Venture capital activity in Africa has shown resilience over the past six months, with the continent’s largest firms closing their funds despite the ongoing financial winter.
In the latest development TLcom capital, an African VC firm with offices in Lagos and Nairobi for early-stage startups, has accomplished fundraising for its second fund, TIDE Africa Fund II, for a total of $154 million. The final closing positions the company as Africa’s largest seed and Series A investor, the company said.
According to TLcom, over 20 limited partners took part in the oversubscribed fund, which was initially supposed to be value USD 150 million. Significant investors include the European Investment Bank (EIB), the Visa Foundation, Bertelsmann and AfricaGrow, a three way partnership between Allianz and DEG Impact.
The final close comes two years and several months after TLcom announced the first close of its second $70 million fund, when it matched the size of its first fund, TIDE Africa Fund I. Although a broader slowdown affecting enterprise capital and startups around the world contributed to the prolonged fundraising period, the VC firm can count several positives, managing partner Maurizio Caio he told TechCrunch in an interview.
Notably, TLcom closed the second fund in less time than the previous fund despite being twice the size, Caio said. He attributed this to a higher understanding and acceptance of enterprise capital in Africa among limited partners as a legitimate asset class. Moreover, the portfolio of firms exemplifying the company’s investment strategy played a key role in gaining investor trust and support, he added.
Unlike many VC firms that move from supporting startups at the pre-seed and seed stages to investing with follow-on funds at a later stage, Caio said TLcom maintains a consistent strategy. The company, which focuses on traditional sectors akin to fintech, mobility, agriculture, healthcare, education and commerce, prioritizes early-stage opportunities, particularly at the seed and Series A stages, while considering opportunistic deals at the growth and later stages . For example, the investor supported 10 out of 11 firms from his first fund at the seed or Series A stage, and in subsequent rounds at later stages he committed capital to each funds (Series C investment in Andela, a unicorn provider of worldwide job placement for developers and participation in the round series B extension at FairMoney, a Nigerian digital bank), he said.
“We like to start early when an entrepreneur is raising seeds or raising a Series A, and then follow them along the way and continue to invest if we think the company deserves more capital,” Caio said. “We are building our portfolio to support 20 to 25 companies. So if everything works out, we will be able to return the fund individually.”
Caio said that when TLcom evaluates early-stage opportunities, it evaluates the firms’ potential to generate returns 10 to 20 times greater. This approach, he says, is about ensuring that successful firms recoup losses and enable them to achieve 3-4 times returns on an aggregate basis.
Caio says one way Caio increases its risk in this area is by backing repeat founders: Sim Shagaya (of uLesson and Konga), Etop Ikpe (Autochek and Cars45), and Grant Brooke (Shara and Twiga) come to mind ). Caio says the company’s founders have gained knowledge that can help them avoid repeating past mistakes and make higher decisions in latest ventures, regardless that their previous ventures didn’t produce the desired results. “When things don’t go as planned, it’s important to act quickly, change direction and move on to the next endeavor, knowing that the lessons learned will pave the way for future success,” he said.
Another is to invest in trades in advance. In 2020, TLcom invested in Autochek and Okra at the pre-seed stage and has since continued to pursue subsequent rounds. Two years later, the company launched a pre-seed strategy in which it committed $5 million to pay out in small checks using a no-touch approach, paving the way to its core seed and Series A technique (skilling platform Talstack is the first recipient). A $2 million portion of this fund was also earmarked to co-invest in women-led startups through FirstCheck Africa, a women-focused pre-seed fund. The company says its commitment to gender balance is evident in its partnership and investment committee, which is predominantly made up of ladies, with three out of 5 partners being women.
TLcom has already backed six firms with its latest fund, with initial investments ranging from $1 million to $3 million. These include SeamlessHR, FairMoney, Zone and Vendease. Additionally, the company has invested in ILLA, a middle-mile logistics platform, and Littlefish, which enables payments and banking products for SMEs, marking its first investments in Egypt and South Africa, respectively.
“For us, the Big Four markets always continue to produce the most valuable companies, so it was important to add Egypt and South Africa as destinations for our capital,” Caio said, noting that TLcom’s portfolio to date has mainly consisted of startups based on Nigeria and Kenya, where the company has since expanded its operational capabilities and expertise.
Other notable enterprise capital firms akin to Norrsken22, Al Mada, Algebra Ventures and Partech Africa have also raised significant funds to support African startups from pre-seed to series C. However, as these funds are leveraged at different stages of startup development , attention will probably be paid to the exit opportunities they facilitate and the tangible returns they deliver to their investors, as these outcomes play a key role in driving the overall growth of the African tech ecosystem.
“Africa should not only focus on how much money is coming in, but also on profits,” Caio said. “We need global capital to look at Africa and think about a place where good investments can be made and technology can generate great value. This still needs to be achieved at scale, so that is our main goal.”