When old money meets new opportunities

Traditional funds join the African tech party

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In this week’s edition of Tech Safari, we’re looking at new players in the VC space.

So we teamed up with DotExe Ventures, a VC company that’s making moves in Africa.

Growing a tech ecosystem takes time, hustle, and a lot of venture capital.

VCs back bold founders with ideas that can solve problems, scale up, and bring in returns.

Since 2014, VCs have invested over $21 billion in African startups across 3,000 deals.

Today, venture capital is its own industry.

In Africa, VC is changing

There was a time when only a small group of investors cut checks for African startups.

They had deep pockets and an unreal appetite for risk.

In reality, most VC investments will fail.

But one or two startups that win big, can drive real return.

Sometimes, funding dries up.

And when it does, the failure rates are even higher.

Last year, big-name startups like Sendy, 54Gene, and Zumi shut down publicly.

Genomic firm 54Gene shut down last year

When this happens, VCs eat the loss.

For years VCs have bet on tech despite the risks.

But traditional investors, like individuals, investment firms, pensions or private equity funds, prefer to stick to the basics.

They buy stakes in businesses to make a profit, without too much risk.

To do this successfully, they have to:

  • Invest in established companies → not those still finding their feet

  • See cash flow from early on → not just the potential for scale

  • Actively run portfolio companies to make them efficient → not hands-off like some VCs

But seeing the impact of tech in Africa …

Traditional investors are making moves

Take South Africa for example.

In 2022, 11% of private equity (PE) investments went to tech - compared to only 3% in 2021.

And the trend is picking up in other African countries:

  • In 2019, Africinvest, a Tunisian PE fund, teamed up with Cathay Innovation for a $168 million tech fund

  • Also in 2019, Francophone-focused PE firm, Adiwale Partners, kicked off a €50 million fund to back non-banking startups

  • Then in March this year, pan-African VC firm Verod-Kepple hit the second close of its $43 million fund. It’s a partnership between PE firm Verod Capital and venture fund Kepple Africa, to invest in African startups

Verod-Kepple Africa Ventures

This tells us that the big guys are getting in the ring with tech.

But, investing in startups is a different game.

Vinod Khosla, founder of Khosla Ventures, a VC firm which manages $15 billion worth of assets, says it takes seven years and $30 million to train a VC.

And failure is often the best teacher.

So how are traditional investors dipping their toes into VC?

This old investor is learning new tricks

The IBL Group is a conglomerate born in Mauritius. And it’s the country’s biggest non-banking company.

It made $1.2 billion last year, and owns 53 of Africa’s biggest businesses, like:

Before 2022, IBL had no player in the VC game.

But that changed when Laurent Fayolle decided to take the plunge.

He’d spent six years running the tech division at IBL, and part of his job was travelling to conferences and to partner with different companies.

“I was supposed to be meeting the big guys from Microsoft and Oracle at these events but ended up chatting with the founders instead. They were young, fun, and seemed to be doing bold stuff.”

Laurent Fayolle, MD of DotExe Ventures

IBL had been investing in traditional industries for over 100 years, but seeing the impact of startups across the globe, Laurent saw a different opportunity.

So he pitched IBL’s board to start investing in startups.

He had two selling points:

  1. IBL could identify disruptive companies across their geographies - and invest in them as well.

  2. And in some cases, those companies could play well into their businesses

It took one and a half years, but eventually, IBL went for it.

And that’s when DotExe Ventures was born - and with fresh capital to deploy, Laurent became Managing Director.

But instead of getting straight to deploying, he decided to do something different.

He teamed up.

Old money met new money

In movies, when old money meets new money, it’s almost always a competition.

But with DotExe and 4Di Capital, a South African VC firm, the reverse was the case.

4Di had everything DotExe wanted in a partner:

  • Lots of VC experience → They’ve been around since 2009, and invested in startups like Ratherchat, Aerobotics, and Wasoko.

  • A focus on early-stage companies just like DotExe.

  • Active in different sectors → making them the best partner to learn from.

And this grew into a partnership - leading to the creation of the 4Di DotExe Fund I.

The 4Di Capital team

DotExe now had a co-pilot and got the most from collaborating:

  • Exposure to deals across the continent → They’ve now invested in ten startups

  • A front-row seat to learn about the startup world with experienced VCs.

  • And sometimes, a chance to fund startups that have synergy with IBL.

For example, Leta, one of DotExe’s portfolio companies, digitises deliveries for African businesses.

IBL has 35 companies in the region - and if Leta powers their logistics, they can help each other grow.

African logistics company, Leta.

As traditional funds join the African tech party, it’s easy to just start investing.

But instead, DotExe is teaming up and learning with experienced VCs.

Funds like DotExe could be the bridge between Africa’s biggest companies and growing startups.

What do you think about DotExe’s story - and the new companies getting in on startups?

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