Under new guidance issued by the Small Business Administration it seems non-profits and faith-based groups can apply for the Paycheck Protection Program loans designed to keep small business afloat during the COVID-19 epidemic, but most venture-backed companies are still not covered.
Late Friday night, the Treasury Department updated its rules regarding the “affiliation” of private entities to include religious organizations but keep in place the same rules that would deny most startups from receiving loans.
(b) If you are a faith-based organization, *no affiliation rules apply to you,* because the SBA just said so. Out of nowhere. At like 10pm on a Friday night.
— Doug Rand (@doug_rand) April 4, 2020
The NVCA and other organizations had pushed Treasury Secretary Steve Mnuchin to clarify the rules regarding startups and their potential eligibility for loans last week. And House Republican leader Kevin McCarthy even told Axios that startups would be covered under the revised regulations.
2/ There are rumors that the PPP Loan program may still fix the Affiliate Rule next week. Until fixed, it's nearly impossible for most VC-backed startups to apply because it would require huge legal lift to amend all of the charters of these companies to change control provisions
— Mark Suster (@msuster) April 4, 2020
At its essence, the issue for startups seems to be centered on the board rights that venture investors have when they take an equity stake in a company. For startups with investors on the board of directors, the decision-making powers that those investors hold means the startup is affiliated with other companies that the partner’s venture firm has invested in — which could mean that they’re considered an entity with more than 500 employees.
“[If] there’s a startup that’s going gangbusters right now, they shouldn’t apply for a PPP loan,” wrote Doug Rand, the co-founder of Seattle-based startup Boundless Immigration, and a former Assistant Director for Entrepreneurship in the Office of Science and Technology Policy during the Obama administration, in a direct message. “But most startups are getting killed because, you know, the economy is mostly dead.”
The $2 trillion CARES Act passed by Congress and signed by President Trump was designed to help companies that are adversely affected by the economic fallout resulting from the COVID-19 outbreak in the US and their employees — whether those businesses are directly affected because their employees can’t leave home to do their jobs or indirectly, because demand for goods and services has flatlined.
While some tech startups have seen demand for their products actually rise during these quarantined days, many companies have watched as their businesses have gone from one to zero.
The sense frustration among investors across the country is palpable. As the Birmingham-based investor, Matt Hottle, wrote, “After 4 days of trying to help 7 small businesses navigate the SBA PPP program, the program went to shit on launch. I’m contemplating how many small businesses, counting on this money, are probably locked out. I feel like I/ we failed them.”
After 4 days of trying to help 7 small businesses navigate the @SBAgov PPP program, the program went to shit on launch. I’m contemplating how many small businesses, counting on this money, are probably locked out. I feel like I/ we failed them.
— Matt Hottle (@MattRedhawk) April 4, 2020
And although the rules around whether or not many startups are eligible remain unclear, it’s probably wise for companies to file an application, because, as the program is currently structured, the $349 billion in loans are going to be issued on a first-come, first-served basis, as Suster flagged in his tweets on the subject.
General Catalyst is advising its companies that are also backed by SBIC investors to apply for the loans, because that trumps any other rules regarding affiliation, according to an interview with Holly Maloney Burbeck, a managing director at the firm.
And there’s already concerns that the money could run out. In a tweet, the President announced that he would request more money from Congress “if the allocated money runs out.”
I will immediately ask Congress for more money to support small businesses under the #PPPloan if the allocated money runs out. So far, way ahead of schedule. @BankofAmerica & community banks are rocking! @SBAgov @USTreasury
— Donald J. Trump (@realDonaldTrump) April 4, 2020
“Congress saw fit to allow Darden to get a forgivable small business loan—actually a taxpayer-funded grant—for like every Olive Garden in America. But Congress somehow neglected to provide comparable rescue measures for actual small businesses that have committed the sin of convincing investors that they have the potential to employ a huge number of people if they can only survive,” Rand wrote in a direct message. “The Trump administration has full authority to ride to the rescue, and they did… but only for large religious organizations.”
Against a backdrop where the life-or-death consequences of biotechnology innovation are becoming increasingly apparent as the world races to develop vaccines and therapies to treat COVID-19, life sciences investor ARCH Venture Partners has raised $1.46 billion in funding to finance new tech development.
The two funds, ARCH Venture Fund X and ARCH Venture Fund X Overage, are the latest in the firm’s long line of investment vehicles dedicated to invest in early stage biotechnology companies.
“ARCH has always been driven to invest in great science to impact human health. There isn’t a better illustration of our principles than our all-in battle against COVID-19,” said co-founder and Managing Director Robert Nelsen in a statement. “The healthcare revolution will be accelerated by the changes that are happening now and we are excited to continue to invest aggressively in risk takers doing truly transformational science.”
ARCH portfolio companies Vir Biotechnology, Alnylam Pharmaceuticals, VBI Vaccines, Brii Biosciences, and Sana Biotechnology are all working on COVID-19 therapeutics; while Quanterix is developing technology to support clinical testing and clinical trial development. Another company that ARCH has backed, Twist Biosciences, has gene editing tools that the company believes can support therapeutic and vaccine development; and Bellerophon, a developer of inhaled nitric oxide delivery technologies, received emergency access approval from the FDA as a treatment to help alleviate respiratory distress associated with COVID-19.
The firm’s Overage fund will be used to take larger stakes in later-stage companies that require more capital, the firm said.
“Our companies bring cutting-edge science, tools and talent to bear in developing medicines for a wide range of diseases and conditions faced by millions. With these two new funds, we are continuing that work with urgency and a deep sense of purpose,” managing director Kristina Burow said in a statement. “We invest at all levels, whether it’s fifty thousand dollars or hundreds of millions, so that each company and each technology has the best chance to advance and change the landscape.”
The two new funds are roughly the same size as ARCH’s last investment funds, which closed in 2016 with $1.1that billion, but are a big jump from the 2014 ARCH funds that raised $560 million in total capital commitments.
The increasing size of the ARCH funds is a reflection of a broader industry trend which has seen established funds significantly expand their capital under management, but also is indicative of the rising status of biotech investing in the startup landscape.
These days, it’s programmable biology, not software, that’s eating the world.
“ARCH remains committed to our mission of the last 35 years, advancing the most promising innovations from leading life science and physical sciences research to serve the worldwide community by addressing critical health and well-being challenges,” said Keith Crandell in a statement. “ARCH has been privileged to found, support and invest in groundbreaking new companies pursuing advancements in infectious disease, mental health, immunology, genomic and biological tools, data sciences and ways of reimagining diagnostics and therapies.”
Managing directors for the new fund include Robert Nelsen, Keith Crandell, Kristina Burow, Mark McDonnell, Steve Gillis and Paul Thurk.
Until very recently, it had begun to seem like anyone with a thick enough checkbook and some key contacts in the startup world could not only fund companies as an angel investor but even put himself or herself in business as a fund manager.
It helped that the world of venture fundamentally changed and opened up as information about its inner workings flowed more freely. It didn’t hurt, either, that many billions of dollars poured into Silicon Valley from outfits and individuals around the globe who sought out stakes in fast-growing, privately held companies — and who needed help in securing those positions.
Of course, it’s never really been as easy or straightforward as it looks from the outside. While the last decade has seen many new fund managers pick up traction, much of the capital flooding into the industry has accrued to a small number of more established players that have grown exponentially in terms of assets under management. In fact, talk with anyone who has raised a first-time fund and you’re likely to hear that the fundraising process is neither glamorous nor lucrative and that it’s paved with very short phone conversations. And that’s in a bull market.
What happens in what’s suddenly among the worst economic environments the world has seen? First and foremost, managers who’ve struck out on their own suggest putting any plans on the back burner. “I would love to be positive, and I’m an optimist, buut I would have to say that now is probably one of the toughest times” to get a fund off the ground,” says Aydin Senkut, who founded the firm Felicis Ventures in 2006 and just closed its seventh fund.
It’s a perfect storm for first-time managers,” adds Charles Hudson, who launched his own shop, Precursor Ventures, in 2015.
Hitting pause doesn’t mean giving up, suggests Eva Ho, cofounder of the three-year-old, seed-stage L.A.-based shop Fika Ventures, which last year closed its second fund with $76 million. She says not to get “too dismayed” by the challenges. Still, it’s good to understand what a first-time manager is up against right now, and what can be learned more broadly about how to proceed when the time is right.
