Newly launched venture capital fund, Entrepreneurs For Entrepreneurs Africa (E4E Africa), which has secured R135 million ($8.2m) in funding, is looking for innovative startups in South Africa to invest in. The fund, which was backed by a founding investment from the SA SME Fund, aims to support business models that bring innovative, agile solutions to critical sectors of the South African economy, including the fintech sector, healthcare and the sustainable agriculture value chain, as well as those with the capacity to scale inside and outside of South Africa.
“We’re hitting the ground running. We are starting our fund with a R135 million first close and aspire to raise significantly more funds,” notes Philani Sangweni managing partner at E4E Africa.
Here Are A Few Things Startups Based In South Africa Need To Know About The Latest VC.
Any Preference For Specific Sectors?
Although E4E says it is ‘sector-agnostic’ and focuses on smart business models that have the potential to improve the quality of life for millions, it is yet to make its first set of investments, which would have helped in predicting its investment pattern.
Nevertheless, the VC leaves a hint on the extent of its sector-agnosticism: it says it may be preferring more investments into high-growth startups that specialize in digital transformation, financial/economic inclusion, and smart & sustainable value chains.
Therefore, the VC may most probably be looking towards investments into agritech, cleantech, edtech, healthtech, fintechs, and other models with high-growth potential.
However, even though the VC may be investing in all sectors, it has preferences for the type of founding teams or ownership structure to invest in.
The E4E team says it will pay particular attention to supporting black and female participation in early-stage ventures, either as founders or as key players joining the scaling phase of the investee companies. Here, whether the VC is referring to its current $8.2m fund was which backed by SA SME Fund — a fund that has a mandate — through its partner funds — to invest up to 50% of its capital into black-African owned and managed businesses — or to all investments to be made in its entire life cycle will only be determined with time.
In any case, the previous experience of the founding partners may further give a hint as to the sectors the fund may be investing in, immediately; and in the course of the next 5 years or more.
Currently, the founding team partners’ experience spans across diverse areas such as ecommerce, home-cleaning services, agritech, healthtech, fintech, tourism, cleantech, deep-tech, among others.
“There are still major business and societal issues that need to be addressed fully in our country, and even more so under the current challenges we face. As a diverse and entrepreneurial team, we believe there is opportunity here. Historical funding disparity and an immature ecosystem represent an opportunity that we would like to turn into value creation for our entrepreneurs and investors, which will ultimately benefit the entire country into the long term,” says Sangweni.
Read also: Why More South African Startups Have Raised Funds This Year
Any Special Characteristics In Investible Startups?
Apart from the business sectors described above, the VC looks like it has some criteria for choosing which startups to invest in more than others. These criteria are further classified under two broad areas: the founding team and the business model of the startup.
On Team:
The VC says it invests in entrepreneurs that are a little bit crazy and willing to prove the world wrong. However, it is only arguable that before they can trust the entrepreneurs’ level of craziness and judgement, they must have been sure that their businesses have balanced teams (personality and expertise). Other qualities include that, at least, one of the founding team members must:
- Have reached some considerable level of maturity (average African startup founders’ age is between 25–40 years). The VC is also looking at the former experience (preferably second time) of the founder.
- Be able to make money; business savvy.
- Possess strong personality or interpersonal skills (click, trust, 24-hour plane ride & good person rule).
- Be focused on the business: driven, own conviction, grit; willing to sacrifice.
- Be open to advice and feedback; wants to learn.
- Understand and be willing to balance their values with the values of E4E.
- Like is typical of most startups, the founder must also be ready to experiment and be open to change; including having the ability to manage pivot in hard times, among other range of flexibilities.
On Business Model:
The VC says that apart from the sector the startup belongs in — which it is still open-ended on in the meantime (and which would most likely be deduced, with time, from its investment history and pattern) — it is also looking at other qualities that the business has.
It says the business must:
- Possess the potential to be South African industry leader, including having significant international market potential.
- Have clear & ‘defendable’ proposition (e.g. IP).
- Have clear underlying business model.
- Have demonstrable ‘positive impact’ business model.
- Focus on growth first.
- Have realistic exit potential. (This is especially true given that most of the VC’s general partners have had successful exits for their startups in the past.)
- Already be generating revenue; or where it is not already generating revenue, its concept is so unique and is within the core areas of focus /expertise of E4E.
“We’re up and running, but still welcome experienced entrepreneurs and aligned institutional investors, locally and internationally, into our structure,” says E4E partner Hochstenbach.
“Entrepreneurial expertise, deep sector experience and relevant contacts are critical to the success of our entrepreneurs. Investors that bring this help build a healthy start-up ecosystem and drive good returns on their own investments.”
An Intimidating VC Team?
E4E’s team is made of current founders of leading South African startups such as Aisha Pandor, CEO of on-demand home cleaning startup, SweepSouth.
The team is also made of partners with deep industry knowledge and experience in venture financing, such as Philani Sangweni, who was former CEO of AKRO Accelerate; Bas Hochstenbach, a venture capitalist and former strategic advisor of e-commerce platform, Yebofresh; Bakang Komanyane, whose experience in venture capital, private equity, infrastructure and real estate spans over 10 years and across 4 continents.
Therefore, it is safe to say that even though the VC team is out to give more opportunities to under-served entrepreneurs — such as black and women owned South African businesses — it may be extremely skillful at selecting its first set of investments, in order to retain further investors’ trust and confidence.
However, given the presence of such entrepreneurs as Pandor, Bas Hochstenbach, Frederik Gerner or Neil Watson on the team, it looks like early stage South African startups stand a chance, not withstanding that early investment tickets may not be relatively large enough.
“It is great to be part of a structure that can really transfer the experience, skills and contacts my colleagues and I have built up over the years to the next generation of entrepreneurs,” says Pandor, E4E Africa partner, who further notes that she is constantly approached by early-stage entrepreneurs seeking guidance, fund and general advice.
Any Investment Outside South Africa And When Startups Can Start Pitching?
Given that the VC’s first fund was drawn from the SA SME Fund — a South Africa-focused fund — it would look ill-advised for the VC firm to invest the newly raised fund outside South Africa.
Furthermore, the fund specifically emphasizes that it is investing in early stage ventures in South Africa from their very early stages (pre-series A) to scale up. The implication of this is that although expansion beyond South Africa may be part of the VC firm’s long term plan, it is picking South Africa, a business environment familiar to most of its partners, first.
Again, although E4E currently welcomes eligible startups, it has hinted that it has probably selected some startups to make its first set of investments in.
We’re also making significant progress on our first investments,” says E4E Africa managing partner Philani Sangweni, about the new fund. “As a result, we have approved two investments and expect to be able to close several other investments in the coming months.”
“We have been really impressed with the quality of the entrepreneurs and businesses that we are seeing,” he adds.
Nevertheless, interested South Africa-based startups may begin submitting their pitch decks, building relationships, or establishing connections with the partners.
Conversations with the VC firm may begin with contacting them here.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.