Norrsken22: Investing $205 Million into African Startups

Ngetha Waithaka: It's much better when you have a local fund, people who've been on the ground.

Lexi Novitske: There is absolutely no reason that our ecosystem won't follow the same trajectory as every other market in the world.

Natalie Kolbe: We want the entire ecosystem to be successful, to showcase to the world that you can make money in Africa, in tech.

Justin Norman: That's Ngetha Waithaka, Lexi Novitske, and Natalie Kolbe, general partners of the $205 million growth stage fund, Norrsken22. In this episode, we'll hear from the partners about investment strategy.

Ngetha Waithaka: Valuation is very important. I think you need to be very cognizant of exuberance.

Justin Norman: We'll talk about goals.

Lexi Novitske: Well, I think for me it's building markets that didn't otherwise exist.

Justin Norman: And we'll talk about the biggest question facing the African tech ecosystem today.

Natalie Kolbe: It's probably one of the number one questions that we debate.

Justin Norman: You just closed $205 million round to fill that funding gap in the growth stage as we've heard so much about. So, Natalie, can you talk a little bit about that fundraise? I know reading about it, there was a first close that seemed to be more sort of family offices, the network of Niklas and Hans and a lot of the Unicorn board founders from Scandinavia as well as from the continent. And then the second close that seemed to be a lot more of the DFIs. So can you talk about how this $205 million came together and the behind the scenes of what you guys did to get to this final close? 

Natalie Kolbe: Yeah, sure. Justin, I mean, look, as you mentioned, the first close was mainly from Hans and Niklas's network and the Unicorn board. So these are founders who have built billion dollar Unicorn businesses in other parts of the world, mainly Sweden 'cause that's obviously where Hans and Niklas are from. And they saw an opportunity to back entrepreneurs in Africa and also to bring their experience and their learnings from what they've done in the developed world and to help African entrepreneurs. So that was the first close. And we closed that in January of 2022 with $110 million.

Natalie Kolbe: And then as you said, the second round was more institutions, so some DFIs, Standard Bank came into that round. And then now with our final close, we've had more institutions that have come into this round as well and some more family offices, some more individuals to get to 205 million.

Justin Norman: And Lexi, I remember you and I had breakfast in Cape Town in the middle of fundraising and in the ecosystem, we talk a lot about the role of DFIs and the challenge of raising from DFIs in particular with their sort of impact mandates and different things like that. And I remember you telling me a bit about the benefit that you guys had having such a pool of, I think, family offices to start with and it made it a little bit easier to fundraise. Maybe you can expand a little bit more on the sort of strategy of starting with the entrepreneurs and then going to the DFIs afterwards.

Lexi Novitske: Yeah, well, I think that there were a couple positive advantages and I'll invite Natalie and Ngetha to pitch in here as well. But having the momentum of doing that first close with these not just family offices but entrepreneurs who were also quite successful themselves and understood technology, brought a lot of weight to what we were trying to achieve on the continent. You know, they wanted a connection with African continent and they wanted to be involved not only with our capital, but also to provide value add to a lot of the companies that we were backing. What was also very helpful is, I think, having that first close and setting terms with a lot of these very commercially oriented investors. Some of the DFIs, by the way, I think aligned very closely with our commercial mandate and those are really the ones that ended up coming into the fund. But yes, you're right, that certainly helped on the later stages of some of those DFI LPs.

Justin Norman: So Ngetha, maybe can you talk a little bit about these funding gaps and you coming from growth stage in particular, what you saw and why Norrsken's $205 million is a really big deal in terms of plugging a big hole in the ecosystem and the role of local capital and the way in which you're able to support your companies at the later stages with this fund size that you have.

Ngetha Waithaka: So as Lexi said, there's actually availability of capital in the early stage. There's actually some great angel networks that have been set up on the African continent and they've provided good capital for businesses as they start getting going, really looking to plug a big gap. And there's a lot of entrepreneurs who are doing a fantastic job at that level. And then if you look further afield in more developed businesses, there's actually a lot of private equity funding. So there've obviously been some very big private equity funds that have been raised on the African continent over many years. We obviously came from one and at that level, there was enough capital to support businesses. But where we saw more of a gap is in that growth stage, call it series A, B, C, where you found funds on the African continent.

