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Partech, one of France’s oldest and Europe’s biggest VC firms, didn’t want to miss the boat on Africa’s vast opportunities in the tech space.
So even as other investors became skittish about Africa, Partech launched its first pan-African fund earlier this year and is already planning another one, even more ambitious in size. In is a series of interviews with Karma Network, Partech shares more details about the new fund and the firm’s broader ambitions for this dynamic market.
Since its founding in 1982, Partech’s investment interests have expanded cautiously beyond European borders.
As Tidjane Deme, Partech’s Dakar-based general partner, recalls, the firm didn’t want to make the same mistake in Africa as it did in China in the 2000s.
“China’s ecosystem was opening up then, and then it was too late,” Deme says. “This is what is going on right now in Africa. You need to come in early and be a pioneer and a leader — this is how Partech has been thinking about this.”
Globally, Partech has more than $1.5 billion in assets under management, counting 276 investments, 22 funds and 126 exits to date, according to PitchBook data.
With offices in Paris, Berlin, San Francisco, Dakar, Partech has doubled the size of its Africa fund and opened its second office on the African continent in Nairobi in January.
“Having them set up a fund for Africa is a huge deal for the ecosystem at large,” says Abdul Hassan, a Lagos-based product manager at Paystack. “It’s like having Accel or Sequoia set up a fund in Africa.”
The road to raising a fully-fledged fund hasn’t been straightforward.
“When you launch a new fund with a first-time team on a new continent, it’s not easy,” Philippe Collombel, Paris-based managing partner at Partech Partners. “It’s even tougher to commit people.”
So Partech brought on board local partners who knew the market well.
Deme, who spent seven years at Google’s business development operations in Dakar, knew the challenges entrepreneurs faced very well.
“It was quite relevant for the fund,” he says of his role at Google. “The mission I had with my team for Google was to develop an ecosystem that was conducive to their business, which meant bringing more people online, working around topics like access to internet, infrastructure and regulation.”
His goal also included fostering a local ecosystem of entrepreneurs and startups.
Partech also noticed that investments were driven by investors who were not focusing on Africa, and with the majority of investments going to Nairobi, South Africa and Nigeria.
“I realized there was a growing ecosystem of tech entrepreneurs and the next stage to support them would be funding,” Deme recalls. “This is how the whole conversation came to the table.”
Expanding African Presence
Partech opened the first office in Dakar in January 2018, which now serves as its headquarters for Africa. It now also has a small office in Nairobi as of this year and a team of eight people supporting Africa operations.
After researching the market, Partech targeted $110 million for the fund size, identifying Series A and B as their “sweet spot” in evaluating startups and deciding to create a generalist fund open to all sectors, as long as it had a tech component.
“You have a pool that is deep enough, so you can have a level of selectivity that you want,” Deme says, noting the pace of growth of African tech space and investor appetite exceeded their expectations. “This is how we structured the fund.”
This was another rationale for expanding local presence and reach for Partech.
“Our ambition is a Sub-Saharan, pan-African fund,” Collombel says. “We’re getting there in two ways. First, by expanding offices. But also, we’re recruiting people from very different backgrounds, countries, experiences.”
Collombel says the second fund will be “more ambitious” than $143 million, which he expects will take 24-30 months to close. He is also open to the possibility of regional funds down the road.
“It’s a fine balance between ambition and not rushing and letting the ecosystem mature a bit,” he says. “We’re very pleased with the deal pipeline in Africa, and we want to be sure the investors can see the value of this African fund.”
Increasing Competition with Private Equity
Over the last two years, traditional private equity players are increasingly active in the African VC turf as well.
In April, Africinvest launched a another pan-African tech fund with Cathay Innovation, affiliated with Cathay Capital Private Equity firm.
“Traditional PE is getting very interested now in what is going on in the tech space,” Deme said. “We’re actually competing with PE players.”
The PE firms, including social impact-focused investors, have been active in Africa for some time. PE fundraising in Africa reached $2.7 billion last year, compared to $2.4 billion in 2017, according to African Private Equity and Venture Capital Association 2018 report, published in March 2019.
The VC space has enticed PE investors with the range of opportunities in the tech space, with its underbanked population.
“More and more digital players are enabling startups to serve the segment — (this is) why fintech exploded in Africa. This is one of the reasons that VC has a much larger pool to play with now than the traditional private equity space,” Deme says. “We’re seeing them come in into smaller tickets and into the tech space, trying to find interesting opportunities.”
So far though, Partech has backed the most obvious sectors like fintech and logistics in well-known startup hubs like Nigeria and South Africa.
The firm’s investments in Africa include TradeDepot, an automated distribution platform of consumer goods from factories to retailers, and Yoco, a South African hardware and software payments startup.
Most recently, Partech invested $5 million in Kudi, a Nigerian fintech startup. The company plans to “launch new financial products such as savings, loans, insurance to both small and informal businesses and individuals” in a country where 80% of the population relies on cash payments.
“We love that it’s well-positioned in Nigeria, it’s a big market,” says Partech’s Collombel of Kudi investment in April. “We think they can expand across Africa, and we like the team very much — that’s the reason we invested.”
The ability to become pan-African relatively quickly is the blueprint and a part of the rationale that drew Partech to the continent.
“It’s a no-brainer to become pan-African from the start. People underestimate the size of the African opportunity,” Collombel notes. “In many ways, it’s easier (for a startup) to expand across Africa than across Europe. There is a real pan-African opportunity. People look at China and India, but the most population growth will be in Africa.”
Africa’s economic growth is projected to accelerate from 3.5% in 2018 to 4% in 2019 and 4.1% in 2020, according to the African Development Bank’s (AfDB) 2019 African Economic Outlook report.
Despite hopeful targets, population growth dynamics and underlying market opportunities across Africa, there are still a lot of macroeconomic uncertainty and political risks associated with doing business in many of African countries.
In 2018 the number of recorded PE exits declined to 46, compared to 52 the previous year, according to data compiled by African Private Equity and Venture Capital Association.
Still, Collombel is “convinced” we’ll see a lot more unicorns emerge from Africa over the next few years, which is why Partech is expanding its presence on the continent.
For entrepreneurs on the ground, there is now a locally based fund and investor and who can help fuel their pan-African dreams.
“It gives entrepreneurs that validation that they have a strong VC they can rely on (when) they need capital to grow,” says Hassan, the Lagos-based entrepreneur.