Solving the Significant Funding Gap for Venture Capital with Launch?Africa

AVCA speaks with Zachariah George , Managing Partner and Janade Du Plessis , Managing?Partner at Launch Africa Ventures about their experience in the market and solving the significant funding gap for venture capital in Africa.

1. Tell us about yourselves and the role you play at Launch Africa.

We are the co-founders and Managing Partners at Launch Africa – one of the leading early-stage VC funds on the African continent. Zach spent several years as an investment banker on Wall Street (Lehman Brothers and Barclays Capital) after graduating from Stanford. He co-founded the first-ever corporate technology accelerator in Africa (Barclays RISE, 2015-‘16), the first global multi-corporate backed accelerator in Africa (Startupbootcamp Africa, 2016-’19) before co-founding Launch Africa. He has been a prominent, active Angel investor in technology startups in Africa since 2015. Janade’s background is as an entrepreneur, investment banker and human behavioral researcher with M&A/Corporate Finance, Management Consulting and Development Finance experience. He worked for Standard Bank, Goldman Sachs, Anderson Consulting, Kerzner Investments, Tsogo Sun, Rand Merchant Bank, Nedbank and the African Development Bank before co-founding Launch Africa with Zach in 2020. Janade holds a Master’s degree in Finance, Economics, Psychology and Business Administration and a PhD in Business Science researching the psychographic archetypes of African entrepreneurs.

2. Can you provide an overview of Launch Africa and the key milestones the company has achieved in recent years?

Launch Africa is a leading Pan-African VC fund solving the significant funding gap in the Seed and pre-Series A investment landscape in Africa. With a decade-long track record of venture building alongside some of the smartest founding teams in Africa, we back startups across multiple sectors, regions, and products that tackle the most meaningful challenges on the continent. Launch Africa Fund I was launched In October 2020 and over an 18-month period raised a total of US$36.3mn in capital from 238 investors across 40 different countries worldwide. These investors included individuals, family offices, corporate venture funds and fund-of-funds. Over its 2 ? year investment period, Launch Africa has invested US$31mn into 133 technology startups across 22 different African countries spread over 14 different sectors, with LPs in Launch Africa having invested a further US$17mn into 50 of these ventures. As of the end of Q1 2023, Launch Africa is tracking an annual IRR of 64% with a 2.0x multiple-on-invested-capital (MoIC). Launch Africa’s portfolio companies have created several thousands of jobs as a result of the capital invested in them.

3. Launch Africa’s Fund I has produced an impressive portfolio of 130+ top-tier African tech investee companies. What are your strategic goals for the coming months?

We have a 3-fold set of strategic goals in the coming 12 months:

1. Converting our impressive 2.0x MoIC in Seed Fund I into distributions back to our investors in the next few quarters. This involves a very thorough exit framework for our portfolio companies consisting of secondary sales to follow-on investors, wholesale trade sales of portfolio companies, and M&A both within the portfolio and outside;
2. We have started the process of raising Launch Africa Ventures Seed Fund II with a view to having our first close by the end of Q3 2023. We have a target of a US$75mn-US$100mn at final close with a capacity to invest up to US$1mn per venture, with a very similar mandate and strategy as Seed Fund I.
3. In Q1 2024, we will concurrently start the process of a dedicated US$150mn ‘Growth/Opportunities Fund’ solely dedicated to Series A/B follow-on investments into the 25-30 top-performing portfolio companies in Launch Africa Seed Fund I.

4. Launch Africa has a long-standing track record for your expertise in the early-stage African startup ecosystem. What strategies have you used to navigate and adapt to the ever-changing industry in the past 10 years?

• Greater collaboration with venture builders, incubators and accelerators from all over the continent to provide critical pre-Seed and Seed funding to the leading graduates from their programs
• Building consistent, strong relationships with large banks, insurers, telcos and retailers across Africa to help catalyze pilots and proof-of-concepts with startups
• Democratizing access to venture capital for retail investors worldwide by lowering minimum investment barriers to affordable levels for non-HNWIs.
• Reducing the complexity, time and bureaucracy involved in early-stage investing by focusing on stage-appropriate diligence and keeping timelines to under 6-8 weeks.
• Focusing on B2B and B2B2C business models and internationally acclaimed jurisdictions (U.S., U.K. Singapore, Netherlands, Mauritius, etc.) as I.P. holdco entities to de-risk our early-stage investment portfolio
• Allowing LPs to co-invest without any fees or carry into any of our portfolio companies where allocation is available, thereby reducing the amount of time our founders spend on raising capital.

5. When we consider the growth of African venture capital to date, parallels can be drawn with the trajectory of South-East Asia or Latin America; what lessons do you think we can adopt from these markets?

The African tech VC ecosystem is about 5-7 years behind where Latin America and Southeast Asia were at. Their ecosystems catapulted in growth around 2010, and Africa saw a similar surge starting in 2015. What is interesting is that if you were to factor in this 5-7 year time differential and normalize the starting points for each region, then the African VC ecosystem has been outperforming both LatAm and SE Asia. We are at a cumulative VC funding over the last 7 years (2015-’22) of more than US$15bn – higher than the capital inflows during a similar period for LatAm and SE Asia (2010-’17). The focus on strong B2B distribution networks and greater corporate-startup collaboration in these markets is a valuable lesson we can learn from these 2 ecosystems as our counterparts.