Ngetha Waithaka: There were some, but they didn't have deep pools of capital. So they got to a stage where they stopped following on to building these businesses to the next level they wanted to get to. So that's why we are excited, we're excited that we've got this deep pool of capital, we can support the businesses over multiple funding rounds and we come from a background that I'd say really wants to roll up their sleeves. We want to make sure that we are the partner of choice for these businesses and we'll help them should they need to hire a CFO. It's much better when you have a local fund, people who've been on the ground.

Ngetha Waithaka: And then the second one is, some of these businesses, when they think of where they're going to expand next, they think about the beacon economies of the continent. They think about how do I get to Nigeria and tap that large market? How do I get to South Africa? Well, I've got very experienced partners here who've built very strong networks there. So look, I think it's a multiplicity of areas where we provide not just capital, but strong networks and have been doing this for a very long time.

Justin Norman: Yeah. Lexi, so to expand on that a little bit, can you talk about maybe beyond capital, what series A, and later stage founders need and the role, maybe this is where we can talk a little bit about the Unicorn advisory board as well, the role of being a value add investor beyond just capital.

Lexi Novitske: Yeah, so I mean series A and Beyond investors are already pretty mature founders. I mean, they understand their customer, they're at this point running a pretty sizable team. So it's not like we're directly operationally involved, but we certainly will be that year for strategy when they're having tough decisions to be made can certainly be the other side of that who they can bounce ideas off of and probably also challenge them on a lot of these things. I think importantly what is key for our Unicorn board is that they've faced a lot of these challenges themselves. I mean, building a scalable business and payments in Europe, although a very different ecosystem probably has very similar challenges as you're doing it in Africa from the start all the way to scale and building a billion dollar company, everything from economics matter to building in governance systems to regulation and then ultimately planning for an exit.

Lexi Novitske: And I think that's also not only where the operating partners around this table can help support, but also the Unicorn board. We also probably quite importantly are an ear to the ground of just what's happening in the ecosystem. You know, if we're looking at the supply chain ecosystem, we kind of have a top level approach where we were talking to many companies who might be their clients, we're understanding the situation with currency and also being able to be there almost as a member of the team to be able to relay a lot of this information back to our founders. I think that's super key. I mean we're also paying a huge amount of attention to governance now, but Natalie and Ngetha have a lot of experience with that from bringing companies to the earlier stages, all the way to exit and building in these systems and processes that are necessary for that.

Justin Norman: We'll get to governance a little bit more, but I think before we do, there's of course as we just said, the intangibles, but then there's the capital and again, this is a environment with a bit of a capital scarcity, particularly from a late stage perspective. So Natalie, can you speak maybe a little bit to portfolio construction as well? I know that you've got a tranche of money that's for new deals and for the earlier stage, but then perhaps equally if not more importantly, you've got a tranche of money for follow on for your existing portfolio. So can you talk about the sort of value then to the portfolio in constructing in that way and why you decided to set up the fund in the way that you did? 

Natalie Kolbe: So Justin, the way we've set the fund up is that half the capital will be used to build the portfolio out and we are gonna build out to probably about 20 companies, maybe a few less, maybe a few more, but roundabout 20 companies. So that first kind of call it, $100 million will be used to build the portfolio out and then the rest of it is reserved for follow ons. So the idea would be that most of the capital in the early stages of the fund is likely to go more into the A and the B rounds. And then as we follow on into those B and C rounds that the fund will then likely end up with more capital in the B and C rounds through that pool that we've reserved for the winners. And we'll really be doubling down on those companies that are meeting their forecasts or doing better than what they said they would.

Justin Norman: And Ngetha, from a investment decision making perspective, I'm curious to know your perspective. You guys have made five deals already, your perspectives on how you actually make decisions. What are you looking for in founders, especially at the later stages, what are you looking for in terms of traction or metrics? And I think there's also a question about valuations in there that I think is a little bit more specific than the early stage valuation vibes that that we get in pre-seed and seed. So can you talk a little bit more about how you're approaching all of that? 

Ngetha Waithaka: So when it comes to what we're looking for, it is very industry-specific. So we do not want to go into a specific industry and say we want to make sure that you have 10 million customers or you have only $2 million of revenue. We wanna make sure that we understand the sector well enough, understand the size of the addressable market, see what product market fit really feels like, and then understand what risks you're taking. And then we all sit in a room as an investment committee and have some very rigorous debate. Yeah, I think our backgrounds are great for that. Obviously, Natalie and I came from a later stage investing profile. Lexi coming from earlier stage, Hans who you know, has been in the industry in Europe for over 20 years. He's seen the businesses on the African continent as they grew to become like they are Europe. And then Niklas, who's a founder and his perspective is great because he's thinking about what does this business need? Does it need a CIO today? Does it need a CTO and what skillset do they require? So look, I'd say the people in the room have been great. There's an attention to not ever apply groupthink, ever bring a very specific idea to the table and we can use that to go forward.

