DiGAME is looking for a few good investments in Africa's major markets and has a clear idea of what it's looking for. Russell Southwood talked to its Principal Emilian Popa about the things it's invested in so far and what's coming next.
DiGAME is an extension of Zouk Capital, which makes late early stage and early B round investments, mainl in the Europe and the USA through two funds. In 2014 it invested in an off-grid electric company in Tanzania similar to M-KOPA. This made the founder of Zouk Capital Samer Salty think about building a vehicle focused on Africa.
"We look at how Africa might be in 20 years time and how it is now in terms of technology and you see smartphones and new business models. It's a new business opportunity".
The next factor was the team. Zouk Capital's Salty wanted people who had an understanding of the continent:"He met me and my partner who had spent time building and exiting businesses on the continent". Popa's experience includes: Twangoo (sold to Groupon); Rocket Internet; Naspers' Africa Internet Accelerator; and Groupon South Africa. His partner Nnena Nkongho was an ex-banker who understood West Africa well and had worked for start-up Solo Phone Nigeria and Etisalat Nigeria.
"We invest in tech-enabled companies with investments of between US$3-5 million, topping that up with money from other funds. There has to be some kind of tech use in the way they provide their services. In country terms, it is focused on South Africa, Kenya, Nigeria, Egypt and maybe Morocco. So for example, Get Smarter in which we invested and exited was tech-enabled and say Twiga Foods in Kenya that does logistics and distribution and is using tech to sell bananas".
"We look at sectors where a US$100 million to US$1billion company will come from and we look for entrepreneurs who can make that kind of impact. We look at the markets the companies are in and whether they can expand pan-Africa or into the Western World."
The Get Smarter story is an interesting one because it is one of the biggest exits on the continent so far. Get Smarter was launched to trains working individuals at a certain point in their career, usually between 30-40 years old:"It's the eDX/Coursera model. We met the funders in 2011 and 2012. They were two brothers (Rob and Sam Paddock) in Cape Town".
Get Smarter was bought by an American company called 2U and the deal was the biggest in the South African technology space for many years: according to Forbes, 2U paid US$103 million:"They were amazing entrepreneurs and already had 250 staff. It offered boutique online courses and had an amazing attendance rate when compared to Coursera. Get Smarter had a 90% completion rate. We liked the sector and saw how the app could go abroad".
"We worked with the founders for about a year. There were discussions about whether it was an African app or could go somewhere else. It was cash positive so it didn't really need (immediate) investment. We invested US$6 million in 2016. We helped them go to the USA and sign up MIT courses. The idea was to grow the company outside South Africa. We exited 10 months later".
This was a very fast turnaround so I asked Popa whether there would be other similarly speedy exits:"There are not that many exits and there are not many easy exits (like this) in Africa and not many full exits".
DiGAME's portfolio inclides: 10X Investments (a South African tech enabled asset manager); RhinoAfrica.com (a South African online tour operator); and SWVL (a premium app-based mass transit system that enables riders to share fixed-route bus trips for a flat fare with no surge pricing).
SWIVL is an Egyptian company with dynamic routing technology using its own mini-buses in Cairo to solve traffic jams in a city of 30 million people. There are buses and subways in the downtown area but they don't cover the whole of Cairo. Women find they are sexually harassed on public transport and Uber is too expensive to use on a daily basis. SWIVL rents mini-buses that pick up and deliver people to work:"It's like the Uber Pool model and we liked the impact it made and the three founders. We put in US$2.5 million of a US$8 million round".
"Africa is risky but there are amazing opportunities and entrepreneurs. We want to support those people to the next stage. We like businesses where we can do more than one country. Get Smarter is an example of that. SWVL's another example: once you can do Cairo, you can go to other big African cities".
We look at the big markets: the four big markets are the leading markets. There are way more start-up companies in Nairobi than in Accra and that's probably down to the people and the quality of the education. We hope to do 3-4 investments because there are not hundreds of companies at this stage. It's a case of quality vs quantity but there is enough deal flow at this level. We've seen over 350 companies and done 4 deals".
"There are three sectors we're pursuing: education, fintech and mobility". What do you like in the fintech space?:" Some I like, some like loan companies I'm trying to run away from. Also logistics tech will be huge. But really it's any tech-enabled companies".