My VC Fund Thesis.

Setting the Stage: How I Got into Startups & VC..?

I have always been an avid reader. Growing up and throughout my teens, I devoured any information I could find. I started with newspapers, then progressed to reading on the web in high school. This is how I started to understand the concept of startups. In my vacation after high school (Uganda has a 9-month holiday between high school and university), I dived deeper into what startups were. Luckily, SafeBoda was just starting (2015), and it was a small 30-minute walk from our home. I could pass by their office (albeit without getting in) because it was the only local startup that I knew. (I got to know others like Yoza along the way).?

By the end of 2015, I started my first startup, a campus food delivery business called MyKafunda around Makerere University where orders were made on WhatsApp. We closed shop in 2018 where I moved to my next startup called Twekobe, an online real estate marketplace where we connected house hunters with verified real estate brokers. We didn't survive the COVID-19 lockdown and went bankrupt at the tail end of 2020.?

Having built startups for almost five years, I have amassed considerable knowledge and experience in building. I leapt to my next forte, Venture Capital. I joined Digest Africa where I analysed VC funding data for a living and helped many small VC firms make data-backed investment decisions. I also had the honour to become the Venture Capital and Digital Economy Analyst at Stears, and now I currently help Benue Capital, the first VC firm founded by Ugandan partners.?

I believe having been a founder for half a decade, has helped me to relate with founders better. But this will be a story for another day. But looking back at my building journey, and my work helping VC firms to invest at Digest Africa, analysing VC trends and the Digital Economy(Startups) at Stears and now at Benue Capital, I have been able to come up with an investment thesis to maximise returns for any investor looking to enter Africa. This thesis is entirely my opinion, based on my theories.

Investment Thesis - The Core Beliefs

My fund would be a mid-stage fund. What is a mid-stage fund to me? This would be the fund that invests a minimum of $100k and a maximum of $500k. Why this size? Well, startups below that are extremely risky, while above that, the chances of getting 100× on an investment are slimmer even though you enjoy less risk. Mid-stage funds are always a sweet spot. You can make 100x returns on smaller check sizes than the late-stage funds, but without the risk appetite of the >100k funds. But with a mid-stage fund, I would invest in a lot of venture building. Startups at that stage need it a lot.?

Location is important. The big four destinations (Kenya, Nigeria, Egypt, and South Africa) are still favourites for most firms. But there are startup ecosystems that are a tier below the big four, but very promising. Morocco, Tunisia, Ghana, C?te d'Ivoire, Senegal, Uganda, and Rwanda are showing good promise. Then there are sleeping giants like the DRC, Sudan, Ethiopia, and Angola which I would look at even though the investment decision will most likely be determined by the nature of the startup.?

I am not a fan of sector-specific funds, but I do understand that they are used to achieve more goals than just returns. But bar fintechs, it is highly unlikely that a fund will get high-quality start-ups by focusing on just one sector. So sector artistic works for me.?

Other than that, my model would be to back quality and quantity. If I had a $20m fund, I would invest an average of $200k in ticket sizes in 100 startups over the lifetime of the fund rather than bigger checks in fewer startups.?

But to attract the best startups, I would consider being a platform VC firm. The best founders are attracted to the best VCs that they think will give them even more value than just funding. If I am learning a lot from a particular VC, as a founder, I would want to have them on my own.?

A platform VC is where a fund builds a content/media arm to go with its investment side. I am happy to have learned to do high-level writing and analysis, so maybe I am biased towards these kinds of VCs. But I believe, for the best founders/ startups that have options in the fundraising game, these things matter. You want the best startups, so make an effort to bring them to your table. The media/content can be newsletters, analytical articles, podcasts, or even reports if need be. The goal is to propel the fund to the top of the minds of the best founders when they think of raiding.?

An investment thesis is not just about choosing where to invest but also why and how to invest. It is a strategic roadmap that guides investors, setting up criteria that help sieve potential high-performers from the plethora of businesses clamouring for funds. My investment thesis revolves around three major pillars - innovation, scalability, and sustainability.

Pillar 1: Innovation

Africa is a continent teeming with innovative ideas that solve both local and global problems. As a venture capitalist, my primary interest lies in startups that offer innovative, compelling products or services, solving genuine customer pain points and making life easier for both individuals and businesses.

Whether it is FinTech solutions that address the lack of financial inclusion, AgriTech startups trying to make farming more profitable and sustainable, or HealthTech companies striving to improve healthcare delivery, my focus is on startups that challenge the status quo through disruptive innovations.

This is where I would apply my concept of painkillers or vitamins. I would group the startups along those two categories. For every prospective startup, I would ask myself if it were a pain killer or a vitamin. For the innovations that are painkillers, that would signify that these are must-haves. For the vitamins, those are startups that clients would find good to have. For example, if one built a fintech for cross-border money transfer (think of Chipper Cash, Eversend, or even Mobile Money) these are must-haves and painkillers. They solve a crucial problem in society. Money has to move, and it will move in one way or another. It helps if a startup eases this. Painkiller-type innovations are not necessarily fintechs, but they can be in any other sector.?

For the good-to-have type of innovations, some will still make a case to be backed, especially due to some factors like the stage of the startup ecosystem in the primary market. A wealth management app makes sense in South Africa, Nigeria, Kenya, Egypt, and some other markets, but it will not be as effective in a country like Somalia or Chad.?

