Al Mada Ventures, the $110M fund for Africans by Africans

Al Mada Holding Group is certainly one of Africa’s largest non-public funding funds. The Casablanca-headquartered non-public holding operates in several fields, corresponding to banking, telecommunications, renewable vitality and the meals business. 

Over time, Al Mada’s strategy has centered on buying majority shareholdings in a few of Morocco’s largest non-public firms, with its portfolio spanning 27 markets (25 in Africa). As a part of its technique and to stay related, the agency has needed to suppose via how you can assist these companies scale with its affect and foster innovation inside its portfolio, how you can enhance market share throughout the completely different fields during which it operates, and how you can keep on the forefront of disruptive applied sciences that will come up within the foreseeable future. 

In tandem with addressing these strategic questions, Al Mada patiently noticed the outstanding development of the enterprise capital asset class in recent times. For perspective, in 2016, funding in African startups was $366 million; in 2022, that quantity reached $5-6 billion in equity and debt deals.

When inspecting the funding distribution, three themes have remained fixed. Whereas early-stage investing, sometimes spearheaded by small native buyers, leads the way in which when it comes to quantity and late-stage investing from overseas buyers makes the headlines when it comes to worth, there’s a dearth of capital on the Sequence A and B phases, the place Africa-focused funds often backed by improvement monetary establishments (DFIs) are generally distinguished.

Entering into enterprise capital

Final March, Al Mada, aligning these observations with its aims, launched a enterprise capital agency spin-out, Al Mada Ventures (AMV). With a capital pool of $110 million (roughly 1.1 billion dirhams), Al Mada’s overarching plan was to determine an Africa-focused agency to deal with the hole in growth-stage investing. Nonetheless, as a substitute of counting on capital from DFIs and overseas institutional buyers, it’s using capital sourced completely from Africa.

Other than the anchor, restricted companions within the evergreen fund embrace top-tier company and institutional buyers based mostly on the continent, managing director Omar Laalej informed TechCrunch in an interview. Earlier than Laalej was tapped to guide the Moroccan enterprise entity, he co-founded the Cathay AfricInvest Innovation Fund (CAIF), a $100 million pan-African VC fund shaped by way of a partnership between non-public fairness agency AfricInvest Group and European-based VC agency Cathay Innovation. Different executives on the crew embrace Yassine Soual (Investments), Narjisse Belmahi (CFO/COO), and Rida Chahoud (Worth Creation).

There are solely a handful of evergreen enterprise capital funds in Africa, and in response to Laalej, AMV selected this strategy to deal with some ache factors within the continent’s enterprise panorama. In line with him, this contains the scarcity of affected person capital to mitigate a number of the cycles the tech ecosystem goes via from a macro perspective that always will not be correlated to the basic actuality that African startups, corporates and innovators on the whole are going through on the bottom. 

Africa isn’t the one area to have skilled greater than a 50% lower in enterprise capital funding from final yr. However to Laalej’s level, not like different rising markets in Latin America, India, Southeast Asia and the Center East, Africa is on the mercy of overseas capital to develop its tech ecosystem (77% of the buyers who funded its startups final yr were based outside the continent.)

The matter is compounded by the reluctance of many native non-public and public firms, pension funds, multinationals and funding companies to allocate a portion of their money and steadiness sheets and delve into the enterprise capital asset class. Al Mada, via its enterprise arm, hopes to alter the narrative. If it manages to again winners that make outsized returns and create native and international affect, different legacy establishments may observe go well with. Orange Ventures Africa and Helios Digital Ventures are some examples of firms and personal fairness companies establishing enterprise arms. 

Funding thesis of an evergreen fund

As a recipient of company enterprise capital, AMV intends to deal with the communication and suggestions hole between corporates and startups. Usually, when these events discover issues in several markets, it’s principally by way of completely different lenses, and so they don’t at all times agree on how you can deal with them. AMV seeks to bridge that hole by connecting its startups with a few of Al Mada’s subsidiaries, fostering collaboration inside each portfolios.

