R3bn fund for African tech start-ups
● A new start-up funding group has entered the African market with plans to help businesses accelerate their growth and enhance efficiencies in the company-consumer relationship.
The Norrsken Foundation of Sweden has teamed up with Hans Otterling, a partner at venture capital fund Northzone in Europe, and an investment team led by Natalie Kolbe, previous global head of private equity at Actis, to launch a $200m (R3bn) fund that will invest in technology companies operating in financial services (fintech), health care (medtech) and education (edtech).
The fund will also invest in “market-enabling solutions ”— platforms that accelerate business-to-business (B2B) trade.
The Norrsken22 Africa Tech Growth Fund will focus on companies in Kenya, Ghana, Nigeria and SA that have been in operation for at least two years.
In South African the team will be led by Kolbe, who said the fund, one of the largest tech-focused funds in Africa, has a pipeline of companies it will be investing in this year. “We have been actively working on our pipeline across all the markets where we have a presence,” she said.
Market-enablement solutions are likely to show significant investment opportunities, Kolbe said.
These platforms remove inefficiencies to make it easier for suppliers and clients to exchange goods and services.
There are many costs and inefficiencies in B2B and cross-border trade within the continent, “and new technologies are constantly being developed to connect informal and formal markets, as well as creating platforms where entrepreneurs are able to exchange goods and services in a way they were never able to do before”, said Kolbe.
“What technology does is remove some of these barriers to trade, [reduce] costs and enable entrepreneurs to connect easily and more efficiently with customers and suppliers. This will contribute to economic growth and job creation in the region.”
She said the Norrsken22 Africa Tech Growth Fund has partnered with 30 founders of technology firms such as Flutterwave, Skype, Delivery Hero and Kobalt Music, who are contributing capital, skills transfer and advice to the entrepreneurs.
“These are founders that have built big billion-dollar tech businesses and are offering their time and mentorship to the entrepreneurs that we will be backing. It is a huge value add that the fund is bringing.”
The fund can help the businesses it backs expand into other markets it operates in.
According to Kolbe, investment in the tech ecosystem in Africa has essentially doubled every year since 2017 from about $500m. Investment took a knock because of Covid but last year reached $4.3bn.
“Every year the ecosystem is getting bigger and bigger. As the ecosystem develops and enabling infrastructure like data access is laid down, companies are able to leverage off each other and accelerate their own and the ecosystems growth.”
According to the South African Venture Capital and Private Equity Association, at the end of 2020 the local venture capital industry had invested R6.87bn in 841 deals. Just over half the deals were seed-stage or start-up businesses. Agritech was the largest sector by investment value in 2020.
There has been an acceleration of investment in new tech businesses, with Chinese group Tencent recently investing in local fintech businesses Ozow and TymeBank.
In October last year, Google announced an Africa Investment Fund, which will invest $50m in start-ups in areas such as fintech and e-commerce. The start-ups will have access to Google’s employees, network and technologies. The investment is part of the $1bn the US group plans to invest in Africa to support digital transformation.
Dominique Collett, a senior investment executive at Rand Merchant Investments and the head of AlphaCode, said last month that venture capital firms have cottoned on to the unbanked population in Africa.
“A lot of money was raised with emerging-market mandates and these funds have to be deployed soon. We are seeing extraordinary evaluations for fintech businesses and I suspect a lot of it is fuelled by the sky-high valuations for fintech globally. Money needs to be deployed in Africa and the market is not that mature. In reality, there are not that many assets so it’s started a bidding war,” she said.
In a report by the World Economic Forum, “Attracting Investment and Accelerating Fourth Industrial Revolution Adoption in Africa”, which was released last month, Chido Munyati, head of the Africa division at the WEF, said African governments urgently need to drive greater investment in the tech sector and the knowledge economy.
What technology does is remove some of these barriers to trade Natalie Kolbe
Norrsken22 Africa Fund’s SA team leader