Venture capital activity in Africa has shown resilience over the past six months, with major firms backing startups on the continent to close capital despite the ongoing funding winter.
In the latest development, TLcom Capital, an African VC firm with offices in Lagos and Nairobi and a focus on early-stage startups, has completed fundraising for its second fund, TIDE Africa Fund II, totaling $154 million. The final closing positions the company as Africa’s largest investor in terms of production and Series A.
The oversubscribed capital, originally aimed to close at $150 million, attracted participation from more than 20 limited partners. Major investors include the European Investment Bank (EIB), the Visa Foundation, Bertelsmann and AfricaGrow, a joint venture between Allianz and DEG Impact.
This news comes two years and a few months after TLcom Capital announced the first close of its second fund at $70 million, matching the size of its first fund, TIDE Africa Fund I. While the broader slowdown affecting business funds and startups worldwide contributed to the prolonged fundraising period, the VC firm can count some positives, CEO Maurizio Caio he told TechCrunch in an interview.
In particular, TLcom Capital closed the second fund in a shorter period of time than the previous one, even though it was twice the size. Caio attributes this to the improved understanding and acceptance of venture capital in Africa among limited partners as a legitimate asset class. In addition, a portfolio of companies that exemplify the company’s investment strategy has been instrumental in garnering investor confidence and support.
Unlike many VC firms that move from supporting startups in the pre-seed and seed stages to later-stage investments with follow-on funds, TLcom Capital maintains a consistent strategy. The company continues to prioritize early-stage opportunities, particularly at the seed and Series A stages, while also looking at opportunistic deals in growth and later stages. For example, the investor backed 10 of the 11 companies from its first fund in seed or Series A. However, it has raised capital in subsequent rounds at later stages in both funds (Series C investment in Andela, a provider of global unicorns software developer job placement and participation in a Series B expansion round in FairMoney, a Nigerian digital bank.)
“We like to start early when the entrepreneur raises seed or Series A and then be with the entrepreneur during the journey and continue to invest if we believe the company is worth more capital,” noted Caio. “The reason is that we build our portfolio so that we support 20 to 25 companies that ‘if all goes well’ can return capital individually.”
The managing partner further emphasizes that when TLcom evaluates early-stage opportunities, it assesses the potential of its portfolio companies to generate 10-20x returns. The approach, he says, is to ensure that successful companies offset the losses and enable the business to achieve 3-4x returns on an overall basis.
One way the company improves its risk in this regard is by backing repeat founders: Sim Shagaya (of uLesson and Konga), Etop Ikpe (Autochek and Cars45) and Grant Brooke (Shara and Twiga). come to mind. Despite previous ventures not achieving the desired results, Caio says these founders gained insights that will help them avoid repeating past mistakes and make better decisions in their new ventures. “When things don’t go as planned, it’s important to act quickly, pivot and move on to the next venture, knowing that lessons learned will pave the way for future success,” he noted.
Another is to invest earlier in deals, at the pre-seed stage. In 2020, TLcom Capital invested in Autochek and Okra at the pre-seed stage and has since followed in the following rounds. Two years later, the company launched a pre-seed strategy that included allocation $5 million to be disbursed in small check sizes and a low-touch approach, thus creating a pipeline to its core seed and Series A strategy (Upskilling platform Talstack is its first recipient). A portion of this capital, $2 million, was also dedicated to co-invest in women-led startups through FirstCheck Africa, a women-focused pre-seed fund. The firm says its commitment to gender balance is evident in its female-majority partnership and investment committee, where three out of five partners are women.
TLcom Capital, which focuses on traditional sectors such as fintech, mobility, agriculture, healthcare, education and commerce, has already backed six companies from its new fund, making initial investments ranging from 1 to 3 million dollars. They include SeamlessHR, FairMoney, Zone and Vendease. In addition, the company has expanded its portfolio to include ILLA, a middle-mile logistics platform, and Littlefish, which enable payments and banking products for SMEs, marking its first investments in Egypt and South Africa, respectively.
“For us, the big four markets always continue to produce the most valuable companies, so it was important to add Egypt and South Africa as our capital destinations,” Caio said, noting that TLcom’s portfolio had previously been primarily startups based in Nigeria. and Kenya, countries where the company has since expanded its operational capacity and expertise.
The multi-sector focused firm and other notable venture capital firms such as Norrsken22, Al Mada, Algebra Ventures and Partech Africa have raised significant capital to support African startups from pre-seed to Series C. However, as these funds are deployed at various stages of startup development, the focus will be on the exit opportunities they facilitate and the tangible returns they deliver to their LPs, as these outcomes play a critical role in driving the overall development of the African tech ecosystem.
“Africa should not only be about how much money comes in but also about returns,” Caio stresses. “We need global capital to look at Africa and think of a place where good investments can be made and technology can create great value. That has yet to be achieved at scale, so that is our primary goal.”
