Al Mada Holding The Group is one of Africa’s largest private equity funds. The private company based in Casablanca is active in various sectors, including banking, telecommunications, renewable energy and the food industry.
Over the years, Al Mada’s approach has focused on acquiring majority stakes in some of Morocco’s largest private companies, with its portfolio spanning 27 markets (25 in Africa). As part of its strategy and to stay relevant, the company had to think about how to help these businesses scale with its influence and drive innovation in its portfolio, how to increase market share in the various sectors in which it operates and how to stay at the forefront of disruptive technologies that may appear in the near future.
Alongside addressing these strategic questions, Al Mada has patiently observed the remarkable growth of the venture capital asset class in recent years. For perspective, in 2016, funding to African startups was $366 million. in 2022, that number reached $5-6 billion in equity and debt deals.
When looking at the distribution of funding, three themes remained constant. While eEarly-stage investments, usually spearheaded by small local investors, lead in terms of volume and late-stage investments by foreign investors make headlines in terms of value, there is a shortage of capital in the Series A and B stages, where the Africa – focused funds usually supported by development finance institutions (DFIs) are usually prominent.
Introduction to venture capital
Last March, Al Mada, aligning these observations with its goals, launched a venture capital firm spin-out, Al Mada Ventures (AMV). With a capital stockpile of $110 million (about AED 1.1 billion), Al Mada’s master plan was to establish an Africa-focused company to address the growth stage investment gap. However, instead of relying on funds from DFIs and foreign institutional investors, it uses funds sourced exclusively from Africa.
In addition to the anchor, limited partners in the evergreen fund include leading continental-based corporate and institutional investors, CEO Omar Laalej he told TechCrunch in an interview. Before Laalej was appointed head of the Moroccan business entity, he co-founded Cathay AfricInvest Innovation Fund (CAIF), a $100 million pan-African VC fund created through a partnership between private equity firm AfricInvest Group and European VC firm Cathay Innovation. . Other team executives include Yassine Soual (Investments), Narjisse Belmahi (CFO/COO) and Rida Chahoud (Value Creation).
There are only a few evergreen venture capital funds in Africa and according to Laalej, AMV chose this approach to address some pain points in the continent’s business landscape. According to him, this includes a lack of patient capital to mitigate some of the cycles the tech ecosystem goes through from a macro perspective that often do not correlate with the ground realities facing African startups, companies and innovators in general.
Africa is not the only region to see a more than 50% drop in venture capital funding since last year. However, according to Laalej, unlike other emerging markets in Latin America, India, Southeast Asia and the Middle East, Africa is at the mercy of foreign capital to develop its technology ecosystem (77% of investors who funded its startups last year they were based outside the continent.)
The issue is compounded by the reluctance of many local private and public companies, pension funds, multinationals and investment firms to divest a portion of their cash and balance sheets and delve into the venture capital asset class. Al Mada, through its business arm, hopes to change the narrative. If it succeeds in supporting winners who make big returns and create local and global impact, other legacy institutions may follow. Orange Ventures Africa and Helios Digital Ventures are some examples of companies and private equity firms that are establishing venture arms.
Evergreen Fund Investment Thesis
As a recipient of corporate venture capital, AMV aims to address the communication and feedback gap between corporations and startups. Typically, when these parties observe problems in different markets, it’s mostly through different lenses and they don’t always agree on how to address them. AMV seeks to bridge this gap by connecting its startups with some of Al Mada’s subsidiaries, enhancing collaboration across both portfolios.
“If you take the simple-to-use tool of a B2B-based startup and marry those with the underwriting capacity of a major insurance provider, now, you can create some magic because insurance today in sub-Saharan Africa has a penetration rate of less than 3%, the which is incredibly low,” Laalej said, describing how an insurtech might partner with a company in the health insurance space. “And in an era where digitization is developing in an era where the awareness of the need for financial inclusion is growing, I think it’s clear to us, at least, that there are some games where we combine dry powder and corporate firepower with startups” innovation and ability to bring together a large pool of people and small businesses — then create a lot of value for our shareholders and our ecosystems.”
Susu, a France-Ivorian-based startup that provides insurgent services targeting diabetes and hypertension patients in French-speaking Africa, is one of AMV’s portfolio companies. The VC firm recently closed a $4.9 million seed round in the four-year-old startup. AMV has also backed a Moroccan health tech startup, a Dutch-based operator of a hotel booking platform with customers in Africa, and is in talks to invest in an Egyptian fintech.
Laalej notes that while the Casablanca-based firm maintains a sector-agnostic approach, there is a deliberate positioning to capitalize on areas of expertise held by Al Mada and other Limited Partners (LPs). These sectors include financial services, healthcare, logistics, renewable energy, mining, distribution, retail, education and telecommunications. For AMV, the innovation it supports should align and complement these legacy areas, thus creating bridges in terms of both product and geographic reach.
“We are very strong in North Africa, French-speaking West Africa and Central Africa and we want to leverage our network in these regions. We want to help startup founders scale their products and services in regions where we have a strong understanding of local environments on various topics, from regulatory frameworks and go-to-market strategies to economics and unit benchmarking,” noted Laalej. “Then we will also build bridges with other regions where we are not necessarily as present, but we want to build our presence in markets like East Africa and South Africa or even English-speaking West Africa.”
Growth stage but opportunistic seed investor
In particular, this strategy extends beyond African startups, to include foreign companies operating on the continent, before or after receiving a check from the company that is old (case: the aforementioned hosting company based in the Netherlands) . One thing to note, however, is that the three startups in AMV’s portfolio are at seed and Series A stage. It’s a marked shift from the fund’s original approach to addressing the growth-stage funding gap , where companies such as TLCom Capital, Partech Africa, Norrsken22, Algebra Ventures and CAIF do business.
Why this happens, according to Laalej, is this AMV, after raising funds, noticed a relatively low quality of Series A and B startups in the market. He attributes this to many factors, one of which is that many startups capitalized on the abundant funding environment, particularly between 2020 and 2021, and as a result, were able to secure a significant runway spanning 18 to 24 months. Therefore, the initial startups have not felt the immediate need to seek additional funding in the market in 2023.
“While we were fully aware of this as we were closing the fund, we decided that we would try to fuel our Series A and Series B trade flow by taking an earlier approach,” he said. “We now want to invest in some of the more mature startups that we could identify in the market and be a little bit proactive in doubling down on the ones that we think will be able to go to the markets and raise a Series A round and that’s what we did.”
AMV intends to build a portfolio of approximately 20 companies with tickets ranging from $500,000 to $1 million per seed opportunity and anywhere from $2-6 million for Series A and Series B opportunities, with the potential to grow up to $8-10 million to watch for investments in its winners.
Unlike the private equity industry, venture capital in Morocco remains a relatively specialized subset of private equity, especially compared to Egypt. However, recent years have seen modest growth in venture capital deal activity in Morocco. In 2022, over $126 million was invested in the country’s startups, reflecting an upward trend from $29 million in 2021. Several funds, including Outlierz Ventures and UM6P Ventures, have emerged locally, and AMV’s launch is a notable indicator that Morocco’s capital ecosystem is maturing and coming of age.
“Besides the fact that we are trying to develop the largest African capital for African entrepreneurs and international entrepreneurs who want to spend time and effort on the African continent, we hope that local and international companies will join the party to invest their time and some of the their resources back. to young entrepreneurs who are facing significant fundamental gaps in our societies in Africa, because the future is very bright, our population is resilient and very hungry for success.”