Know it’s hard, even in the best times
As a starting point, it’s good to recognize that it’s far harder to assemble a first fund than anyone who hasn’t done it might imagine.
Hudson knew he wanted to leave his last job as a general partner with SoftTech VC when the firm — since renamed Uncork Capital — amassed enough capital that it no longer made sense for it to issue very small checks to nascent startups. “I remember feeling like, ‘Gosh, I’ve reached a point where the business model for our fund is getting in the way of me investing in the kind of companies that naturally speak to me,” which is largely pre-product startups.
Hudson suggests he may have overestimated interest in his initial idea to create a single GP fund that largely backs ideas that are too early for other investors. “We had a pretty big LP based [at SoftTech] but what I didn’t realize is the LP base that’s interested in someone who is on fund three or four is very different than the LP base that’s interested in backing a brand new manager.”
Hudson says he spent a “bunch of time talking to fund of funds, university endowments — people who were just not right for me until someone pulled me aside and just said, ‘Hey, you’re talking to the wrong people. You need to find some family offices. You need to find some friends of Charles. You need to find people who are going to back you because they think this is a good idea and who aren’t quite so orthodox in terms of what they want to see in terms partner composition and all that.'”
Collectively, it took “300 to 400 LP conversations” and two years to close his first fund with $15 million. (Its now raising its third pre-seed fund).
Ho says it took less time for Fika to close its first fund but that she and her partners talked with 600 people in order to close their $41 million debut effort, adding that she felt like a “used car salesman” by the end of the process.
Part of the challenge was her network, she says. “I wasn’t connected to a lot of high-net-worth individuals or endowments or foundations. That was a whole network that was new to me, and they didn’t know who the heck I was, so there’s a lot of proving to do.” A proof-of-concept fund instill confidence in some of these investors, though Ho notes you have to be able to live off its economics, which can be miserly.
She also says that as someone who’d worked at Google and helped found the location data company Factual, she underestimated the work involved in running a small fund. “I thought, ‘Well, I’ve started these companies and run these big teams. How how different could it be? Learning the motions and learning what it’s really like to run the funds and to administer a fund and all responsibilities and liabilities that come with it . . . it made me really stop and think, ‘Do I want to do this for 20 to 30 years, and if so, what’s the team I want to do it with?'”
Investors will offer you funky deals; avoid these if you can
In Hudson’s case, an LP offered him two options, either a typical LP agreement wherein the outfit would write a small check, or an option wherein it would make a “significant investment that have been 40% of our first fund,” says Hudson.
Unsurprisingly, the latter offer came with a lot of strings. Namely, the LP said it wanted to have a “deeper relationship” with Hudson, which he took to mean it wanted a share of Precursor’s profits beyond what it would receive as a typical investor in the fund.
“It was very hard to say no to that deal, because I didn’t get close to raising the amount of money that I would have gotten if I’d said yes for another year,” says Hudson. He still thinks it was the right move, however. “I was just like, how do I have a conversation with any other LP about this in the future if I’ve already made the decision to give this away?”
Fika similarly received an offer that would have made up 25 percent of the outfit’s debut fund, but the investor wanted a piece of the management company. It was “really hard to turn down because we had nothing else,” recalls Ho. But she says that other funds Fika was talking with made the decision simpler. “They were like, ‘If you sign on to those terms, we’re out.” The team decided that taking a shortcut that could damage them longer term wasn’t worth it.
Your LPs have questions, but you should question LPs, too
Senkut started off with certain financial advantages that many VCs do not, having been the first product manager at Google and enjoying the fruits of its IPO before leaving the outfit in 2005 along with many other Googleaires, as they were dubbed at the time.
Still, as he tells it, it was “not a friendly time a decade ago” with most solo general partners spinning out of other venture funds instead of search engine giants. In the end, it took him “50 no’s before I had my first yes” — not hundreds — but it gave him a taste of being an outsider in an insider industry, and he seemingly hasn’t forgotten that feeling.
Indeed, according to Senkut, anyone who wants to crack into the venture industry needs to get into the flow of the best deals by hook or by crook. In his case, for example, he shadowed angel investor Ron Conway for some time, working checks into some of the same deals that Conway was backing.
“If you want to get into the movie industry, you need to be in hit movies,” says Senkut. “If you want to get into the investing industry, you need to be in hits. And the best way to get into hits is to say, ‘Okay. Who has an extraordinary number of hits, who’s likely getting the best deal flow, because the more successful you are, the better companies you’re going to see, the better the companies that find you.”
Adds Senkut, “The danger in this business is that it’s very easy to make a mistake. It’s very easy to chase deals that are not going to go anywhere. And so I think that’s where [following others] things really helped me.”
Senkut has developed an enviable track record over time. The companies that Felicis has backed and been acquired include Credit Karma, which was just gobbled up by Intuit; Plaid, sold in January to Visa; Ring, sold in 2018 to Amazon, and Cruise, sold to General Motors in 2016, and that’s saying nothing of its portfolio companies to go public.
That probably gives him a kind of confidence that it’s harder to earlier managers to muster. Still, Senkut also says it’s very important for anyone raising a fund to ask the right questions of potential investors, who will sometimes wittingly or unwittingly waste a manager’s time.
He says, for example, that with Felicis’s newest fund, the team asked many managers outright about how many assets they have under management, how much of those assets are dedicated to venture and private equity, and how much of their allotment to each was already taken. They did this so they don’t find themselves in a position of making a capital call that an investor can’t meet, especially given that venture backers have been writing out checks to new funds at a faster pace than they’ve ever been asked to before.
In fact, Felicis added new managers who “had room” while cutting back some existing LPs “that we respected . .. because if you ask the right questions, it becomes clear whether they’re already 20% over-allocated [to the asset class] and there’s no possible way [they are] even going to be able to invest if they want to.”
It’s a “little bit of an eight ball to figure out what are your odds and the probability of getting money even if things were to turn south,” he notes.
Given that they have, the questions look smarter still.
In the wake of the financial crisis, Congress passed regulations limiting the types of investments that banks could make into private equity and venture capital funds. As cash strapped investors pull back on commitments to venture funds given the precipitous drop of public market stocks, loosening restrictions on the how banks invest cash could be a lifeline for venture funds.
That’s the position that the National Venture Capital Association is taking on the issue in comments sent to the chairs of the Federal Reserve, the Securities and Exchange Commission and the Federal Deposit Insurance Corp., and the Commodities Future Trading Commission.
The proposed revisions of the Volcker Rule would exclude qualifying venture capital funds from the covered fund definition.
“The loss of banking entities as limited partners in venture capital funds has had a disproportionate impact on cities and regions with emerging entrepreneurial ecosystems — areas outside of Silicon Valley and other traditional technology centers,” NVCA president and chief executive Bobby Franklin wrote. “The more challenging reality of venture fundraising in these areas of the country tends to require investment from a more diverse set of limited partners.”
Franklin cited the case of Renaissance Venture Capital, a Michigan-based regionally focused fund that estimated the Volcker Rule cost them $50 million in potential capital commitments resulting in the loss of a potential $800 million in capital invested in the state of Michigan.
“This narrative unfortunately repeats itself, as we have heard firsthand from investors about how the Volcker Rule has affected venture capital investment and entrepreneurial activity across the country,” wrote Franklin. “The majority of these concerns about the Volcker Rule have come from members located in regions with emerging ecosystems, including states like Ohio, Michigan, North Carolina, New Hampshire, Wisconsin, Georgia, and Virginia, to name a few.”
It’s not only small states that could be impacted by the decision to reverse course on banking investments into venture firms in these uncertain times.
There’s a growing concern among venture investors that — just like in 2008 — their limited partners might find that they’re over-allocated into venture investments given the decline in markets, which would force them to pull back on making commitments to new funds.
“Institutional LPs will run into the same issues they had in 2008. If you used to manage $10B and the market declines and you now manage $6B, the percentage allocated to private equity has now increased relative to the whole portfolio,” Hyde Park Ventures partner, Ira Weiss told a Forbes columnist in a March interview. “They’re really not going to look at new managers. If you’ve done really well as a manager, they will probably re-up but may reduce commitment amounts. This will bleed backwards into the venture market. This is happening at a time when Softbank has already had a lot of trouble and people had not really modulated for that yet, but now they will.”