Lexi Novitske: Justin also, if I can back that process up a little bit. So the sorts of businesses that we're looking at are really these asset light lean tech sort of models. So softwares, marketplaces, that sort of thing. And when we start looking at a space, what we do is we map out the entire ecosystem. So for example, if we're looking at FMCG supply chain companies, we are mapping out this entire vertical debating on what sort of assets matter to us. Is it, do we think that they have to backward integrate with owning warehouses and logistics companies? Is it important that they have lots of access to capital to be able to on lend? What is really key is it matter who their core customer is? And we'll debate all of this internally and map the ecosystem and within that, get to know what we think are the top couple of players in the growth stage across the continent.

Lexi Novitske: And that's kind of how we very, I would say, logically make an investment, not decision, but turn our resources towards the company that we really wanna attack as our core investment target. Even if at that point they're not raising a round of capital, but we'll have them in our line site when we're building out that relationship, hopefully even supporting them when they come to market. So we have a great relationship and are able to step in and hopefully be a lead on that round.

Justin Norman: Yeah. So a much more proactive development of the pipeline than just waiting around for when companies need capital.

Lexi Novitske: Yeah, definitely.

Justin Norman: To your point, there's not that many deals for you to choose from, especially at series B and later in the markets in question as well.

Lexi Novitske: Yeah, it's still a pretty small market. I mean, there are probably a handful of companies that we think can become billion dollar companies even within the same vertical. So it's not like we're always saying we're making this decision and we don't think others will win, but we're with the information we have taking the best bet on where we think the capital will be most efficiently used.

Justin Norman: And why this focus on asset light marketplaces? I know especially for Natalie and Ngetha, Ngetha you two coming from a private equity background, I think that that's a little bit different obviously than the growth stage. And we talk a lot about what is the infrastructure that is needed to actually solve problems in the markets in question. So can you guys talk a little bit more about why is this the focus obviously asset light being more scalable, but how have you had to balance that sort of question, especially from a capital allocation perspective? 

Ngetha Waithaka: If I look at what we did in private equity, I'd say bricks and mortar took way too long to scale. Yeah. First I'll give you an example. We invested in restaurants, you have to find the location, you have to find the licenses, you have to build it out, and you have to every day open up and make sure that people will come, want fast, reliable service and good food. So that's one bucket. The other bucket I put as businesses that needed funding. So if a business was lending to a group of people, most times they were probably either getting deposit finance or wholesale funding. Sometimes wholesale funding markets are completely shut. So your destiny sits at times not in your own hands. And that is what I found super exciting about tech investing.

Ngetha Waithaka: And as I said, when we invested in Fawry, Actis here is a business that was literally just taking advantage of the fact that a large population of Egyptians are underbanked and they line up to pay for their utility bills. So using tech integration, which they had worked on for a very long period of time, they were able to scale very rapidly by providing a very quick solution. So in my perspective, that's why the risk adjusted returns are just so much better in tech because we'd seen just how long it took to create these businesses in private equity. And so exit horizons were just way too long.

Justin Norman: Yeah. How do you also think about that multi-market scale question? I think there's a lot of discourse that we've seen around, well do you wanna stay in your home market? Is Nigeria big enough? Is even South Africa big enough? Versus the inherent complexity of going multi-market and balancing that with I suppose the expectations that you as an investor have for certain amounts of scale and going multi-market that allows to achieve a certain amount of scale. How have you advised some of your companies on approaching that situation? 

Ngetha Waithaka: Look, I'd say my experience, international expansion is risky. So you have to be sure that you have conquered your whole market first or where you've developed product market fit first. So that conversation with a founder needs to be very mature about why are we going into another market? I'll give you an example. So we've invested in a business called Autocheck. Autocheck is probably the largest online marketplace for used cars in Sub-saharan Africa. And what we chose to do in conjunction with the founder is go into other markets quite rapidly. And the reason is that we've seen this model applied in many other countries. There's great marketplaces that exist in the US, in Europe, Latin America, and India. And what we noticed was if we don't go after the market opportunity first, others will conquer it because the application of the tech tools and the solution is very applicable in these other markets.