6. Looking back over global macroeconomic headwinds in recent years, Africa’s VC funding activity sat contrary to other regions between 2021 and 2022. What is your view of how Africa's position itself can outperform?

Over the last few years, African startups have had (and continue to have) a unique position in which they consistently address inefficiencies in core areas of the economy – financial services, education, healthcare, logistics & mobility, commerce, food supply chains, etc. and solve these problems through a technology and innovation lens. This ‘need-to-have’ vs. ‘nice-to-have’ value proposition augurs really well for the continent as it helps insulate itself from global macroeconomic headwinds, especially when you look at countering positive attributes like exploding population growth, much higher mobile penetration, greater online commerce, and lower data costs – all of which significantly improve consumer purchasing power and the target addressable market for startups.

7. Why is it important to close the funding gap in the Seed and pre-Series A investment landscape in Africa, and what opportunities could this raise for the continent?

As a pan-African VC Fund that invests in early-stage technology-driven start-ups (B2B and B2B2C only), we solve a significant funding and valuation gap in the Seed-to-Series A VC investment landscape in Africa. There are just not enough Angel and Seed investors for technology startups in Africa, while at the same time, it is at this level where the best valuation arbitrage exists. Within emerging markets, and especially Africa, this Bridge-to-Series A funding does not sufficiently exist since African Founders do not have access to savings, friends-and-family money, and a developed Angel investor market.

The percentage of African startups that end up failing post a successful Series A round is typically lower than in any other region in the world. The issue has always been how we can timeously, efficiently, and strategically get more early-stage startups in Africa to prevent falling into that ‘valley of death’ between Pre-Seed/Seed and Series A and make sure that they have the right financial and non-financial support to hit their various KPIs in order to be Series A ready as quickly as possible. Hence the need for this funding gap to be closed.

8. What strategies did you apply to successfully generate deal flow and what approach do you have for the value creation process with your investees?

Our team has been a cornerstone in the early-stage VC ecosystem across Africa for over 10 years now. Our bottom-up, founder-first approach through partnerships with universities & research centres, angel investment networks, venture-builders, incubators, accelerators, and corporations across Africa has cemented a strong sense of confidence through trust networks in our interactions and engagements with Africa’s top tech founders. To this extent, most of our top deal flow comes through a combination of world-class founder referrals, incubators and accelerators (Y-Combinator, Techstars, Startupbootcamp, 500 Startups, Founders Factory, Flat6Labs, Antler, etc.), other global VC funds and our 200+ existing LPs.

In terms of value-creation within our portfolio, Launch Africa is one of the most active Seed-stage investors in Africa in terms of value-add to our portfolio companies, with the following strategies implemented across the entire portfolio:

• Regular check-ins with our founders (at least 1x a month) to help with intros to channel partners, customers, corporations and distribution networks to support their growth.
• Help with access to world-class advisors who are industry/sector/product/regional experts who can sit on advisory boards of your portfolio companies to improve their strategy and fasten their path to profitability.
• Helping our founders with recruiting the best talent to ensure the professionalism and capacity of the team.
• Helping our founders find the top resources in and negotiate the best terms with professional firms w.r.t. legal, tax, audit. I.P., and other ancillary services.
• Meticulously going through our portfolio each month and proactively seeing how our various founders can add value to each other's businesses irrespective of what sector or region they are in to create synergies within the Launch Africa portfolio, increasing returns for LPs but also brand value as well as credibility for us.
• Our core team members are key influential leaders in the African early-stage industry, being regularly invited to top industry events, forums, conferences, and summits (acting as keynote speakers, judges, panelists) where we can also advocate for the founders
• In this context, Launch Africa also recommends portfolio companies to these events, showcases, demo days, and start-up competitions and challenges.
• Once every 6 months (or at least once a year) we spend time with the founders of all portfolio companies on physical or virtual off-sites to make sure their goals, visions, and values are constantly pointing in the direction of having greater economic, social and environmental impact.

9. What is the profile of investors you approach whilst raising a fund?

The vast majority of our investors in Seed Fund I consisted of:

• High Net Worth Individuals
• Angel Investors
• Family Offices (typically with ties to specific industries)
• Corporate VCs
• Fund-of-Funds

These investors were spread across 40+ countries worldwide. We expect the same in Seed Fund II.

One of the unique benefits of being an LP in our fund is that they have first-priority on direct co-investment opportunities into any of Launch Africa’s portfolio companies at no cost (zero fees and zero carry). Minimum commitments are US$100k for individuals, US$500k for family offices, and US$1mn for institutions. Commitments can be paid upfront or in tranches over up to the Fund’s 3-year investment period.

Fund I saw our 200+ LPs invest nearly US$17mn in additional capital into 49 of our 133 portfolio companies alongside the US$31mn we ourselves had invested. We will have a similar clause for Seed Fund II.

10. What are the biggest challenges for African early-stage ventures currently?

• Demonstrating more exits, specifically IPOs at the later stages.
• Greater need for horizontal M&A, i.e. larger tech startups acquiring earlier-stage ones.
• Better collaboration between corporations in Africa from a commercial and trade standpoint.
• Talent: Better retention of digital talent for startups versus flight to corporates.
• Regulation: More startup acts need to be implemented across the continent.
• More collaboration amongst Seed and Series A investors in co-investing.