Pillar 2: Scalability

Another core tenet of my investment thesis is scalability. Scalability is the capacity of a startup to grow or expand without running into prohibitive costs or logistic difficulties. I am particularly interested in investing in startups with business models that can be replicated across different regions in Africa and beyond.

Given Africa's linguistic and cultural diversity, such scalability is not always straightforward. However, startups that can navigate these unique complexities, create pan-African solutions, and even transcend African borders have a higher chance of attracting investment. On this point, it is important to understand the difference between scalability and growth. To put it in layman’s language, scalability is increasing revenue/users without necessarily increasing the operation expenses while growth will require the operating expenses to grow almost as much as revenue. For example, an e-commerce marketplace can scale better than an e-commerce startup that stocks inventory because the marketplace doesn't need to raise money for the inventory while expanding.?

The startups that can scale are must-haves on any VC portfolio. They will not need?

Pillar 3: Sustainability

Sustainability, both in terms of business viability and environmental consciousness, is the third pillar of my investment thesis. I am strongly committed to backing startups that have a long-term strategic outlook, capable of weathering business cycles and maintaining growth over the long term.

In addition, given the existential menace of climate change, I am particularly enthusiastic about funding green startups. These could be innovations centred on renewable energy, waste management, carbon footprint reduction, or simply eco-friendly alternate products or services that aim to tread lightly on the earth.

Pillar 4: Team

Building a startup is hard. You need to back a team that can survive the journey. Experience is very underrated. When I look back at my journey, I made mistakes that almost killed the startup because I was starting from zero. I had never worked anywhere in my life. I am not saying one can not make it as a first-time founder, but the learning curve will be steep and if? VC backs such a team, they should be ready to provide considerable ensure-building sessions. A more experienced team is always a safer bet even though it doesn't guarantee returns, but it derisks the investment a little bit. This reminds me of the story by Iyinoluwa Aboyeji who was building his startup, Fora, but jumped ship when he got the chance to work with Jeremy Johnson at Andela. Iyin said this made him a better founder and set the stage for him to build Flutterwave, Moove, etc.?

But other than that, I would look for outliers. You see, we all start life in different places. I always look for founders who started life unfairly and had to do a lot to even get a chance at the bare minimum. Let me explain.?

If the son of a minister ends up at Harvard University, that is an insane achievement by all means. But it will not be the same as a son of a peasant in a real area going to Harvard. The journey the son of a peasant walked to get to Harvard will be much longer than that of the son of a minister. Building startups is an insane task. You have to be mad to even think of starting one. The son of a peasant embodies this. To be fair, he is not even allowed to dream of Harvard, let alone even know what Harvard is anyway. But he made it. That kind of delusion and belief is needed to build startups. Any guy who has overcome very tiny odds like this earlier in their life speaks volumes to me. I like these founders.?

Investment Strategy - The Plan of Action

Having outlined the core tenets that guide my investment focus, the next piece of my investment thesis addresses how I approach these investments. Here again, I follow a tri-pronged approach: extensive due diligence, nurturing relationships, and fostering a growth mindset.

Approach 1: Extensive Due Diligence

Intensive market research, thorough business process review, and stringent financial analysis form the heart of my due diligence process. Beyond the glossy deck presentations and charismatic pitches, I aim to understand the inner workings of a potential startup company, assess the market size, evaluate customer feedback, and review financial projections and tactical plans.

Approach 2: Nurturing Relationships

As a venture capitalist, I am not just offering monetary investment but also investing my time, experience, and expertise in these startups. Developing strong relationships with the startups I invest in is crucial for their success. Regular interaction, open communication, and ethical transparency are key strategies for building these relationships.

Approach 3: Fostering a Growth Mindset

Nurturing a growth mindset both within the startups and myself is vitally important. I encourage startups to see challenges as stepping stones to success, to iterate, pivot, and evolve as needed. Continuous learning, risk-taking, and persistence are qualities I highly value and look for in the startups I invest in.

My impact investing approach also incorporates Environmental, Social, and Corporate Governance (ESG) principles into the business framework. ESG factors play an increasingly essential role in investment decisions, and I encourage all my portfolio companies to adopt sustainable practices, promote diversity and inclusion, and ensure ethical conduct in all their business operations.

The Road Ahead.

African startups are at the cusp of a transformational journey, teeming with opportunities and challenges. It is an exciting time to invest, encourage, and support these brave new ventures. As a venture capitalist with a small VC fund focused on African startups, my mission is to best position myself to make a real difference in this nascent but rapidly evolving startup ecosystem.

Harnessing the power of innovation can significantly drive Africa’s potential to push boundaries and lead the global startup scene. By strategically investing in scalable and sustainable innovative startups, I aim to not just reap economic returns but also make a tangible impact by contributing to African economies and societies at scale.

Ultimately, any VCs goal is simple: to partner with the brightest minds and create opportunities for a more prosperous and inclusive Africa. I firmly believe that VCs are not just funding Africa's future unicorns, but are also investing in humanity’s collective chance to solve some of our most pressing challenges. Together, we can make a significant and positive difference - one investment at a time.