Last month, pan-African venture capital firm Verod-Kepple Africa Partners reached the second close of its first fund (Verod-Kepple Africa Ventures), targeting African startups at $43 million. Verod-Kepple Africa Ventures (VKAV) achieved its first close last March (at $20 million) and aims to attain its final close by the end of the year at $100 million; if reached, VKAV will join an exiguous number of Africa-focused funds with $100 million or more in total capital allotment.
Launched in 2022, VKAV is a joint venture between Verod Capital, a private equity firm and Kepple Africa, a Tokyo-based venture capital firm that, alongside other Japanese small-sized funds such as Samurai Incubate and Uncovered Fund has been an active investor in African startups in recent years with a particular interest in fintech, e-commerce and logistics.
For early-stage investing in Africa, Kepple Africa stood out for its pace in writing checks and the number of deals it made, similar to Mauritius-based Launch Africa. Since its launch in 2018, Kepple Africa has backed more than 100 startups (across 11 African markets), investing between $50,000 and $150,000 in the pre-seed and seed stages.
Another desirable feature of the fund was how it linked its portfolio companies with Japanese strategic investors. According to Satoshi Shinada, one of Kepple Africa’s general partners, by having Japanese investors as limited partners — who also directly invested in portfolio companies — Kepple Africa wanted to replicate similar exit events occurring in Asia across Africa. However, that isn’t easy to execute when a firm invests too early. It needs to get in on the action at growth stages where there’s exit appetite from multinationals and large corporations. Hence, the synergy with Verod Capital.
“We [Kepple and Verod] have been discussing for a while about a potential collaboration. From the perspective of Verod, they have been investing as a private equity fund in nontech companies. But recently, they are seeing more opportunities to create collaboration between tech companies and nontech portfolio companies they have,” Shinada, who founded Kepple Africa with Ryosuke Yamawaki, told TechCrunch in an interview. “They [Verod] think if they can bring more tech into their portfolio companies as a PE fund, they can increase efficiencies or productivity. So there are expected synergies between the existing nontech PE portfolio companies and startups.”
Whether infusing growth equity capital or purchasing a controlling stake, private equity investors tend to target more mature startups with a proven track record and are looking to expand, and the activities of such firms, including Leapfrog Investments and gender-lens-focused Alitheia Capital, in the startup scene, have increased in recent years.
Verod, which closed its third fund at $200 million in 2019, has made two significant investments in tech ventures: Tangerine Life, a digital insurance provider it acquired before facilitating its merger with ARM Life, one of Nigeria’s most prominent insurance providers; and Daystar Power, a solar power solutions provider that exited to oil and gas multinational Shell last December. Providing operational support to take a growth-stage startup to exit and taking a hands-on approach is what portfolio startups in VKAV should expect from the PE firm, which also offers HR, legal finance, accounting, regulatory support, strategy and ESD capabilities. By merging PE and VC capabilities, Kepple Africa is trying to keep its VC mindset enclosed within PE bodies supported by the Verod resources.
VKAV, which expects to deploy $100 million from 2022 to 2026, continues from where Kepple Africa stopped. Where Kepple Africa invested in pre-seed and seed startups, VKAV is supporting Series A and B startups with $1.5 million to $3 million checks (it might double down on some of its top-performing startups from Kepple Africa if they fit into VKAV’s investment thesis). Shinada, now a partner at VKAV alongside Yamawaki and Ory Okolloh, notes that the fund is sector agnostic. Its investment thesis is defined by three business types: infrastructure and platform-type, B2B efficiency and lifestyle businesses facilitated by internet penetration. Its portfolio companies include Shuttlers, Julaya, Moove, NowPay, Chari, Ceviant, Nawy and Koko Networks.
The fund’s limited partners, mainly Japanese institutional investors, include Toyota Tsusho Group, SBI, Japan International Cooperation Agency (JICA) and Sumitomo Mitsui Trust Bank (SMTB), some of which have invested in Kepple Africa’s portfolio companies Autochek and Lifestores.
“We have been facilitating this collaboration between African startups and big corporates from Japan. As Kepple Africa, we brought seven Japanese companies to make their first direct investments into African startups in our portfolio, like Autochek and Lifestores and now we can institutionalize it more because we have onboarded them as our LPs which I think is a rare example in the African VC space,” noted Shinada. “They have invested in us because they want to make more direct investments in the growth stages of these African startups. We also see them becoming our co-investors in future rounds and potential acquirers of some startups. I think that makes us very unique.”