Some of the largest investment funds have already closed on capital, insulating them from the worst hits. These include funds like New Enterprise Associates and General Catalyst . But newer funds are going to have a harder time raising. For them, giving banks the ability to invest in venture firms could be a big boon — and a confidence boost that the industry needs at a time when investors across the board are getting skittish.
“Fundraising for new funds in 2020 and 2021 might prove to be more difficult as asset managers think about rebalancing their portfolio and/or protecting their assets from the current volatility in the market,” Aaron Holiday told Forbes . “This means that VC investing could slow down in 12 – 24 months after the most recent wave of funds (i.e. 2018 and 2019 vintages) are fully deployed.”
Africa is using digital finance as a means to stem the spread of COVID-19.
Governments and startups on the continent are implementing measures to shift a greater volume of payment transactions toward mobile money and away from cash — which the World Health Organization flagged as a conduit for the spread of the coronavirus.
It’s an option facilitated by the boom in fintech that’s occurred in Africa over the last decade. By several estimates, the continent is home to the largest share of the world’s unbanked population and has a sizable number of underbanked consumers and SMEs.
But because of that, fintech — and startups focused on financial inclusion — now receive the majority of VC funding annually in Africa, according to recent data.
As COVID-19 cases began to grow in the continent’s major economies last week, the continent’s leader in digital payment adoption — Kenya — turned to mobile-money as a public-health tool.
Image Credits: Flickr
The company announced that all person-to-person (P2P) transactions under 1,000 Kenyan Schillings (≈ $10) would be free for three months.
The move came after Safaricom met with the country’s Central Bank and per a directive from Kenya’s President Uhuru Kenyatta “to explore ways of deepening mobile-money usage to reduce risk of spreading the virus through physical handling of cash,” according to a release provided to TechCrunch from Safaricom.
Kenya has one of the highest rates of mobile-money adoption in the world, largely due to the dominance of M-Pesa in the country, which stands as Africa’s 6th largest economy. Across Kenya’s population of 53 million, M-Pesa has 20.5 million customers and a network of 176,000 agents.
M-PESA Sector Stats 4Q 2019 per Kenya’s Communications Authority
With all major providers in Kenya there are 32 million subscribers, which means roughly 60% of the country’s population has access to mobile-money.
Ghana is also using digital finance as a monetary policy lever to reduce the spread of COVID-19
On March 20, the West African country’s central bank directed mobile money providers to waive fees on transactions of GH₵100 (≈ $18), with restrictions on transactions to withdraw cash from mobile-wallets.
Ghana’s monetary body also eased KYC requirements on mobile-money, allowing citizens to use existing mobile phone registrations to open accounts with the major digital payment providers, according to a March 18 Bank of Ghana release.
The trajectory of the coronavirus in Africa is prompting more countries and tech companies to include mobile finance as part of a broader response. The continent’s COVID-19 cases by country were in the single digits until recently, but those numbers spiked last week leading the World Health Organization to sound an alarm.
“About 10 days ago we had 5 countries affected, now we’ve got 30,” WHO Regional Director Dr Matshidiso Moeti said at a press conference Thursday. “It’s has been an extremely rapid…evolution.”
Source; World Health Organization
By the World Health Organization’s stats Monday there were 1321 COVID-19 cases in Sub-Saharan Africa and 34 confirmed deaths related to the virus — up from 463 cases and 10 deaths last Wednesday.
The country with 40% of the region’s cases is South Africa, which declared a national disaster last week, banned public gatherings and announced travel restrictions on the U.S.
Unlike Ghana and Kenya, the government in Africa’s second largest economy hasn’t issued directives toward mobile payments, but the situation with COVID-19 is pushing fintech startups to act, according to Yoco CEO Katlego Maphai.
The Series B stage venture develops and sells digital payment hardware and services for small businesses on a network of 80,000 clients that processes roughly $500 million annually.
Image Credits: Jake Bright
With the growth in coronavirus cases in South Africa, Yoco has issued a directive to clients to encourage customers to use the contactless payment option on its point of sale machines. The startup has also accelerated its development of a remote payment product, that would enable transfers on its client network via a weblink.
“This is an opportunity to start driving contactless adoption,” Maphai told TechCrunch on a call from Cape Town.
In Nigeria — home to Africa’s largest economy and population of 200 million — the growth of COVID-19 cases has shifted the country toward electronic payments and prompted one of the country’s largest digital payments startups to act.
Lagos based venture Paga made fee adjustments, allowing merchants to accept payments from Paga customers for free — a measure “aimed to help slow the spread of the coronavirus by reducing cash handling in Nigeria,” according to a company release.
Parts of Lagos — which is connected to Nigeria’s largest commercial hub of Lagos State — have begun to require digital payments in response to COVID-19, according to Paga’s CEO Tayo Oviosu .
“We’re seeing some stores that are saying they are not accepting cash anymore,” he told TechCrunch on a call from Lagos.
Image Credits: Paga
Paga already offers free P2P transfers on its multi-channel network of 24,840 agents and 14 million customers. The startup, that recently expanded to Mexico and partnered with Visa, will also allow free transfers up to roughly 5000 Naira (≈ $15) from customer accounts to bank accounts, to encourage more digital payments use in Nigeria.
Paga’s CEO believes the current COVID-19 crisis will encourage more digital finance adoption in Nigeria, which has shown a cash-is-king reluctance by parts of the population to use mobile payments.
“I think it will help move the needle, but it won’t be the final straw that breaks the camel’s back,” he said.
Time and research will determine if efforts of African governments and tech companies to encourage digital payments over physical currency yield results in halting the spread of COVID-19 on the continent.
It is a unique case-study of mobile finance in Africa being employed to impact human behavior during a public health emergency.
The stock markets are having a very rough month, but interest in stock trading apps is skyrocketing, according to data from industry trackers and companies themselves.
Across the board from speculative stock trading apps from startups like Robinhood to savings-focused investment applications like Acorns and established companies like Etrade, would-be investors are turning to trading even as the markets are at their most volatile.
Following precipitous declines over the past week, stocks were roaring back today, with major market indices posting their biggest gains since the financial crisis of 2008.
Over the same period the stock trading startup, Robinhood, which had suffered early outages as the markets began their wild swings, recorded some of its biggest growth numbers of the year.
According to data supplied by Robinhood, the company has already seen roughly ten times the net deposits for the month versus its monthly average in the fourth quarter of 2019. Daily trading volume is also up more than three times the monthly trading volumes the company recorded in the fourth quarter of 2019.
App Annie data over the period indicates that downloads haven’t slowed since Robinhood’s early month outages either.
Robinhood may be one beneficiary of the markets’ movement, but it’s hardly the only one.
New customer growth at Acorns hit a new high of 9,800 signups last Thursday — a day that stock markets recorded their second-worst day of trading since 1987. That 9,800 sign up figure is about 45 percent more than the company normally records. In total, the company recently hit a milestone of 7 million signups.
That surge in interest shows that far from being scared off from the market, users of the tradings apps are showing some confidence in the longterm health of the markets.
“The market is down 30 percent,” said Noah Kerner, the chief executive officer of Acorns. “It’s on sale.”
Kerner said that now is the time when investors may see the biggest gains from getting into the market. “Every downturn in history has ended in an upturn,” Kerner said. Pulling your money out of the market now means you lock in losses. Last time I checked, nobody likes losses.”
The emphasis that President Trump places on the markets may also be playing a role in increasing awareness among everyday Americans, according to Kerner.
“The President and Administration have brought a lot of focus on economics and the markets more generally. You have a lot of products in fintech, especially ours, that have prioritized financial education — and spreading information in simple, digestible ways,” he said. “The message is out there that the market is on sale and people are engaging with it.”
Some of the largest names in stock trading are also enjoying new boosts in downloads and activity. Etrade, for instance, is showing a surge of interest from new investors, at least according to App Annie data.
Five years ago, it was hard to come by any numbers for annual VC investment in Africa. These days the challenge is choosing which number to follow.
That’s the case for three venture funding studies for Africa that turned up varied results.
From high to low, Partech pegged total 2019 VC for African startups at $2 billion, compared to WeeTracker’s $1.3 billion estimate and Disrupt Africa’s $496 million.