Ngetha Waithaka: So the business started in Nigeria, went to Kenya very quickly, and then expanded into Francophone, west Africa, Egypt, Morocco, and now thinking about South Africa. And it's not because that the whole markets don't have enough scale, it's that you want to make sure that you are capturing the opportunity very rapidly because you can see product market fit in each one of these markets and you can see other founders considering going into these markets.

Lexi Novitske: I think it also depends a lot on the business model specifically. In a lot of these businesses speed and size absolutely matters because network effects is how you really get to that unit economics profitably. A market like Nigeria or South Africa can absolutely be a big enough market depending on the sector that you're tackling. And in a lot of cases dominating in just that one market by itself is how you're going to win and be very cognizant of when you expand and treat it almost like a whole another business center. If you're a payments company or maybe a credit company, maybe there's just a couple of things that you need in a market to expand. You need to be able to identify the user and have the rails for a transaction to go through. But if you're relying on some of these network effects within a market, then maybe it'll take you many years before you expand to another market if you're thinking about the strategy, right.

Natalie Kolbe: I was gonna say to add to this point around expanding into other markets, expanding into other markets doesn't necessarily have to be greenfield. And I think that's where a lot of exit opportunity can happen for earlier stage companies. And certainly, I mean we saw with Autocheck that did do some of that expansion into other markets was through acquisitions. What is happening in some of these, particularly in the marketplace, is you've got businesses that are starting in Nigeria, that are starting in South Africa, that are starting in Kenya, they're all looking to move into those markets. They're gonna start bumping up against each other. And what you'll likely see, and we are starting to see it, but it's happening in the earlier stages, is that those businesses will start to consolidate and create an African tech giant in that space. And I think that's probably what's on the horizon in the medium to long term.

Justin Norman: Just doubling back to the question on fund thesis, Natalie, one thing that I think is particularly interesting about how you guys are set up as well is that you have on the ground presence, I suppose in three of the four corners, Nigeria, South Africa and Kenya and East Africa. Can you talk a little bit more about as it relates to the fund thesis, this focus on demographics. And maybe we can then dive a little bit deeper also into business models and other questions for what you're looking out for within the fund thesis question.

Natalie Kolbe: There's three megatrends that we're looking to invest behind on the African continent. Firstly, is a very young demographic. We have the youngest population in the world. And if you have a look at what's going to happen over the next 20 to 25 years, Africa will add about 800 million people to the working age population. We will basically be the workforce of the world. Will come from this continent. And they are young. So these are youngsters. These are people below the age of 25. If anyone's got a child or a teenager, you'll know they're completely connected to their mobile phone. And they're doing everything on a mobile phone. So they feel very comfortable with digital products and services. And these are the kinds of businesses that we're looking to invest behind that are exactly that, that are providing digital products and services.

Natalie Kolbe: So you've got this massive demographic of young people that are going to be coming into the working age population, that are going to be driving tech-enabled businesses on the continent. So that's demographic one. The second mega-trend that we invest behind is investments into digital infrastructure. If you have a look at Africa, at what is available, most of Africa still runs on 3G and less. And we can all see there's most apps and the loading of web pages take a long time, etcetera. It's frustrating to work on 3G. That is changing. There's a lot of investment that is going into digital infrastructure. And as that moves to a 4G, 5G environment, you're going to see a lot of uptake and adoption of digital products and services, again, which is going to drive the businesses that we're investing behind. On that point as well, if you look at the mobile phone, of Africans that have mobile phones, only half have a smartphone.

Natalie Kolbe: The other half are still on feature phones. And if we think back to the time when we had feature phones, if any of us can remember that far back, there's not much you can do with a feature phone. So as that adoption scales, and it is scaling every year, more and more people are using smartphones. There's a whole world of digital adoption that opens up. So that's the second big trend. The third big trend is urbanization. So Africa historically has been a commodity and agricultural driven continent. A lot of Africans are moving to the cities, and that creates a density around the city where you can scale. So as the populations are moving into the cities, they're needing financial services, they're needing healthcare, they're needing access to markets. And again, if you're able to provide that in a very quick and scalable way through these digital products and services. So those are really the three megatrends that we're investing behind across the continent.

Justin Norman: Ngetha, you want to expand on that a little bit? 