“If you take the simple-to-use tool of a startup on a B2B basis and you marry those with the underwriting capability of a large insurance provider, now, you can create some magic because insurance today in sub-Saharan Africa has a penetration rate of less than 3% which is incredibly low,” mentioned Laalej, describing how an insurtech can companion with a company working within the medical health insurance area. “And in a time where digitalization is growing at a time where awareness for the need of financial inclusion is growing, I think it’s clear to us, at least, that there are certain plays where we combine corporates’ dry powder and firepower with the startups’ innovation and ability to consolidate a large pool of people and small enterprises — then create a lot of value for our shareholders and our ecosystems.”

Susu, a French- and Ivorian-based startup offering rebel providers concentrating on diabetes and hypertension sufferers in Francophone Africa, is certainly one of AMV’s portfolio firms. The VC agency lately co-led a $4.9 million seed spherical within the four-year-old startup. AMV has additionally backed a Moroccan well being tech startup, a Netherlands-based operator of a resort reserving platform with prospects in Africa and is in talks to put money into an Egyptian fintech. 

Laalej notes that whereas the Casablanca-based agency maintains a sector-agnostic strategy, there’s a deliberate positioning to capitalize on the sectors of experience held by Al Mada and different Restricted Companions (LPs). These sectors embody monetary providers, well being, logistics, renewable vitality, mining, distribution, retail, training and telecom. For AMV, the innovation it backs ought to align and complement these legacy sectors, thereby constructing bridges when it comes to each product and geographical attain. 

“We’re very strong in North Africa, Francophone-speaking West Africa and Central Africa and want to capitalize on our network in those regions. We want to help startup founders scale their products and services into regions where we strongly understand the local environments across different topics, from regulatory frameworks and go-to-market strategies to unit economics and benchmarking,” famous Laalej. “Then, we will also create bridges with other regions where we’re not necessarily as present but want to build our presence in markets like East Africa and southern Africa or even Anglophone West Africa.”

Progress-stage investor however opportunistically seed

Notably, this technique extends past African startups to incorporate overseas firms working on the continent, pre- or post-receiving a test from the year-old agency (living proof: the aforementioned Netherlands-based hospitality startup). One factor to notice, nonetheless, is that the three startups in AMV’s portfolio are within the seed and Sequence A phases. It’s a notable shift from the fund’s preliminary strategy to addressing the hole in growth-stage funding the place the likes of TLCom Capital, Partech Africa, Norrsken22, Algebra Ventures and CAIF ply their commerce. 

Why that is the case, in response to Laalej, is that AMV, after fundraising, seen a comparatively low high quality of Sequence A and B startups available in the market. He attributes this to a number of components, certainly one of which is that many startups capitalized on the ample funding atmosphere, significantly between 2020 and 2021, and consequently, have managed to safe a big runway extending 18 to 24 months. Consequently, the primed startups haven’t felt the fast want to hunt further funding available in the market in 2023.

“While we were fully aware of this as we were closing the fund, we decided that we were going to try to source our deal flow of Series A and Series B by taking an earlier approach,” he mentioned. “We now want to invest in some of the most mature seed startups that we could identify in the market and be a bit proactive about doubling down on the ones that we think will be able to go to markets and raise a Series A round and that’s what we’ve done.”

AMV intends to construct a portfolio of about 20 firms with tickets ranging wherever from $500,000 to $1 million per seed alternative and wherever from $2-6 million for Sequence A and Sequence B alternatives, with the flexibility to deploy as much as $8-10 million for observe on investments in its winners.

In distinction to its non-public fairness business, enterprise capital in Morocco stays a comparatively area of interest subset of personal capital, particularly in comparison with Egypt. Nonetheless, latest years have witnessed modest development in enterprise capital deal exercise in Morocco. In 2022, over $126 million was invested within the nation’s startups, reflecting an upward trajectory from $29 million in 2021. A number of funds, together with Outlierz Ventures and UM6P Ventures, have emerged regionally, and the launch of AMV is a noteworthy indicator that Morocco’s enterprise capital ecosystem is maturing and coming of age.

“Beyond the fact that we strive to deploy the largest African capital for African entrepreneurs and international entrepreneurs looking to spend time and effort on the African continent, we hope local and international corporates will join the party to invest their time and some of their resources back in young entrepreneurs addressing major fundamental gaps in our societies in Africa because the future is very bright, our population is resilience, and very hungry for success.”