That’s a fairly substantial spread of $1.5 billion between the assessments. The variance filtered down to country VC valuations, though it was a little less sharp.
Partech and WeeTracker shared the same top-three countries for 2019 VC investment in Africa — Nigeria, Kenya, and Egypt — but with hundred-million dollar differences.
Disrupt Africa came up with a different lead market for startup investment on the continent — Kenya — though its $149 million estimate for the East African country was some $500 million lower than Partech and WeeTracker’s VC leader, Nigeria.
So what accounts for the big deviations? TechCrunch spoke to each organization (and reviewed the reports) and found the contrasting stats derive from different methodologies — namely defining what constitutes a startup and an African startup.
Partech’s larger overall VC valuation for the continent comes from broader parameters for companies and quantifying investment.
“We do not limit the definition of startups by age of the incorporation or size of funds raised,” Partech General Partner Tidjane Deme told TechCrunch.
This led the fund, for example, to include Visa’s $200 million investment in Nigerian financial-services company Interswitch . The corporate round was certainly tech-related, though few would classify Interswitch — which launched in 2002, acquires companies, and has a venture fund — as a startup.
Partech’s higher annual VC value for Africa’s startups could also connect to tallying confidential investment data.
“We…collect and analyze undisclosed deals, accessing more detailed information thanks to our relationships within the ecosystem,” the fund’s report disclosed.
WeeTracker’s methodology also included data on undisclosed startup investments and opened up the count to funding sources beyond VC.
“Debt/loans, grants/awards/prizes/non-equity assistance, crowdfunding, [and] ICOs are included,” WeeTracker clarified in a methodology note.
Disrupt Africa used a more conservative approach across companies and investment. “We are a bit more narrow on what we consider a startup to be,” the site’s co-founder Tom Jackson told TechCrunch.
“In the clearest scenario, an African startup would be headquartered in Africa, founded by an African, and have Africa as its primary market,” Disrupt Africa’s report stated — though Jackson noted all these factors don’t always align.
“Disrupt Africa tackles this issue on a case-by-case basis,” he said.
Partech was more liberal in its definition of an African startup, including investment for tech-companies that count Africa as their primary market, but not insisting they be incorporated or operate HQs on the continent.
That opened up inclusion of large 2019 rounds to Africa focused, New York headquartered tech-talent accelerator Andela and investment to Opera’s verticals, such as OPay in Nigeria.
In addition to following a more conservative definition of African startup, Disrupt Africa’s report was more particular to early-stage ventures. The site’s report primarily counted investment for companies founded within the last five year and excluded “spin-offs of corporates or any other large entity…that [has]…developed past the point of being a startup.”
For all the differences on annual VC counts for Africa, there were some common threads across WeeTracker, Partech, and Disrupt Africa’s investment reports.
The first was the rise of Nigeria — which has Africa’s largest population and economy — as the top destination for startup VC investment on the continent.
The second was the prominence of fintech as the most funded startup sector across Africa, gaining 54% of all VC in Partech’s report and $678 million of the $1.3 billion to startups in WeeTracker’s study.
An unfortunate commonality in each report was the preponderance of startup investment going to English speaking Africa. No francophone country made it into the the top five in any of the three reports. Only Senegal registered on Partech’s country-list, with a small $16 million in VC in 2019.
The Dakar Angel Network launched last year to bridge the resource gap for startups in French-speaking African countries.
There may not be a right or wrong stat for annual investment to African startups, just three reports with different methodologies that capture unique snapshots.
Partech and WeeTracker offer a broader view of multiple types of financial support going to tech companies operating in Africa. Disrupt Africa’s assessment is more specific to a standard definition of VC going to startups originating and operating in Africa.
Three reports with varying numbers on the continent’s startup investment is a definite upgrade to what was available not so long ago: little to no formal data on VC in Africa.
Now that the world is swimming in data we may be able to address the climate and environmental risks to the planet. But while there is plenty of capital to invest in things like ClimateTech, a lot of the data that’s needed to tackle this big issue is badly applied, leading to a big misallocation of resources. So to deal with the climate we have to get the data right. A big part of the solution is open standards and interoperability.
The story of how the Open Banking Standard developed might show a way forward. Its development out of the UK led to regulated sector-wide interoperability (covering a broad range of areas including IP, legal, liability and licensing, and technology to enable data sharing). It’s meant over 300 fintech companies now use the Standard, which has helped to catalyze similar initiatives.
What if someone created something like the Open Banking Standard, but this time to stimulate climate-friendly innovation around financial products. Afterall, it’s more likely we’ll save the planet is we incentivize firms with financial models to make it work.
Well, it just so happens that one of the key players that developed the Open Banking Standard plans to do the same for data about the climate to allow the insurance industry to engage in the solutions to the climate crisis.
Gavin Starks co-chaired the development of the Open Banking Standard, laying the foundations for regulation and catalyzing international innovation.
But Starks has form in this arena. Prior to co-creating Open Banking, he was the Open Data Institute’s founding CEO, working with Sir Tim Berners-Lee. The ODI may not be well known in Silicon Valley, but it’s launched franchises across 20 countries and trained 10,000 people.
Starks’ previous venture was a pioneer in the climate space: AMEE (Avoidance of Mass Extinctions Engine) organized the world’s environmental data and standards into an open web-service, raising $10M and selling in 2015 PredictX.
Starks also chaired the development of the first Gold Standard Carbon Offset.
But what Starks has set himself is a task different to Open Banking.
His new project is Icebreaker One, a new non-profit which last month raised £1m+ investment, largely funded by the UK’s government-backed body UK Research and Innovation. It’s also supported by a consortium of financial and regulatory institutions.
So what’s the big idea this time?
The idea is to develop an open standard for data sharing that will stimulate climate-friendly financial product innovation and deliver new products.
Just like the Open Banking Standard, Icebreaker One will steer the development of the SERI standard. This is the Standard for Environment, Risk and Insurance (SERI) which has been created to design, test and develop financial products with Icebreaker One members ahead of the COP26 conference in Glasgow later this year.
SERI could provide a framework for an addressable, open marketplace, built around the needs of both the market and the new reality of climate change. If it works, this would enable insurers to share data robustly, legally and securely, driving the use and adoption of artificial intelligence tools within the insurance sector.
It would mean insurers being able to invest in demonstrably low-carbon financial products and services, based on real, hard data.
The current SERI launch partners are Aon, Arup, Agvesto, Bird & Bird, Brit Insurance, Dais LLP, Lloyd’s Register Group and the University of Cambridge.
The thinking behind the initiative is that as large catastrophic climate events occur with higher frequency, the UK’s insurance market is under pressure to evolve.
By creating the data platform, insurers can invest in low-carbon financial products, rather than ignore them because they can’t be priced right.
Starks says: “The time for theory is over—we need rapid and meaningful action. The threat of climate change to the global economy is tangible, and the increase in catastrophic climate events is capable of bankrupting markets and even nation-states. We are already witnessing insurance in some areas becoming untenable – which is a genuine threat to communities and wider society.”
He adds: “We are working with some of the most influential organizations in the world to plan policies and regulation to protect citizens, our environment and our economy; to unlock the power of unused and underutilized data to enable governments and business to respond effectively, responsibly and sustainably to the threats posed by the climate emergency.”
Arup, the multinational professional services firm best known for large engineering projects, is one of those in the SERI consortium.
Volker Buscher, Chief Data Officer at Arup, says: “Responding to climate change and futureproofing the market is vital – and working with Gavin and senior industry figures is a big opportunity to make real-world data work harder, to evolve investment strategies, shine a light on inefficiencies and better understand risk. It’s of benefit to everyone that we create the working blueprint for the freer sharing and licensing of data-at-scale that can be a shot in the arm to climate-affected financial products and services.”
Icebreaker One plans to overcome the locked, legacy culture of the insurance industry.
The task ahead is a big one. Currently, the valuable data needed to unlock this potential is in lately closed-off “data lakes”. The goal is to influence $3.6 trillion of investment.
If the insurance industry can innovate around climate change and the new kinds of risk it creates, then the financial world industry can create the kind of boom Open Banking did.
And that would mean not just brand new insurance products but also new startups in what’s been described as “InsureTech”.
But the greater prize, is of course the planet itself.