Ngetha Waithaka: I'll probably jump into as Natalie said, there's certain sectors that we will find more interesting than others. The first is FinTech. We still believe that the financial services infrastructure on the continent is still not sufficiently developed. Obviously, payments has run quite ahead. But now we're talking about embedded finance, we're talking about InsurTech. These are business models that we really are getting excited behind.

Ngetha Waithaka: The second one is market enablement. And market enablement we use is a pretty big bucket of business models. And I'd say it's these businesses that break down the barriers of doing trade on our continent. So think about logistics networks, think about marketplaces, think about supply chain businesses, the CFO stack. So that's a pretty big business bucket that we're very excited behind. And then the last two are MedTech and EdTech. And those two are largely because you can't build schools and hospitals fast enough on the continent. And there will be opportunities to leapfrog. As Natalie said, as more and more people get access to smart devices, then you can accelerate the provision of either telemedicine or some curriculum on the cell phone. So those are the four sectors that we are super excited about.

Justin Norman: Lexi, thinking a bit longer term and farther afield as well, Ngetha just talked a little bit about leapfrogging, right? And I think that there's this proverbial question about building for where the market is today versus obviously very young population and obviously a lot of nascent technology out there to solve problems in new and innovative ways. So what are you thinking about and what are you looking at over a longer term horizon as well? 

Lexi Novitske: So I think that there are certainly two big trends that we're following or things that we're very excited about over the longer term. Look, we don't know which way these will play out, but I can assure you that both will be extremely meaningful in the life of our fund. The first is AI has an incredible role to play in the problems that African businesses are trying to solve. Look, you can absolutely build, I think, an AI only company on the African continent that is solving a problem set that is needed for a local company, that an international company might not have the data sets necessarily to solve as easily as a local company. But even beyond that, I think every company that we are investing in is using AI as part of their product stack already today. These are models for decision making and identifying problems in complex supply chains.

Lexi Novitske: They're utilizing machine vision for fraud prevention. They're using intelligent pricing models. They're using natural language bots to be able to communicate with their customers, even though we know that there's over a thousand languages on the African continent. So bringing a lot of those fragmented markets together with the tools of AI, I think, can be hugely meaningful. So that's certainly a massive trend that we're watching. And how can data sets that a lot of these companies have built internally, how can they be leveraged to really drive a lot of that growth in their own models and potentially build future products? The second, which I'm very excited about, is I have an incredible amount of optimism for the Nigerian market, the biggest market in Africa, which I think has long been suffering a hangover from some bad monetary policy decisions.

Lexi Novitske: And what that's meant for what we're facing now over the past couple of months has certainly been a volatile currency. But I am quite optimistic because I think the new administration coming in has made a lot of quick changes and has shown their willingness to act to support the currency as well as been able to arrange a lot of availability of dollar to really defend that currency. But even more importantly, when it comes to tech, I think that they have also put forward a very ambitious program to help support education within the tech sector, as well as promote a lot of the infrastructure build out that Natalie mentioned is hugely important and also conducive regulatory policies to help not only protect consumers, but really spur a lot of the innovation in the tech sector. And even readdressing some of those regulation policies that were put in place under previous administrations to try to make these sectors much more flexible and promote innovation.

Justin Norman: This episode of The Flip is sponsored by Onafriq, formerly MFS Africa. Onafriq is the leading real-time payments network for Africa, which connects over 500 million mobile wallets across over 1,300 cross-border corridors and in over 40 countries across the African continent. Throughout the season, we'll hear from the Onafriq team about their work to create a borderless world. In this episode, we're joined by Mxolisi Msutwana, the Chief Operating Officer of Baxi, the Nigerian agent network acquired by Onafriq in 2021.

Mxolisi Msutwana: Baxi is an agency business based in Nigeria. And Baxi is quite key in this respect that it bridges the gap in allowing people to be able to perform services like deposits, transfers, and cash withdrawals from their bank accounts through our agent. The traditional expansion that we've had is we've been connecting mobile money operators together. The Nigerian story is quite different in that agency banking and agent networks in Nigeria are very embedded in the financial services in that country. So the strength of Baxi in Nigeria allows us to be able to offer services that traditionally were not available to Nigerian consumers.

Mxolisi Msutwana: So one of the interesting opportunities looking at is really opening up China to Nigeria. A lot of the SMEs, the merchants, the businesses buy their goods and services from China. The market is there, the business has already been doing, but there's quite a lot of friction in the process of doing that. We're able to offer an interesting use case for Chinese suppliers to be able to access the Nigerian market in a more frictionless way, more secure way, more compliant way. And for Nigerian businesses, it actually then opens up an entire Chinese market beyond suppliers that they've been using traditionally.

