Network nodes, rolling funds, and pattern matching

Each week during Season Two of The Flip, we’re going to publish an essay that corresponds with that week’s podcast episode. This week is Season Two, Episode Eight: Connecting the Dots – Japanese Corporates and African Tech, featuring Satoshi Shinada and Ryosuke Yamawaki – Partners at Kepple Africa Ventures, and Nick Quintong – Co-founder and CEO of PayGo Energy. 

In this essay, we’re going to talk about three things: Japanese investors’ interest in Africa tech, rolling funds (and the practice of aggregating small check sizes), and investing to learn. 

Kepple Africa Ventures, whose partners, Satoshi and Rio, are featured in this week’s episode, has made over 55 early-stage investments since the firm’s inception in 2019. That a Japanese-backed venture firm is one of the most – if not the most – active VC firms on the continent is certainly worth exploring further. 

What is especially intriguing to me is that Japan, as a country, is virtually the opposite of many African markets, in terms of development and growth of its economy and population. Japan does not have colonial ties (or deep DFI relationships) like many developed nations in Europe, it does not have the pedigree of Silicon Valley from an entrepreneurship and venture perspective, nor does it have lessons to share from current or recent economic development like China or other emerging markets in the Global South. 

In this week’s episode, in particular, we explore an investment Kepple made in PayGo Energy. Their investment was, in fact, a co-investment with the Japanese multinational Saisan, a 75-year old gas company with multiple billions of dollars of turnover per year. Saisan made a strategic investment in PayGo, in particular, to bring their technology to Saisan markets in Asia. 

What intrigued me the most about this investment was Kepple’s role in connecting the dots between a Japanese multinational and a small Kenyan startup. 

As The Flip’s executive producer, Sayo Folawiyo, and I talked about in this episode’s retrospective, what’s important here is not just that Kepple connected the dots, but that they are uniquely positioned to have visibility into what dots there are to connect between Japan and African markets. 

I am personally fascinated with the thought experiment of where other latent pools of capital or strategic investment opportunities exist for startups on the continent, and the role that exists not just for dot connectors, but dot identifiers, to help capture these yet-to-be-seen opportunities.

How many people working in the African ecosystem are well-positioned act, like Kepple, not only as dot connectors but dot identifiers? And for those who are well-positioned, what is the impact? 

If most Africa-focused VCs are within the same network clusters, are connected or trying to connect to Silicon Valley, and/or raise from the same LPs (DFIs, in most cases), the stark advantage Kepple brings to the ecosystem is that they’ve built a bridge between entirely new network clusters. As such, they are an incredibly high-value network node for the African ecosystem. 

In this episode’s retrospective conversation with Sayo, he had this to say, 

A very prominent US VC once, in a little session that we had with them, was talking about investing to learn, to pattern match. And we talk about it a lot, the competitive advantage of looking at everyone else, as well as seeing our context. The cool thing about these kinds of case studies is that these guys saw what no one else could see because they were putting their money to learning, and seeing value in learning from ecosystems that are unlike theirs, or that they didn’t have prejudices about. And I guarantee you, a lot of winners when we look back, probably in a few decades’ time, they’re going to be the people that paid attention.

To be sure, investing to learn means making smart bets – and perhaps with a small, pre-allocated amount of a portfolio – that may have ancillary benefits above and beyond financial return. Much like entrepreneurs do not value all capital equally, so too may investors not value their deployment of capital equally. 

Meanwhile, the barrier to venture investing is lower than its ever been. 

Silicon Valley’s latest obsession is rolling funds. The idea behind rolling funds is to allow fund managers to “accept new capital in the form of auto-renewing quarterly commitments”, rather than in a lump sum at a fund’s inception. Says AngelList’s founder, Naval Ravinkant,

The huge benefit for a fund manager is that they can raise money incrementally, one investor at a time, rather than having to do a one-time, big-bang fundraise and then lock the fund for four years.

There have been several second-order effects. On one hand, the ability to spread out payments has perhaps enabled more investors to participate in venture capital. On the other, the ability for fund managers to raise money incrementally has given rise to a class of “micro VCs” – in many cases, it’s individuals who have a certain depth of subject matter expertise which they can leverage to raise small funds from their peers. In both cases, rolling funds are democratizing venture (to the degree that the SEC’s accredited investor requirements allow). 

AngelList has led the charge (via other products like syndicates) in providing tools for investors to write and fund managers to aggregate increasingly smaller check sizes, a practice that has increased in prevalence, as well. 

I am personally an investor in Rally Cap Ventures, a community of angels interested in investing in emerging market fintech1, founded by friend of the pod and past interviewee Hayden Simmons. Very explicitly, in addition to the opportunity for financial return, I invested in Rally Cap to be a part of a high-value community, and equally, to learn from others in the community. This alone is worth the price of admission (and much cheaper than an MBA). 

Another person aggregating angel checks is Nubi Kay, a Nigerian entrepreneur (and Co-founder of currently working for Stripe, whose fund, HoaQ, has made five investments in African startups this year. HoaQ’s first round was $20,000 from 17 investors, the majority of whom wrote $1,000 checks. 

I found this incredibly illuminating and eye-opening – that *we* don’t need to raise big six-, seven-figure funds to get started. Instead, a handful of $1,000 checks can get one started and allow them to build up an investing track record, which they can then leverage to raise bigger checks and funds over time (and in fact, a few of the investors in HoaQ’s second fund wrote $5,000 checks). 

Rally Cap is 80-plus LPs, HoaQ another 20 – many of whom are undoubtedly comparably high-value network nodes. Therefore, the impact of micro-VC in “democratizing” venture is in creating skin in the game and unlocking opportunity for many more potential dot connectors and dot identifiers to participate in the African tech ecosystem. 

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  1. It’s worth mentioning, as a distinction, that Rally Cap is a fund of funds. We do not invest directly into startups (though many in the community still do) and instead are LPs in three seed-stage VCs on the continent. It’s an important distinction because a fair criticism of rolling funds is that, in many cases, they are led by amateur fund managers. As a fund of funds, Rally Cap is offloading that responsibility to professional VCs.
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