Fictional portrayals of virtual worlds such as “Ready Player One” and “The Matrix” typically portray the physical and virtual worlds as distinct realms siloed from each other. Characters escape a dystopian, impoverished physical realm and enter a separate, utopian virtual realm in which they are wealthy and important.
Our non-fictional future won’t have that dichotomy. One main reason is money. Any virtual world has a virtual economy, and when that virtual economy gets really big, it integrates with our real-world economy. That is in equal parts due to market forces and government intervention.
This is part six of a seven-part series about “multiverse” virtual worlds. We will explore the dynamics of games’ virtual economies, the exchange of virtual assets for real money, challenges with money laundering and underage gambling, the compliance infrastructure needed for virtual economies, and the challenges in balancing a virtual economy’s monetary supply.
To many people, the idea of spending time in virtual worlds amassing in-game currency and trading goods still sounds like the geeky science fiction hobby of someone who needs to “get a real job.”
Our society gauges the worthiness of pursuits based on their social and economic productivity, and most people don’t view virtual worlds as productive places. As more people find enjoyment in virtual worlds and respect people with accomplishments in them, however, vying for accomplishment with those worlds will increasingly be viewed as socially productive. As more people start earning an income through work in virtual worlds, perception of economic productivity will quickly change, too.
Virtual worlds will be viewed as digital extensions of “the real world” and working a full-time job in a multiverse virtual world will become as normal as someone working in a social media marketing role today.
South African fintech startup Jumo closed a $55 million round from a diverse group of investors, the company confirmed.
Founded in 2015 and based in Cape Town, the venture offers a full tech stack for partners to build savings, lending, and insurance products for customers in emerging markets.
This week’s funding follows a $52 million raise by Jumo in 2018, led by U.S. investment bank Goldman Sachs, that saw the startup expand to Asia.
“This fresh investment comes from new and existing…investors including Goldman Sachs, Odey Asset Management and LeapFrog Investments,” Jumo said in a statement — though Goldman told TechCrunch its participation in this week’s round isn’t confirmed.
After the latest haul, Jumo has raised $146 million in capital, according to Crunchbase.
With its latest raise, the company plans to move into new markets and launch new products in Asia and Africa.
“I’m excited for our next phase. This backing will help us build a better business and break new ground,” Jumo founder Andrew Watkins-Ball said.
The company’s products have disbursed over $1 billion loans and served over 15 million people and small businesses, according to Jumo data.
Jumo is active in six markets and plans to expand to two new countries in Africa (Nigeria and Ivory Coast) and two in Asia (Bangladesh and India).
Nigeria, in particular, has become Africa’s unofficial capital for fintech development, surpassing Kenya in 2019 for drawing the most fintech specific and overall VC on the continent, according to WeeTracker.
Jumo joins a growing list of African digital-finance startups raising big money from outside investors and expanding abroad. A $200 million investment by Visa in 2019 catapulted Nigerian payments firm Interswitch to unicorn status, the same year the company launched its Verge card product on Discover’s global network.
Jumo’s funding also tracks Goldman Sachs’ growing investment in African startups. The U.S. bank has put several hundred million dollars into ventures on the continent — from Pan-African e-commerce company Jumia to Nigerian trucking-logistics firm Kobo360.
Financial services startups raised less money in 2019 than they did in 2018 as VC firms looked to back late stage firms and focused on developing markets, a new report has revealed.
According to research firm CB Insights’ annual report published this week, fintech startups across the world raised $33.9 billion* in total last year across 1,912 deals*, down from $40.8 billion they picked up by participating in 2,049 deals the year before.
It’s a comprehensive report, which we recommend you read in full here (your email is required to access it), but below are some of the key takeaways.
Early-stage deals dropped to a 12-quarter low as deal share globally shifts to mid- and late-stages (CB Insights)
The fintech market globally today has 67 unicorns as of earlier this month (CB Insights)
2019 saw 83 mega-rounds totaling $17.2B, a record year in every market except Europe
*CB Insights report includes a $666 million financing round of Paytm . It was incorrectly reported by some news outlets and the $666 million raise was part of the $1 billion round the Indian startup had revealed weeks prior. We have adjusted the data accordingly.
Esports, video games and the innovations that enable them now occupy a central space in the cultural and commercial fabric of the tech world.
For the investment firm Bitkraft Esports Ventures, the surge in interest means a vast opportunity to invest in the businesses that continue to reshape entertainment and develop technologies which have implications far beyond consoles and controllers.
Increasingly, investors are willing to come along for the ride. The firm, which launched its first fund in 2017 with a $40 million target, is close to wrapping up fundraising on a roughly $140 million new investment vehicle, according to a person with knowledge of the firm’s plans.
Through a spokesperson, Bitkraft confirmed that over the course of 2019 it had invested $50 million into 25 investments across esports and digital entertainment, 21 of which were led by the firm.
The new, much larger, fund for Bitkraft is coming as the firm’s thesis begins to encompass technologies and services that extend far beyond gaming and esports — although they’re coming from a similar place.
Along with its new pool of capital, the firm has also picked up a new partner in Moritz Baier-Lentz, a former Vice President in the investment banking division of Goldman Sachs and the number one ranked esports player of Blizzard’s Diablo II PC game in 2003.
The numbers in venture capital — and especially in gaming — aren’t quite at that scale, but there are increasingly big bets being made in and around the games industry as investors recognize its potential. There were roughly $2 billion worth of investments made into the esports industry in 2019, less than half of the whopping $4.5 billion which was invested the prior year, according to the Esports Observer.
“Gaming is now one of the largest forms of entertainment in the United States, with more than $100B+ spent yearly, surpassing other major mediums like television. Gaming is a new form of social network where you can spend time just hanging with friends/family even outside of the constructs of ‘winning the game.’”
Over $100 billion is nothing to sneer at in a growing category — especially as the definition of what qualifies as an esports investment expands to include ancillary industries and a broader thesis.
For Bitkraft, that means investments which are “born in Internet and gaming, but they have applications beyond that,” says Baier-Lentz. “What we really see on the broader level and what we think bout as a team is this emergence of synthetic reality. [That’s] where we see the future and the growth and the return for our investors.”
Bitkraft’s newest partner, Moritz Baier-Lentz
Baier-Lentz calls this synthetic reality an almost seamless merger of the physical and digital world. It encompasses technologies enabling virtual reality and augmented reality and the games and immersive or interactive stories that will be built around them.
“Moritz shares our culture, our passion, and our ambition—and comes with massive investment experience from one of the world’s finest investment firms,” said Jens Hilgers, the founding general partner of BITKRAFT Esports Ventures, in a statement. “Furthermore, he is a true core gamer with a strong competitive nature, making him the perfect fit in our diverse global BITKRAFT team. With his presence in New York, we also expand our geographical coverage in one of today’s most exciting and upcoming cities for gaming and esports.”
It helps that, while at Goldman, Baier-Lentz helped develop the firm’s global esports and gaming practice. Every other day he was fielding calls around how to invest in the esports phenomenon from private clients and big corporations, he said.
Interestingly for an esports-focused investment firm, the one area where Bitkraft won’t invest is in Esports teams. instead the focus is on everything that can enable gaming. “We take a broader approach and we make investments in things that thrive on the backbone of a healthy esports industry,” said Baier-Lentz.
In addition to a slew of investments made into various game development studios, the company has also backed Spatial, which creates interactive audio environments; Network Next, a developer of private optimized high speed networks for gaming; and Lofelt, a haptic technology developers.
“Games are the driver of technological innovation and games have prepared us for human machine interaction,” says Baier-Lentz. “We see games and gaming content as the driver of a broader wave of synthetic reality. That would span gaming, sports, and interactive media. [But] we don’t only see it as entertainment… There are economic and social benefits here that are opened up once we transcend between the physical and the digital. I almost see it as the evolution of the internet.”
Founders Fund, the investment firm led by its controversial co-founder Peter Thiel and partners Keith Rabois and Brian Singerman, has closed on $3 billion in new capital across two investment funds, TechCrunch confirmed.
News of the firm’s latest fundraising close was first reported in Axios.