Justin Norman: We've talked a lot about FinTech consolidation as well. I think it's interesting in the context of like market cycles and we're in this so-called market downturn and the cost of capital is higher and there's questions about distressed assets versus doing capital intensive things when capital is cheap. And can you say a little bit more maybe also about where we are today from a market perspective and how that may influence a lot of these questions that we're talking about? 

Lexi Novitske: So I think what we saw over the past couple of years is there was a lot of risk taking. There was a lot of easy, cheap capital. And investors, there was a lot more to gain from spraying capital, hoping that momentum continued. But I think we're now certainly facing the hangover from that. I don't disagree that capital momentum really builds big scale and you need that very quickly to become a winning force in some of these markets. For some of the best companies, I don't think that that will completely go away, even in this market downturn. I do think what's happening with the best companies in the ecosystem is given the point we are in their cycle, they're building optionality into their company. They're building in systems and processes that say, look, we can be profitable today. But when the capital starts to come back and we have visibility on it, we can turn on this engine and really scale up.

Lexi Novitske: And at the same time, looking for some of these very strategic acquisitions that would be accretive to their platform, adding on technology that they would otherwise have to build internally that would cost them resources, they can now acquire for a reasonable amount of money or even market expansion, finding another partner that has the same ethos that they do and merging these two companies together to more efficiently run the platform. I think that'll continue for another year or so, probably longer. And I think in Nigeria, actually, we're still very early into that correction cycle. A lot of the founders, I think, had an incredible amount of optimism and still do that this market will come back in a couple of months and are willing to go out into the market and fundraise at kind of lower valuations than they expected given previous market highs. But that's slowly starting to adjust.

Lexi Novitske: So Africa is typically a laggard. It's been a laggard in terms of the capital going in. And I think it's still a laggard in kind of that capital correction. And we still have a little bit more pain to be felt in the ecosystem overall.

Justin Norman: Maybe if we zoom out a little bit, Ngetha, I'll come to you. Lexi talked a little bit earlier about sort of doing a market mapping exercise. And you talked about the investment decisioning and some of the heuristics that you guys use to make investments. What is top of mind today from a trends perspective when you guys look at the market and you see what's happening with your sort of depth of understanding? What sorts of things are you thinking about? And does that sort of map to the sort of deals that we're going to expect you guys to make in the next, I suppose 6 to 12 months? 

Ngetha Waithaka: I'd mention two things. Valuation is very important. I think in this environment especially, I think you need to be very cognizant of exuberance. Yeah. So founders will always be exuberant on their numbers and their potential and what they can achieve. And we just want to make sure that we understand the size of the market, its growth, how the product makes a difference and where the business gets to over the medium to long term. And that's how we think about valuation. Then you think about what is a long run average exit multiple. So we think about exit and valuation a lot. And then it comes back to what your entry multiple should be. So I'd say in this environment, that's probably the most important thing.

Ngetha Waithaka: If I zoom out a little bit more in just in terms of what are the sectors that excite me, embedded finance has to be number one. Just watching businesses bring financial services utility on their tech platforms, I think is amazing. They're using a lot of data they've collected over a period of time and using that as a competitive advantage. They're able to provide better customer service turnaround time. And I think that will only continue. And I just hope the regulation keeps up just to make sure that not only does it drive financial inclusion, but it also drives a lot of innovation in business models. Yeah.

Lexi Novitske: And maybe I can add another Subsector that we're also quite excited about. We are very excited around the B2B payment space. And there's lots of different verticals in this. I think that there has been a lot of attitude of the market that payments has already been done. It's a saturated market. But we actually see an incredible opportunity on the B2B side. And that's from local businesses trying to bulk pay their workers, to paying suppliers in their ecosystem, to even transacting across borders. And there is a lot of friction in this space. I think differently to the consumer payment space, a lot of these customers, although they might be longer to acquire, are very sticky. And once they're on a platform, they really scale up and they continue to use more and more services on those platforms.

Lexi Novitske: And the market over, across the African continent is massive as well. One and a half trillion dollars in sub-Saharan Africa. And only 25% of those are digital today. And those digital payments, by the way, are usually a CFO going into the bank and asking their bank to execute a wire for them. So it's a massive opportunity that is hugely untapped. And we're quite excited about that space as well.

