When strip-assistant Pestac raised its seed round in $ 1.3 million in 2016, it was the largest disclosure round at that level in Nigeria.
At the time, seven-figure seed investments in African startups were rare. But over the years, the same seed-stage rounds have become more common, with some early-stage startups also raising eight-figure sums. For example, Kuda, a Nigerian fintech startup that paid $ 10 million last year.
In addition, there has been gains in pre-seed fundraising amid an increase in seven- and eight-figure African seed deals. Typically, the pre-seed round is raised when the startup is still in the stage of product development, still looking to create revenue or fit into the product-market. These investments are typically made by third-party investors (friends and family), and range between $ 25,000– $ 150,000.
But the narrative is how much early-age African startups can benefit as a pre-seed.
Last year, African VCs who typically fund seed and Series A rounds started participating in pre-seed rounds, and they do not seem to slow down. Just one month in 2021, Egypt’s fintech startup Kasbana raised $ 1 million pre-seed investment Led by VC firm Disorder In a bid for drive expansion within the country.
So why the sudden change in the appetite of investors?
Andrea Muforo, a Pan-African early stage VC firm, is a partner in TLCOM Capital. He told TechCrunch that last year 23 pre-seed rounds (10 of which were $ 150,000 + deals) per run Briter Bridge data, The market was due to investor confidence, especially FinTech.
Focused on startups that build financial infrastructure
While most African pre-seed investments went to fintech in 2020, there were exceptions, including Egyptian edtech startups Zadny, Which raised $ 1.2 million; Nigerian Automotive Tech Startup Autocheck Africa, Which raised $ 3.4 million; And Nigerian talent startup Talent, Which raised $ 300,000.
As Pestac and Flutterwave built payment infrastructure for thousands of African businesses, these fintech startups are trying to make their mark in the sweet spots of credit and banking.
“Fintech is compelling. While most fintech startups play around the commodity side of fintech, it is the infrastructure-building companies around the market that received most pre-seed validation last year, ”said Mufaro. Her firm, TLCOM, led a $ 1 million pre-seed investment in Okra.
Okra Is an API fintech startup. So are Mono, OnePipe And Pingame. They are building Africa’s API infrastructure that connects bank accounts with financial institutions and third-party companies for various purposes. Within the last 18 months, Mono and PingMe raised $ 500,000, while OnePipe raised $ 950,000 in pre-seed.
It is notable that while these startups are fighting to resolve Africa’s open API banking issues, three out of four deals after Visa Plaid acquires $ 5.3 billion In January last year.
Although visa-plaid acquisition Now closedIt is safe to say that some African investors developed FOMO, in the process handing out large-scale checks to fund “Africa’s plaid”.
Digital lenders remain one of their most important customers for fintech API startups. They can access the financial accounts of customers to understand their spending patterns and know who to loan to.
Egyptian Shahari And Nigeria Develop credit Fintech startups are building credit infrastructure for their markets. Evolve Credit connects digital lenders to people in need of loan services in Nigeria through its online lending market. On the other hand, Shahri employs an AI-based credit scoring engine so that users in Egypt can apply for credit. The pair also garnered impressive pre-seed funding – Evolve Credit, $ 325,000, and Shahri, $ 650,000.
A recurring theme: serial founder
Muforo explains that the caliber of the founders was another reason for pre-seed funding last year, aside from the startups that make up the fintech infrastructure.
Adewale Joseph, Co-founder and CEO of TalentA startup, which hires talents for Nigerian and global companies, manages them and agrees. He told TechCrunch that trust between the chancellors and the founders played a major role in most pre-seed rounds last year.
“It was not surprising that a lot of investors put money into the pre-seed round. I say this because we have seen existing founders and serial entrepreneurs coming back into the market. For me, the credibility of these founders is one The big part was why those times were big, ”he said.
A second-time founder, Yusuf is the co-founder of the Nigerian tech media publication Techpoint Africa. His partner at TalentQL, Opeyemi Awoyemi, is also a serial entrepreneur. He co-founded Joberman, one of Africa’s most popular recruitment platforms, owned by Ringier One Africa Media.
According to founder Adayayo Amzat Zcrest capital, A major investor in Talentcock’s era, the founders’ experience proved crucial in closing the deal.
He says investors are more comfortable with experienced founders in the pre-seed round because they have a more mature understanding of the problems they are trying to solve. Therefore, in short, they tend to raise more capital.
“If you look at pre-seed size, experienced founders can demand a significant premium over first-time founders,” Amzat said. “The pre-seed valuation cap for first-time founders will typically be between 400K to $ 1 million, while we often see up to $ 5 million for experienced founders.”
This was a recurring theme last year. Yale Bademosi, who runs Microtransactions, CEO of a West African early-stage VC firm Bund africa, A Nigerian-based crypto-exchange startup that raised $ 450,000 in April 2020.
Shahari co-founders Sheriff Elakabawi and Mohammed Ewis also run Egypt’s largest shopping engines and price comparison websites, Yut.
Abdulhamid Hasan, co-founder and CEO of Mono, was a co-founder of Nigerian fintech startup Oyapay and data science startup Vayus. In addition, Etop Ike, co-founder and CEO of Auto-Talk Africa, was CEO of DealDay and Cars45.
That said, Fara Ashiru Jeetubo of Okra and Akan Nelson of Evolve Credit first invested as founders, with most of their counterparts only dreaming. For Jituboh, his solid technical background spoke for him – a senior software engineering job at Paxels before the founding of Oxera and an engineering consultant role in Canva.
“We supported Fara because she is a strong technical founder. When you look at Okra’s origins as a tech-heavy company, you see how important it was to make decisions, ”Mufaro said of supporting Okra’s CEO and CTO.
Nelson also told TechCrunch that his finance background helped Evolve Credit raise a six-figure sum. The team’s consistency in product-market fit and Africa’s credit market potential was also sufficient to bring in foreign and local vice-chancellors. Samurai Incubate, Future africa, Aggressive capital And Microtransactions riding.
While early-stage investment in African startups has not reached full momentum, the explosion in the number of angel investors has reduced entry barriers to early-stage investment.
Now investors are beginning to show their readiness to African startups who promise to continue their search for the next PESTAC.
“More people are now willing to take risks in the market, especially angel investors. With success stories like Pestac they can easily let go of $ 10K- $ 50K, ”Yusuf said of $ 200 million Acquisition by US paid startup Stripe.
For all of its importance to the African tech ecosystem, especially what Pestac’s exit is about, is the return on investment made by early investors.
By the time it came out in October 2020, some angel investors had ROI of over 1,400% according to Jason Njuko blog post. Njoku, who participated in the round as an angel investor, is the CEO of IROKO, A Nigerian VOD Internet company.
For Muforo, it is a great thing to see more early-stage investments, an African tech ecosystem to be tasted regardless of the round in question.
“Pre-Seed or Seed only gives name investors and founders. They can basically mean the same thing, in my opinion, ”she said. “I think the most important fact is that we are getting more early-stage capital in Africa, and startups are getting more attention from investors, which is fantastic.”