The firm’s $1.2 billion Founders Fund VII closed in December and follows on the heels of a $1.3 billion Fund VI, which closed in 2016. The firm’s first growth fund, which raked in $1.5 billion, closed on Monday as well, according to a spokesperson for the investment firm. An additional $300 million in commitments is coming from the firm’s partnership to round out the $3 billion figure.
Fundraising for the new investment vehicles was first reported in The Wall Street Journal last October. And it follows the reunion earlier in 2019 of Rabois and Thiel — two of the most notorious members of the “PayPal mafia” that’s produced a number of billionaire entrepreneurs and investors.
The speed with which Founders Fund has been able to raise new capital is matched by the firm’s alacrity in deploying new dollars, according to industry watchers. Rabois in particular has made a splash at Founders Fund since joining the firm — investing large sums in competitive rounds, investors said.
But the firm’s success in fundraising is likely due to the returns it has been able to reap for its limited partners. For its 2011-vintage fund four, Founders Fund has more than quadrupled every dollar that the fund committed, to $4.60, according to a report in The Wall Street Journal (thanks to investments in Airbnb and Stripe Inc.). That figure compares favorably to the industry average of $2.11. Meanwhile, the firm’s third fund saw its returns increase to $3.80, 75 cents more than the industry average.
Founders Fund partner Cyan Banister described how the firm’s investment practices differ from other venture capital investors in a wide-ranging interview with TechCrunch last year:
As for how decisions get made, Banister explained that the voting structure is dependent on the size of the check. “So you’d meet with one or two or three or four partners, depending on your [investing] stage,” she told attendees. Because she’s looking at very early-stage startups, for example, she doesn’t have to meet with many people to make a decision. As “dollar amounts gets larger,” she continued, “you’re looking at full GP oversight,” including the involvement of senior members like Brian Singerman and Keith Rabois, and “that can a little more difficult.”
At Axios, Dan Primack reported that the growth fund would write checks of $100 million at least. The firm’s investment decisions would be structured with any two investment team members agreeing to back deals under $1.5 million. Any deal above $1.5 million requires approval from one partner and a general partner; deals above $5 million require one partner and two general partners; and deals above $10 million require approvals from two partners and the unanimous approval of Singerman, Thiel and Rabois. Any deal requiring the approval of the general partners means that the startup that is pitching has to at least talk on the phone or meet in person with the general partners.
Update: This story has been updated to reflect that the firm’s Fund VII was $1.2 billion and its Growth Fund was $1.5 billion.
A number of startups are taking on big banks with new apps that offer modern, mobile banking experiences, innovative features, and reduced or even zero fees. Entering this now-crowded market is Level, a challenger bank and banking app with advantages like 1% cash back on debit card purchases, 2.1% APY on deposits, early access to paychecks, and no fees.
The banking service is the latest from the same team behind the “debit-style” credit card called Zero, aimed at millennials who want the benefits of credit, without the potential for overspending. As Zero, the company last year closed on $20 million in Series A funding from New Enterprise Associates (NEA) SignalFire, Eniac Ventures, and Nyca, bringing its total raise to date $35 million.
Similar to Zero, Level also targets a younger demographic — in this case, those who no longer see the need for physical banks, when a bank account, useful app, and debit card is all they need. Today, there are several of these sorts of banking services to choose from; in the U.S., for example, there’s Simple, Ally, Chime, Varo, N26, Current, Space, Step, Stash, Empower, and others.
Level takes on these rival challenger banks, too, by offering a higher 2.10% APY on its FDIC-insured deposits, without requiring a minimum balance. The company notes that’s 35x the national average, based on U.S. bank balances with a less than $100,000 balance.
It also snags a feature popular with credit card users, by offering 1.0% unlimited cash bank on debit card spending. This cashback applies to both signature-based and online purchases, and is paid out on accounts that have at least a $1,000 monthly direct deposit. To be clear, a signature-based purchase means you select “credit” instead of “debit” when paying at point-of-sale. This determines how the merchant processes the transaction and the fees it pays. In Level’s case, it’s sharing some of those fees back with customers as the “cash back” option.
Level is likely counting on the fact that running a card as credit takes an extra step, so customers will skip this when they’re in a hurry and run the card as a debit instead — allowing Level to keep the fees for itself.
Like many challenger banks, Level offers early access to your paycheck. For customers with a direct deposit, Level will make the funds available based on when they are received, which could be up to 2 days early.
Also like most other banking startups, Level ditches the numerous fees big banks charge. There are no monthly, overdraft, foreign transaction or add-on ATM fees, says Level, and no minimum balance is required to have an account. It will even reimburse ATM fees worldwide up to 3 times per month, at up to $4 per reimbursement to take the sting out of the increasingly costly fees to access your cash.
Level additionally includes features that have now become part of the baseline experience for challenger banking apps, like being able to see transactions on a map, lock a missing debit card from the app, and receive push notifications for purchases, refunds, and transfers.
The app itself has a clean, modern almost minimalist design, making it simple to understand and navigate. However, it sadly opted for that terrible design trend of using an overly lightened gray font on a white background. This could put off older customers, as it makes the screen harder to read.
However, where it’s lacking is in the more robust bill, expense and goal planning features offered by other banking apps like Simple, Empower or N26, for example, which help users better plan for both recurring expenses as well as long-term goals.
However, like most (but not all) of the digital banks operating today in the U.S., Level itself is not a bank. Its customers’ funds are actually held in FDIC-insured accounts (up to $250K) through Evolve Bank & Trust. Level, meanwhile, provides the technology, the customer-facing experience, and banking services.
“Level was built to challenge the status quo in banking and put an end to the era of big banks holding people’s money while giving them no interest, a clunky app experience, and frustrating customer service,” said Level founder and CEO Bryce Galen, in a statement. “Level is able to give customers dramatically better rewards and interest, a design-forward app, and superior customer support. Our goal is to revolutionize the way people engage with their finances on a daily basis,” he added.
Antler is a “company builder” that emerged a couple of years ago, running startup generator programs and investing from an early stage, bringing a heady mix of technologists, product builders and operators together with its own technology stack.
Now, plenty of “company builders” have come and gone. It’s a bit like Apocalypse Now: everyone goes in thinking they will come up with the major formula to spit out startups at a prodigious rate and they come out screaming “The Horror! The Horror!”
But Antler appears to have been on an interesting run. It has so far made more than 120 investments across a wide range of companies, with several going on to raise later-stage funding from the likes of Sequoia, Golden Gate Ventures, East Ventures, Venturra Capital and the Hustle Fund.
Since its launch in Singapore two years ago, Antler now has a presence across New York, London, Singapore, Sydney, Amsterdam, Stockholm, Nairobi and Oslo.
Today, it’s announcing that it has attracted investment from British investment management company Schroders, investment house FinTech Collective and Ferd, the vehicle used by Johan H. Andresen, the Norwegian industrialist and investor.
This latest investment takes the capital raised by Antler over the past six months to more than $75 million.
These investors join an existing group that includes Facebook co-founder Eduardo Saverin, Canica International and Credit Saison, the third-largest credit card issuer in Japan. The idea here is that these investors get exposure to early-stage companies as they are built.
As with most company builders and accelerators, Antler only takes 1-1.5% of the applicants
Its portfolio includes Sampingan, an on-demand workforce in Indonesia; Xailient, a computer vision technology; Airalo, a global e-sims marketplace; and FusedBone, which enables medical centers to produce bespoke, non-metal implants on-site.
Magnus Grimeland, Antler co-founder and CEO said: “With our support, our founders start refining their ideas and building new and innovative businesses. What is equally important is the deep relationship our founders build with their peers, our advisors and backers. Having accomplished investors like Schroders, Ferd and FinTech Collective on board means we can provide a more valuable network for our startups as they grow their businesses.”
Peter Harrison, Group CEO of Schroders, who will also be joining Antler’s advisory board, said: “We are in a period of unprecedented change. The visibility on venture capital activity and innovation that Antler provides is therefore leading-edge.”
Antler says more than 40% of its portfolio companies have a female co-founder and 78% of these have a female CEO.
VC firm TLcom Capital has closed its Tide Africa Fund at $71 million with plans to make up to 12 startup investments over the next 18 months.
“We’re rather sector agnostic, but right now we are looking at companies that are more infrastructure type tech rather than super commoditized things like consumer lending,” he told TechCrunch on a call.
