Key to the formation of new VC fund Entrepreneurs for Entrepreneurs (E4E) Africa was its entrepreneur-driven founding team, and managing partner Philani Sangweni believes having been on both sides of the table will allow the fund to better support its portfolio companies.
Disrupt Africa reported last month on the launch of E4E, a venture capital fund aimed at helping South African entrepreneurs build internationally-successful companies and counting the likes of Bas Hochstenbach and Aisha Pandor among its founding partners.
E4E, which is backed by a founding investment from the SA SME Fund and has a first close of R135-million (US$8.1 million), has already closed two investments, including in grocery delivery startup Yebo Fresh, and managing partner Sangweni believes it is set to make a major contribution to the development of the local tech space.
“As someone who’s been on both sides, as an entrepreneur and behind efforts to help tech startups grow, I got to the point where I realised how important it is to invest back into the ecosystem if it is to thrive,” he told Disrupt Africa.
After studying accounting, Sangweni had stints at Accenture and Standard Bank before launching his first venture in 2007. After returning to Accenture between 2010 and 2014 he leapt back into the startup space by founding a technology consulting business, where he is currently a non-executive chairman. As well as this he also spent time as chief operating officer (COO) at education financial services business Fundi SA, which gave him an introduction to startup investing as part of the company’s innovation strategy.
“I was busy heading up AKRO Accelerate when the opportunity to launch E4E came about, and I immediately realised the potential for us to make a very big impact,” he said.
E4E started as an angel investor and mentorship platform that was born out of a recognition by Sangweni and a group of fellow entrepreneurs that there was a greater need for investment in the South African startup ecosystem by people who actually had entrepreneurial experience.
“A lot of investors come from an institutional background. As such, they might be able to provide financial capital but we felt that as experienced entrepreneurs we could offer the knowledge capital that entrepreneurs so desperately need,” said Sangweni.
The partners at E4E are all invested in the fund, though the bulk of our funding has, to date, come from the SA SME Fund. The firm is, however, securing further local and international investment, and Sangeni said it has more deals in the pipeline.
“We’re particularly interested in companies that bring innovative solutions to critical sectors of the South African economy, including financial services, healthcare, and the sustainable agriculture value chain. Another point of interest is whether companies have achieved product-market fit with the capacity to scale inside and outside of South Africa,” he said.
“We also have a special focus on companies with black and female founders, because we take very seriously the need to help close the big representation gap that exists in the South African startup space.”
At this stage, E4E’s primary focus is on South Africa-based startups that aim to serve the rest of Africa and the world, though it does have a long-term ambition to invest across the continent. The expertise of its founding team is its main selling point.
“One of the things that sets us apart from other VC funds is that we also offer the companies in which we invest a wealth of entrepreneurial experience – both from among E4E’s partners as well as other seasoned entrepreneurs to act as mentors. We also assure these companies access to local and international networks that will benefit them during their growth journeys,” Sangweni said.
He said the continent’s tech space was “incredibly exciting”, with Africa’s tech hubs boasting talent to match that of Silicon Valley and other tech hotspots around the globe.
“The number of local startups receiving support from respected international funds is evidence that the rest of the world is starting to sit up and take notice,” Sangweni said.
“While we shouldn’t minimise the challenges that exist on the continent, this reality does however open up space for innovators and entrepreneurs to leverage technology to tackle real-world problems. And with a young, upwardly mobile population that’ll be incredibly important going forward for Africa as a whole.”
For investors, historical funding disparity and an immature ecosystem represent an opportunity for value creation for themselves and for entrepreneurs, he said. This meant that prior to the world going into lockdown investor interest in the continent was bigger than it had ever been.
“In developed markets, interest rates were already low and many equity deals oversubscribed. In comparison, Africa offered incredible returns at a much lower cost. A lot of smart money was moving into the continent,” said Sangweni.
He is still optimistic about funding in a post-COVID world, however.
“While there may now be less money to go around as the world begins emerging from varying COVID-19 lockdowns, investors are still hungry for good deals and the investment case for Africa remains strong,” he said.
E4E in particular will remain active, with Sangweni saying it will continue identifying startups in which to invest, and to bring more investors onboard.
“COVID-19 hasn’t changed that, in fact in some cases we are talking to businesses that have been critical in the response to the pandemic, despite the fact that we have certainly had to adapt to new ways of operating. We’re also assisting the businesses with which we work to do the same,” he said.