Justin Norman: And Natalie, I know one other thing that is top of mind, and if we kind of look at trends in the ecosystem, there's been, I think, some high-profile issues in governance. And you guys mentioned a little bit earlier that you're thinking as a fund a lot about governance. And especially as your founders grow and their companies grow and move from Series A and beyond, that becomes increasingly more important. So can you say a little bit more about the fund's focus on governance and what sorts of lessons you're trying to instill and what sorts of things founders need to learn and so on? 

Natalie Kolbe: Justin, this is a big part of the focus that we bring to companies. There's nothing quicker than a bad headline that can absolutely sink a company. And this is something that we kind of talk to founders about. Obviously, the markets can be difficult. The revenue, you might not meet your revenue targets. Your margins might be under pressure. And that's something that you can kind of deal with in time. But if you have a bad headline that there's a governance issue within the business, that can just shut the whole company down. People won't want to fund it. Your clients will move away from you. Your employees will leave. So it's super important to make sure that the governance is right. I know it's a really boring topic, and when we bring it up, people kind of roll their eyes. But it is the one thing that can basically, it's like a hand grenade that you can bomb into the company and the whole thing blows up.

Natalie Kolbe: So it is a big focus of ours. I think, again, the way that we approach this is alignment with the founder and with the management team and really to understand what their ethos is and how their approach and their headspace around this is. If the founder is very kind of fly by night wants to cut corners, etcetera, we're going to be less excited about investing behind a founder like that. But if the founder takes this seriously and wants to learn, and obviously we can bring a lot of knowledge and a lot of help and bring the systems and processes and policies and all those boring things that people don't really want to do, we can help with that as an investor. If they say, look, we need this and please do, we can do it for help, then that's an open door that we can then work with.

Natalie Kolbe: But no, it is something that we're very focused on. And we saw it when we were in private equity. It's, if you are looking to exit, whether it's through an IPO or into a big international investor, if they look at governance, how is the company run? How is the board structured? What are your board minutes? Are the board meetings on time? Is there a REMCO? There's a lot of structure that they look at. And it's a quick tick box to go, okay, that's all good. Now let's focus on the on the commercials. If they're spending a lot of time on that, it can disrupt the process and it actually creates a lot of friction in an exit process. So it's a good thing to focus on throughout the company life. You don't want to have that hand grenade, but at the exit, that's when the light is really shone on it.

Justin Norman: That's a perfect segue maybe for us to talk about exits. I think that that is always the biggest question that we talk about in the African tech ecosystem is where are the exits going to come from? Who are they going to come from? When are they going to come? Ngetha, you talked a little bit about entry and exit multiples, those sorts of questions. So I think I'll start with you. What is your perspective and what is your role as an investor to think about exits and to help your founders think about exits as well? 

Ngetha Waithaka: Yeah, I think every investment journey should go hand in hand with how the investor will curate an exit or help deliver an exit. So how we've been thinking about it is the type of companies we want to invest in, we want them to be really strategically important that anybody who wants to come into the African market, this is the company they want to invest in. So that's the first way we think about it. The second is the consolidation we talked about. I think you'll find, let me pick a sector such as FinTech. You'll find some of the African banks will scratch around their strategy and think we need to be more digitally enabled and then want to acquire fast-growing FinTech companies. So there will be some local strategics that go out there. IPOs are there, markets open and close.

Ngetha Waithaka: We've been fortunate. Natalie and I were involved in IPO of Alexander Forbes many years ago in South Africa, and then also the IPO Fowry in Egypt. And so we've walked that journey and it involves a lot of governance and a lot of thinking about how the market will digest an IPO story. So I'd say those are the three ways we think about exit, but I come back to my first point. As an investor, you have to have an idea of why this is strategically important and who will pay a premium for it and curate in that direction.

Lexi Novitske: So Justin, I think this conversation over the past 10 years has shifted to a traditional market. Nobody will innovate and build scalable tech companies to, there's no early-stage investors to support these early-stage tech companies, so they won't get anywhere to, now there's no growth capital to support the early-stage companies, so the early-stage investors won't get their returns. Then at that point, there'll be no unicorns. Africa can never have unicorns. And I think it's the same conversation around exits. There is absolutely no reason that our ecosystem, our market in Africa, won't follow the same trajectory as every other market in the world and be able to realize great exits to massive strategic partners that want to enter the biggest untapped economy in the world.