On geographic scope, TLcom Capital will focus primarily on startups in Africa’s big-three tech hubs — Nigeria, Kenya, South Africa — but is also eyeing rising markets, such as Ethiopia.
Part of the fund’s investment approach, according to Caio, is backing viable companies with strong founders and then staying out of the way.
“We are venture capitalists that believe in looking at Africa as an investment opportunity that empowers local entrepreneurs without…coming in and explaining what to do,” said Caio.
TLcom’s team includes Caio (who’s Italian), partners Ido Sum and Andreata Muforo (from Zimbabwe) and senior partner Omobola Johnson, the former Minister of Communication Technology in Nigeria.
Speaking at TechCrunch Disrupt Berlin in 2018, Johnson offered perspective on next startups in Africa that could reach billion-dollar valuations. “When I look at the African market I suspect it’s going to be a company that’s very much focused on business to business and business to very small business — a company that can that can solve their challenges,” she said.
TLcom’s current Africa portfolio reflects startups similar to what Johnson described. The fund has invested in Nigerian trucking logistics venture Kobo360, which is working to reduce business delivery costs in Africa.
Both of these companies have gone on to expand in Africa and receive subsequent investment by U.S. investment bank, Goldman Sachs .
The firm’s close of the $71 million Tide Africa Fund comes on the high-end of a several-year mobilization of capital for the continent’s startup scene. Investment shops specifically focused on Africa have been on the rise. A TechCrunch and Crunchbase study in 2018 tracked 51 viable Africa specific VC funds globally, TLcom included.
This trend has moved in tandem with a quadrupling of venture funding for the continent over the past six years. Accurately measuring VC for Africa is a work in progress, but one of the earlier reliable estimates placed it at just over $400 million in 2014. Recent stats released by Partech peg Africa focused VC funding at over $2 billion for 2019.
TLcom’s listed in a number of the larger rounds that made up Partech’s tally.
The fund’s latest $71 million raise, which included support from Sango Capital and IFC, reversed the roles a bit for TLcom founder Maurizio Caio.
The VC principal — who usually gets pitches from African startups — needed to sell the value of African tech to other investors.
“It’s been tough to raise the fund, there’s no doubt about it,” Caio said. TLcom highlighted its past exit record and the viability of the African market and founders to bring investors on board.
“We had the advantage of showing some good exits…The emphasis was also on the gigantic size of these markets that are underserved, the role that technology can play, and the fact that the entrepreneurs in Africa are just as good as anywhere else,” said Caio.
He also referenced African startups being constrained by the social impact factors often placed on them from outside investors.
“The equation is not just about ensuring employment and inclusion, but also about the fact that African entrepreneurs have to be in charge of their own destiny without instructions from the West,” he said.
For those startups who wish to pitch to TLcom Capital, Caio encouraged founders to contact one of the fund’s partners and share a value proposition. “If it’s something we find vaguely interesting, we’ll make a decision,” he said.
Life sciences is big business in venture capital land and firms are raising big dollars to find the companies that will lead the next healthcare revolution.
Chief among them is Andreessen Horowitz, which announced its third life sciences fund with a $750 million final close earlier today.
Andreessen went back to market less than than three years after closing its $450 million fund in 2017. The firm’s first, $200 million life sciences fund closed in 2015.
So far, the firm, which is one of the most successful new venture firms to come on the scene since its launch nearly 11 years ago, has only had one exit from its life science portfolio: the $65 million acquisition of Jungla by the genetics testing firm Invitae back in 2019.
Increasingly, there’s a view among investors that the life sciences and healthcare revolution borne on the back of computational biology and programmable genetics will usher in a wave innovation which will change more than just the healthcare industry.
As the firm wrote in its announcement of the new fund:
Bio is not the “next new thing”—it’s becoming everything. Software is now affecting not just how we do not just one thing—cloning DNA, or engineering genes—but how we do it all across the board, blurring lines, breaking down traditional silos, changing our processes and business models. In other words, technology today is enhancing all our existing tools and data, affecting every decision we make, from research to development to deployment—and how we access, pay for, and experience healthcare.
And it’s not just software. What is technology really? It’s principles and process. It’s a shift to an engineering mindset for relentless iteration and constant improvement; modular components that can be remixed and reused, and improvements that accrue and compound over time. Tech gives us tools beyond just software—continuous data streams to describe our health, circuits to program cells, scalpels to edit DNA, and the ability to create programmable, living medicines. Our focus is not just on the groundbreaking outputs of this shift, from novel gene and cell therapies to digital therapeutics and virtual care models, but on the underlying approach and drivers that created those breakthroughs. This is why it doesn’t work to simply tack on AI, or just insert tech into an established company. In order to re-program entire systems and re-imagine new approaches to massive challenges, whether those are biological, or man-made, you need to rethink the process from the ground up.
KKR, the multibillion-dollar multistrategy investment firm, is beefing up its technology practice with the appointment of Rob Salvagno as a co-head of its technology growth equity business in the U.S.
It’s a sign that KKR is taking the tech industry seriously as it looks for new acquisition and investment opportunities.
Salvagno, the former vice president of corporate development and head of Cisco Investments, was responsible for all mergers and acquisitions and venture capital investments at the company.
Over a twenty-year career Salvagno helped form and launch Decibel, the networking giant’s early stage, several hundred million dollar investment fund.
“Our business has evolved significantly since we first launched our technology growth equity strategy over five years ago with a small team of five. Since that time, the growth of our business and the number of compelling investments we’re seeing around the globe have allowed us to not only expand our team, but also our technology experience, network and geographic reach,” said Dave Welsh, KKR Partner and Head of Technology Growth Equity, in a statement. “With the addition of a tech industry veteran like Rob to our team, we’re excited to continue to build for the future and position ourselves well to capture the many investment opportunities we see ahead.”
To date, KKR has invested $2.7 billion in tech companies since 2014 and established itself as a player in late stage tech investment with a team of nineteen investment professionals. Earlier this month, the firm closed its $2.2 billion fund dedicated to growth technology investment in North America, Europe and Israel.
“Rob has an extensive background in security, [infrastructure] software and app dev and dev ops, a background which we believe will complement the existing teams’ skillset very well,” said Welsh in an email. “[And] our focus areas for our second firm will be similar to the prior fund, namely a heavy focus on software with some additional focus on consumer internet, fintech/insurtech and tech enabled services.”
Application development software and security technologies will also remain a core focus for the firm, according to Welsh.
“Additionally, we will be ramping up our time spent on infrastructure software (i.e. software used to run modern data center / cloud environments), application dev and development operations (i.e. app dev and dev ops solutions) as well as software solutions focused on certain vertical industries (such as real estate, legal, construction, hospitality),” the KKR co-head wrote in an email.
We are living through one of the nation’s longest periods of economic growth. Unfortunately, the good times can’t last forever. A recession is likely on the horizon, even if we can’t pinpoint exactly when. Founders can’t afford to wait until the midst of a downturn to figure out their game plans; that would be like initiating swim lessons only after getting dumped in the open ocean.
When recession inevitably strikes, it will be many founders’ — and even many VCs’ — first experiences navigating a downturn. Every startup executive needs a recession playbook. The time to start building it is now.
While recessions make running any business tough, they don’t necessitate doom. I co-founded two separate startups just before downturns struck, yet I successfully navigated one through the 2000 dot-com bust and the second through the 2008 financial crisis. Both companies not only survived but thrived. One went public and the second was acquired by Mastercard.
I hope my lessons learned prove helpful to building your own recession game plan.
In entrepreneurship, the goal isn’t just to survive; it’s to win. Some founders think that surviving recession amounts to hoarding cash and sitting out the financial winter. While there’s wisdom in hoarding cash (see below), I strongly recommend against sitting idly when that time could be actively leveraged to strengthen competitive advantage.
I founded my first startup, Yodlee, in a strong economy with almost 20 competitors. Ten years and a painful recession later, we were the only game in town. Critical to our success was acquiring our largest competitor, something we never could have done in a strong economy because they never would have been willing to sell. The recession made it untenable for them to fundraise, enabling us not only to buy them, but to do so without cash in an all-equity deal. I recommend thinking ahead of time about which companies you would want to buy if the opportunity arose, and your goals for doing so, such as consolidating competition, acquiring customers or engineering talent, entering new markets or strengthening product offerings or distribution channels.
