Venture Capital and Private Equity Investments in African Technology: An Overview
In the vibrant world of Africa's startup ecosystem, a diverse range of investors are making their mark. These include venture capital firms, private equity firms, government-backed development institutions, and foundations established by corporations.
One such venture capital firm, TLcom Capital, invests between $500,000 and $10m in technology companies. Its portfolio includes Andela, Twiga Foods, uLesson, and Okra. Interestingly, Okra's investment was from TLcom's $71m TIDE Africa fund for infrastructure tech startups. Lateral Capital, on the other hand, became the first institutional investor in Mono, a Nigerian fintech startup, and made investments in 9 African startups between February and August 2020.
Private equity firms, known for their interest in the startup space, are reducing their check sizes to invest in more startups. For instance, South Suez Capital, with 12 investments in Nigeria, including Oando (energy), Vlisco (fashion), Beloxxi (FMCG), and IHS Towers (telecoms), is a testament to this trend.
The private equity firm that acquired IHS Towers, operating over 24,000 telecoms towers in five African countries, in June 2016 for an undisclosed sum was the American firm Goldman Sachs Merchant Banking Division. Helios Investment Partners, the venture capital firm that previously controlled two-thirds of the company, led a consortium of investors to acquire two-thirds stake in Interswitch in the late 2000s. At the time, Interswitch was integral to the functioning of 10,000 ATMs and 11,000 POS terminals, and had started administering the Verve cards issued by two-thirds of Nigeria's 24 commercial banks.
Venture capitalists and private equity firms have different expectations and strategic advantages. VCs invest in startups with potential for high-growth and take a minority stake, while PEs seek already growing companies for majority stake and strategic control. This is evident in FilmHouse, the market leader in the film exhibition industry in Africa, which received investment from African Capital Alliance in 2014, and FilmOne entertainment, its sister company, becoming the exclusive distributor of Disney movies in Anglophone West Africa this month.
PE firms can use a leveraged buyout to acquire a majority stake in a company, combining their funds with borrowed money from banks or other lenders. However, startups should be aware of the differences between VCs and PEs when deciding on investors, as each has distinct expectations and advantages.
With over 250 organizations with active investments in Africa's startup ecosystem, the future of the continent's tech industry looks promising. Equity financing in firms can be classified under venture capital or private equity, offering startups a variety of opportunities to grow and scale.
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