Justin Norman: So I think often when I get asked this exit question, I just say patience, right? That seems to generally be the answer, but even if it's an unsatisfactory one.

Lexi Novitske: Patience within a fun life.

Justin Norman: Well, I'm going to ask you about the fun life, but maybe before I do, Natalie, how do you think about this exit question? 

Natalie Kolbe: I mean it's probably one of the number one questions that we debate at our investment committee. I think this is, with Ngetha and I coming from the private equity world, where exit is something that you're having to exit, a strategic exit in every private equity deal. As opposed to when you're investing early-stage, if you're in A round, you can exit to the B round investors, to the C round investors. But at some point, that runway stops and you're now exiting to a strategic investor. So we've seen some amazing companies that have got amazing founders, amazing growth, but we cannot see who the exit is. We've looked around, we can't see who the exit is, or if we can see who the exit is, we can't see them paying the valuation that's being asked.

Natalie Kolbe: We respectively have to decline that investment. So it's something that we spend a lot of time on, is who is going to buy this and can they pay the price that is going to be on the table at the end of the four, five, six year period, whatever the length of time is. And then we discount that number back to, okay, what should we be paying for on day one? So the exit is a big conversation in the first instance that, how are we going to exit this? But also it informs what we should be paying when we're entering the business.

Justin Norman: What about time horizons? Obviously, a closed-end fund has 10 years or whatever, but I think we've also talked a lot about in the context of African markets, things taking longer. So how do you think about this time horizons question as well within the confines of the fund structure that you have? 

Natalie Kolbe: The reality is we have the confines of the fund structure, so we need to make sure that we can exit within that time limit. And obviously, it will inform how we construct the portfolio as time marches on. Obviously now we're right at the beginning, so we have the luxury of 10 years ahead of us, but obviously in year five or year six, we'd be looking at the investment time horizon a lot more succinctly and making sure that any investments that we make at that stage, we can actually get out by the time we get to year 10.

Natalie Kolbe: And when I spoke earlier about the fund construction, the way that we've thought about constructing the fund plays out to that. So we're looking now to invest more in the earlier stages, so series A and B. But as we start getting into the later years, we'll be investing B and C, and then stopping growing the portfolio and then looking to exit.

Justin Norman: What does success look like for the fund? Obviously, I think your investors have expectations of how much money they're going to get back, but maybe there's a separate sort of intangible question knowing the story of Norrsken and the foundation and impact investing and Niklas's mission about the role that these companies will have on the markets and the economies and the users in question. So I think there's a lot of different perspectives on what success could or should look like. I'm going to ask each of you. Natalie, do you want to go first? 

Natalie Kolbe: The fund has to be a commercial success for it to be a success. If it's a commercial success, it means that our investors who have put their money behind us, and it's a responsibility that we take incredibly seriously. People have given us their money to look after. We want to look after it and we need to make a return on that. So the commercial success of the fund is important. It's important to our investors. It's important to us, obviously, as a team, because we need to make sure that we can then raise a second and a third fund. And it's important to our portfolio companies. They want to be associated with a successful fund. And also by definition, if we're successful, it means they have been successful. But I think probably more importantly, if you kind of take a level up, having a commercially successful fund in Africa crowds in more capital, and we want to have more. We want the entire ecosystem to be successful, to showcase to the world that you can make money in Africa in tech and therefore crowd more money. And so for us, that's kind of the existential success factor. So the fund needs to be a commercial success. And that's something obviously that we, that that's our job to do.

Justin Norman: I think the byproduct of a commercially successful fund obviously is successful companies that have solved problems for their users as well.

Lexi Novitske: Yeah. So I think for me, it's building markets that didn't otherwise exist. Helping these founders build very large companies that ultimately serve the overall ecosystem by providing a service that encourages financial inclusion, that encourages businesses to be more efficient and profitable, that encourages people to have access to education or healthcare that otherwise didn't. And building these massive markets at scale where otherwise there would only be legacy systems that I think the majority of the population would actually be excluded from.

Justin Norman: Ngetha, what do you think? 

Ngetha Waithaka: I'll bring it full circle. I started an investing career in the US and as much as I loved investing in mid-market businesses in the US, I could see there's huge opportunity on the African continent. And so for me, success looks like we're proving out this opportunity set and we've got the talent on the continent to invest in these businesses and the entrepreneurs to do it. And now we've solved another leg, which is the capital. So to me, I think success is just making all this commercially successful, but also showing that African businesses can get to that next level.