You can’t rebuild a plane when you’re traveling 500 miles per hour. During a strong economy, companies spend most of their energy on sales and growth. During a weaker economy, it’s easier to justify the investment in infrastructure and technical debt. Yodlee was built on PERL, which we knew would eventually need upgrading. Once the downturn hit, we took advantage of the slower sales cycles to totally retool in Java, an enterprise-class programming language capable of scale. And we didn’t stop there — we created six new products during the downturn.
The precipice of a recession is not the time to over-index on top-line revenue. You never want to be on your customers’ top five lists of easiest-to-cut products and services. Instead, take the time to understand your customers’ needs, embed yourself deeply in their operations or customer experience and invest significantly in top-notch customer success.
At my second startup, Truaxis, once recession struck, we pivoted from credit card customer acquisition for banks (which requires no help during a recession) to helping banks address churn. Our revised offering yielded a tremendous ROI for banks — a 10X increase in profit. Our product also became the cornerstone to their online consumer banking experience. If you figure out how to make your product indispensable or core to the customer experience, it won’t get cut, even during a recession.
Both of my companies started out with B2C business models. After each recession hit, I quickly pivoted to B2B2C. Here’s why: While consumers can react immediately to economic jitters, businesses must keep spending in order to keep operating. Plus, they work on annual budget cycles. Even when businesses want to reduce their costs, they typically can’t react very quickly because they have to wait out their contracts.
In a bull economy, short-term contracts are popular because they enable companies to keep raising prices. Don’t be tempted by short-term cash. B2B and B2B2C firms should take the potential revenue hit by locking in long-term contracts now while budgets and buyers are flush.
While the economy is still healthy, explore options for diversifying your revenue streams and customer bases to more recession-resistant segments. If your business is consumer-focused, consider a different distribution model via businesses or new consumer segments like affluent populations, which are less sensitive to economic fluctuations. If you have an enterprise-focused business, transition more of your revenue to larger enterprises, which are more financially resilient than smaller ones, or to enterprises that need your service for survival, especially in a down market.
Key to the diversification strategy is plotting your axis ahead of time. You don’t want to start your exploration when the market has already turned and you’re burning cash faster than you can get it. Upon exploration, you may find that no pivot is necessary — perhaps only the need to slow down. Now is the time to look for and deeply understand the signals in your business, though you may not need to act on them for a while — or perhaps even ever.
It’s obviously a lot easier to raise money in a healthy economy than a weak one. If your coffers aren’t full going into a downturn, it doesn’t matter what you do; you’ve lost the game right there. Having enough cash can make the difference between emerging as the market leader (i.e. the only one still with cash in the bank) and going out of business — even if your company would have thrived in a strong economy. Be conservative when projecting how much money you’ll need to stay afloat. Many leaders underestimate how much elongated sales cycles, diminished average deal sizes and dwindling total sales transactions weaken total revenue.
I’m supportive of founders seeking aggressive valuations, but it’s important to realize the potential downside. Valuations soften during recessions, which can lead to corrections or recapitalizations. Recapitalizations create new companies in which the old stock is worth nearly nothing, leaving many employees’ options under water.
I learned this the hard way at Yodlee after raising a lot of money at a high valuation in 1999. We banked enough money that we could have lasted through most downturns without fundraising. Alas, while the average recession lasts 11 months, the dot-com crash lasted several years. Even though we were strong enough to fundraise during the recession, our high valuation forced us to recapitalize. This was crushing for the employees whose equity was suddenly worthless.
In a weak economy, startups struggle to retain their strongest employees who often retreat for safer work environments and more predictable incomes. Recapitalizations deliver an unwanted shove out the door to demoralized employees who feel they have no reason to stay. Inevitably after recapitalizations the people who are strong enough to get hired elsewhere do so. Surviving a downturn is challenging enough. Doing so without a strong, motivated team is nearly impossible.
When my Yodlee board members suggested we pivot from B2C to B2B2C, I thought they were crazy. We had acquired 1 million users through word of mouth in only two-three months. I couldn’t believe they advocated such a significant pivot when things were going so well. I eventually came to understand that these seasoned board members were actually saving my business.
As my colleague Karan Mehandru said, “investors are your war partners, not your beer buddies.” When fundraising, think carefully about who you want around the table if the economy goes south. I recommend asking potential investors if they’ve weathered downturns before and how they’d help you navigate one. I’d ask the same questions of the firm’s other partners to look for consistency of answers and to gauge your investors’ standing and seniority within the partnership. All too many board members are lovely when companies grow rapidly, but challenging when speed bumps arise. Will your board members actively help you address these challenges or stand in passive judgment?
Being a founder is hard enough, but leading a startup through a recession catapults an already challenging job to a whole different level. Whether the recession begins tomorrow or in four years, I hope you’ll learn from my experience and be prepared either way.
With the funding, Flutterwave will invest in technology and business development to grow market share in existing operating countries, CEO Olugbenga Agboola — aka GB — told TechCrunch.
The company will also expand capabilities to offer more services around its payment products.
“We don’t just want to be a payment technology company, we have sector expertise around education, travel, gaming, e-commerce, fintech companies. They all use our expertise,” said GB.
That means Flutterwave will provide more solutions around the broader needs of its clients.
The Nigerian-founded startup’s main business is providing B2B payments services for companies operating in Africa to pay other companies on the continent and abroad.
Launched in 2016, Flutterwave allows clients to tap its APIs and work with Flutterwave developers to customize payments applications. Existing customers include Uber, Booking.com and e-commerce company Jumia.
In 2019, Flutterwave processed 107 million transactions worth $5.4 billion, according to company data.
Flutterwave did the payment integration for U.S. pop-star Cardi B’s 2019 performances in Nigeria and Ghana. Those are two of the countries in which the startup operates, in addition to South Africa, Uganda, Kenya, Tanzania, Zambia, the U.K. and Rwanda.
“We want to scale in all those markets and be the payment processor of choice,” GB said.
The company will hire more business development staff and expand its developer team to create more sector expertise, according to GB.
“Our business goes beyond payments. People don’t want to just make payments, they want to do something,” he said. And Fluterwave aims to offer more capabilities toward what those clients want to do in Africa.
Olugbenga Agboola, aka GB
“If you are a charity that wants to raise money for cancer research in Ghana, or you want to sell online, or you’re Cardi B…who wants to do concerts in Africa…we want to be able to set up payments, write the code and create the platform for those needs,” GB explained.
That also means Flutterwave, which built its early client base across global companies, aims to serve smaller African businesses, including startups. Current customers include African-founded tech companies, such as moto ride-hail venture Max.ng.
The new round makes Flutterwave the payment provider for Worldpay in Africa.
In 2019, Worldpay was acquired for a reported $35 billion by FIS, a U.S. financial services provider. At the time of the purchase, it was projected the two companies would generate revenues of $12 billion annually, yet neither has notable presence in Africa.
Therein lies the benefit of collaborating with Flutterwave.
FIS’s Head of Ventures Joon Cho confirmed the partnership with TechCrunch. FIS also backed Flutterwave’s $35 million Series B. US VC firms Greycroft and eVentures led the round, with participation of Visa, Green Visor and African fund CRE Venture Capital.
Flutterwave’s latest funding brings the company’s total investment to $55 million and follows a year in which the fintech venture announced a series of weighty partnerships.
In July 2019, the startup joined forces with Chinese e-commerce company Alibaba’s Alipay to offer digital payments between Africa and China.
Flutterwave’s $35 million round and latest partnership are among the reasons the startup has become a standout in Africa’s digital-finance landscape.
As a sector, fintech gains the bulk of dealflow and the majority of startup capital flowing to African startups annually. VC to Africa totaled $1.35 billion in 2019, according to WeeTracker’s latest stats.
While a number of payment startups and products have scaled — see Paga in Nigeria and M-Pesa in Kenya — the majority of the continent’s fintech companies are P2P in focus and segregated to one or two markets.
Flutterwave’s platform has served the increased B2B business payment needs spurred by the decade of growth and reform that has occurred in Africa’s core economies.
The value the startup has created is underscored not just by transactional volume the company generates, but the partnerships it has attracted.
A growing list of the masters of the payment universe — Visa, Alipay, Worldpay — have shown they need Flutterwave to do finance in Africa.