind of younger—enterprise capital as an asset class right here might be round ten years outdated, so it’s nonetheless in its infancy. After I regarded on the variety of VC corporations and their focus, I observed that many are investing in early-stage corporations. Nevertheless, there’s a major dearth of growth-stage VC investing.
It’s all the time nice to listen to about corporations elevating pre-seed and seed rounds, and we have a good time these achievements. However then we don’t hear something about them for the following 4 years; they don’t appear to achieve Collection B funding. This might be as a result of the businesses weren’t nice or as a result of scaling possession is tough and issues occur. But it surely will also be because of the lack of growth-stage traders.
In speaking with mates who work at DFIs (Improvement Finance Establishments) which might be LPs (Restricted Companions) in lots of VCs on this continent, I discovered that after they regarded on the potential returns, many funds weren’t on observe to ship the anticipated returns to their LPs by the tip of their fund cycles, which frequently conclude round 2024 or 2025. This means that the mannequin could be damaged.
There are some things that want to vary—not solely in portfolio building but in addition within the stage of help offered to corporations. That’s why we’re engaged on a mannequin that we consider is totally different in how we strategy investments.
TC: How did you develop your thesis?
James: We discovered alignment not essentially on particular verticals or sectors, however on overarching themes that transcend particular person industries. We centered on the varieties of corporations we needed to spend money on and the attributes or “X-factors” we sought in these corporations.
One key theme was investing in digital infrastructure—the infrastructure for the brand new economic system. One other was the idea of community results throughout sectors, sub-sectors, or verticals. These have been essential overarching themes that might be utilized to many areas. We reached this alignment by bouncing concepts off one another primarily based on our experiences, the gaps we noticed in funding sure varieties of corporations and the sorts of companies we needed to help.
From there, we adopted a sector strategy, beginning by figuring out the sectors or sub-sectors we wouldn’t spend money on, in addition to the particular pockets inside sectors we needed to keep away from. To tell these selections, we drew upon our collective experiences—our “secret sauce.”
By way of sectors, we’re occupied with HealthTech, ClimateTech, and sure areas of FinTech—particularly corporations constructing infrastructure for the brand new economic system and enabling verticals inside FinTech. Sustainable mobility can also be a key space of curiosity for us.
Initially, we centered on the expansion stage, however we in the end broadened our scope to incorporate earlier phases—from Collection D right down to seed and Collection A. We consider there’s a “lacking center” between seed and Collection A, a spot that’s usually neglected. We discover this house significantly fascinating and see the potential in enabling corporations inside it. So, whereas we started by contemplating growth-stage investments, we expanded our focus to incorporate early-stage corporations.
TC: What challenges do first-time funds face when speaking to LPs?
James: One of many first challenges as an rising supervisor is the dearth of a observe report. In case you don’t have a historical past of investing, potential LPs could ask, “Why you?” It’s essential to obviously clarify to LPs why you’re the proper individual in the event that they deploy funding into your fund.
The second problem relies on the kind of LP you’re approaching. Institutional LPs, like DFIs and impression traders, have particular mandates. A big problem is discovering the correct LPs whose mandates align with the kind of corporations you’re making an attempt to spend money on, which is a large consideration.
For prime-net-worth people, challenges differ primarily based on their geography and information of the continent. If they aren’t aware of the African enterprise context, there’s plenty of schooling concerned—many calls, travels, and efforts to carry them alongside on the journey. Even for individuals who know the continent—completed enterprise folks or rich people—you continue to want to coach them about enterprise capital and assist them perceive the potential returns. They could perceive enterprise however might not be aware of enterprise investing, so it’s important to create areas for that dialogue.
TC: What sort of returns are you anticipating and sharing together with your traders?
James: The standard lifecycle is 10 years and when it comes to return, between 2x and 3x, which is the typical.
TC: How are you approaching potential Restricted Companions (LPs), and what varieties of LPs are you concentrating on?
James: First, there’s the scientific and data-driven strategy, the place corporations present databases of LPs (Restricted Companions) primarily based on geographical dispersion, and also you pay for entry to that info. These databases embrace contact particulars—that’s one technique.
The second strategy is leveraging your community. Informally, you recognize folks and might get heat introductions to LPs.
The third strategy, associated to the data-driven technique, entails doing all your analysis. As a guide, I get pleasure from analysis, so you’ll be able to establish totally different institutional LPs energetic in your sectors of curiosity by exploring their web sites and seeing the initiatives they’re funding. This technique is considerably coupled with the primary one I discussed.
When you’ve sourced LPs by way of your community or data-driven strategies utilizing third-party info, it’s about prioritisation. That you must perceive their mandates—particularly for institutional ones like DFIs (Improvement Finance Establishments) and foundations. It’s comparatively simple to seek out out what their mandates are.
For household workplaces and high-net-worth people, figuring out their candy spots and pursuits is trickier. It takes extra time to debate with them. Figuring out their previous investments can provide you an thought, however not all the time, as their focus could have modified. This half is tougher as a result of you must meet them, perceive their views on the enterprise surroundings and particular sectors, after which decide whether or not you’ll be able to transfer the dialog ahead. With them, it’s extra artwork than science.
*Identify modified on request of fund supervisor.
