1 July 2017

Africa: TLcom Wants to Put Its U.S.$40 Million Fund Into African Start-Ups With a Big Idea That Can Scale Across Countries

TLcom has just finalized the raising of US$40 million for its TIDE Africa fund. It's looking for start-ups that can scale across several countries. Russell Southwood caught up with Ido Sum, Partner and Omobola Johnson, General Partner and former Nigerian Communications Minister in Lagos to talk about what they have planned.

TLcom Capital has recently raised US$40 million for its Technology and Innovation for Developing Economics (TIDE) Africa Fund. Investors include the African Development Bank (AfDB) and the European Investment Bank (EIB) committing US$10 million each, alongside other African, American and European corporate investors and family offices such as FBN Capital, and Silicon Valley based Bob King, founder of the Stanford SEED institute. Other investors are currently working with a view to joining the final close of the Fund scheduled in June 2018.

The fund wants to look at start-up companies from early to growth stage and invest anything between US$0.5-10 million. According to Ido Sum:"The sweet spot for us is US$2-5 million. We want to be the first institutional investor in the company".

The fund is looking for companies that have demonstrated that they have growth potential:"We want to see a company with traction and this can be expressed as users for a B2C company or as (signed) commercial agreements for a B2B company".

Sum talks of targeting people at the Bottom of the Pyramid but makes it clear that will not be the very bottom of the pyramid:"There are a lot of perceptions that the (African) middle class is not really middle class. There's definitional issues. But with people on US$1 a day, there's not much you can do. We're starting from urban centres where the energy (in people terms) is different".

It is targeting five sectors: fintech, education, health, energy and e-commerce:"We have a pipeline in place and a database of 1,000 companies. The usual ratio is talking to 100 companies to get a deal".

It is looking to do 3-4 investments a year and the fund has a 10 year life with the option of a two year extension. It is hoping to hold its investments for an average of five to seven years.

In terms of geography it is firmly targeting the African start-up "heartlands":"Two-thirds of our database is Nigeria and Kenya. South Africa is also interesting and we want a broad spread around the other countries. We want companies in Kenya that are targeting East Africa. We're not that excited by South Africa".

So what are you looking for in your start-ups?:"A strong team that can execute. We're interested in teams over individuals. We want ideas that are big and scalable. For example, the e-commerce companies need to target a large need".

Both Sum and Johnson are clear about what has and will generate good performing start-ups in Africa:"We don't think the next Google will come out of Africa. There's not a sufficient level of engineering skills. The opportunities will come out of a deep understanding of local problems. It's no good just importing ideas and tweaking them".

"There is no legacy so the question to ask is how is the need different, particularly in health and fintech? System solutions are unlikely to be those built in the US market. We're interested in those companies that may not have been overly hyped. The less smart money has gone after the over-hyped opportunities. We're interested in those ones that are outside the spotlight". Although reluctant to be drawn on what's over-hyped, Sum does let slip that he thinks Pay-As-You-Go energy is one of them.

So what are the biggest barriers for African start-ups?:"Access to capital. Also many have little business experience. They don't have strong business networks. There's not a lot of structural support from successful entrepreneurs and many are first-time entrepreneurs".

"The start-up ecosystem) is young. It needs more time. It needs people moving between jobs so that they get experience and skills".

And as Johnson observes:"It's about filling a demand gap rather than creating a disruption. It's creating a utility service level for the underserved or unserved. It's about giving Africans what they can't currently get from Government or the private sector, where there's no access to services. Currently it is limited by internet access but that will change".

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