Ventures Platform raises $84 million for its second African venture fund

Ventures Platform has closed its second institutional fund at $84 million. The fund gives the African venture capital firm more room to put larger amounts of money into the startups it backs. The new fund, called VP Pan-African Fund II, is about 1.8 times larger than the firm’s first institutional fund. That fund closed at $46 million in 2022. Ventures Platform is not planning to use the extra capital to simply increase its portfolio. Instead, the firm wants to write bigger cheques and take larger stakes in the businesses it believes have the strongest potential. The fund is targeting initial ownership of between 10% and 12% in companies it invests in. Kola Aina, Ventures Platform’s founding partner, said the firm learnt an important lesson from its first fund. Getting enough ownership at the beginning matters when it comes time to make money from an investment.

“Entry ownership is everything, because the stock only gets pricier,” Aina told TechCabal. The firm plans to invest across the pre-seed, seed and pre-Series A stages. Its first cheque can reach as much as $3 million. The average investment is expected to be around $1.5 million. Ventures Platform will also keep money aside to invest more in companies that perform well. The firm expects to back roughly the same number of companies as it did with its first fund. It will do this despite having considerably more capital available. This is partly because of how Ventures Platform expects its investments to generate returns. Secondary sales have become an important source of liquidity for African venture investors. Instead of waiting for a startup to be acquired or listed on a stock exchange, an investor can sell part of its stake to another investor during a later funding round.For Ventures Platform, having a larger stake makes these transactions more meaningful.The firm still sees acquisitions as the most realistic exit route for many African startups. Aina described initial public offerings as “somewhat mythical”.Ventures Platform’s own research found that acquisitions accounted for 73% of African venture exits.

More private capital

The new fund has attracted several institutional investors. These include the European Bank for Reconstruction and Development, Norfund, Alphatron and the Ashesi University Foundation.They join investors from the fund’s first close. These include Nigeria’s iDICE programme, the International Finance Corporation, Standard Bank, British International Investment, Proparco through the Choose Africa programme, Egypt’s MSME Development Agency, AfricaGrow and Alder Tree Investment.Ventures Platform says private capital now makes up a larger portion of its investor base than it did in the first fund. European family offices are a bigger part of that mix. Aina argues that Africa needs more sources of venture capital. He does not believe the continent should rely on one type of investor. The firm is also comfortable taking capital from development finance institutions and government-backed programmes. The condition is that those investors are aligned with its investment strategy. Nigeria’s iDICE programme, for example, is an anchor investor in Ventures Platform. According to Aina, it contributed one of the larger individual commitments to the fund.

Investing around currency risk

Currency weakness is another issue Ventures Platform has built into its investment strategy. The firm invests in markets where local currencies can lose significant value against the dollar. Ventures Platform sees currency depreciation as a normal part of investing across Africa, rather than a temporary problem. The firm is spreading its exposure geographically. This includes its presence in Francophone West Africa and Egypt. It is also looking for startups that can grow fast enough to stay ahead of inflation and currency depreciation. Businesses that earn revenue in foreign currency are attractive too. The same applies to companies that operate across several currencies. These businesses can have some protection against local currency weakness. For Ventures Platform, the bigger fund is therefore not just about having more money to invest. It is about putting more capital behind the companies it believes can become meaningful businesses. It also wants to take large enough stakes for those investments to matter when the companies raise more money or reach an exit.