Hi there, Justin here. After a series of takeovers of The Flip Notes, I’m back this week to write a piece that’s been a long time coming.
Some of you may recognize The Flip’s b-mic, Sayo Folawiyo, not just from The Flip or from his day job as the CEO of Kandua, but as a Partner of Pave Investments. I have long been asking Sayo when we can tell Pave’s story, and in particular that of its Managing Director and primary instigator, Kwamena Afful.
While I’d like to take the credit for Sayo and Kwamena’s readiness to share, it’s a particularly good time to do so. Last Friday, the early-stage VC fund Microtraction – co-founded by Pave and its Founding Partner, Yele Bademosi – announced the first close of its $15 million Community Fund, backed by a series of leading African founders and global investors.
With their fingerprints all over the African tech ecosystem (whether you knew it or not), Pave’s story is one that I believe is increasingly important to tell, as the ecosystem continues to grow. And having seen Kwamena and Sayo work, both up close1 and from a distance, I am excited to take a deep dive with them into the firm – the most active investor you haven’t heard of.
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Pave Investments: The Most Active Investor You Haven’t Heard Of
For an investment firm that needs an introduction, with Pave it’s hard to know where to start.
The African investment holding company, founded by two West African family offices, has quietly built an impressive portfolio of early-stage investments – over 100 since 2014, both directly and through their pre-seed funds. Their particular strategy is to back strong founders early. They invested in Flutterwave and Paystack, for example, at valuations of ~$2.5 million and ~$5 million, respectively.
Their venture investing includes a fund-of-funds strategy, where they have backed emerging managers at funds including Magic Fund, Wuri Ventures, and The Flip Capital. In addition to Microtraction, the firm has co-founded other founder-led ventures currently in development; and, it is a partner in various joint ventures to bring global businesses to the continent, including Binance and NBA Africa.
While technology is often the thread the firm weaves through everything it does, it’s the topline strategy to back strong founders that compels Pave to do much more than just early-stage investing. Indeed, they’re not a venture fund that does more; they’re a holding company that does venture.
So to better understand Pave – its history, track record and vision – I was joined by Pave’s Managing Director, Kwamena Afful, for a Q&A on the firm.
Let’s start with the TL;DR. What is Pave Investments?
Kwamena Afful: Pave is a pan-African investment firm, backed by two West African family offices, that does three things: (1) we do early-stage venture investing, both directly and through other funds; (2) founder-led venture building, and (3) JVs with international companies looking for great partners on the African continent.
And where does the Pave story start?
KA: It actually starts at Bain & Company, where Sayo and I met in 2012. I was his “buddy”, where I got assigned, as a more experienced mentor, to him as a new hire. I taught him how to calculate how many baby diapers there are in Australia.
I had joined Bain in Sydney a few years prior. Before that, I had worked for several years in M&A law, but then shortly after joining Bain, I got to move back to the continent when they opened a new Africa office in Johannesburg. Sayo had joined us in that office straight out of university.
Though we were both in corporate roles, we had an entrepreneurial drive that came from being from entrepreneurial families. We really bonded over our shared desire to build technology businesses, and to leverage our families, who are successful business operators, and their respective “platforms”, to help new ventures achieve greater success in Africa – we felt an obligation to do something great with it, in fact.
What do you mean by “platforms’?
KA: We think a lot about network effects in the simplest form of the term, i.e., how do we create mutual value for our network and then leverage that to create more value, and so on.
So that could look like helping companies work with state governments in Nigeria, connecting startups with entertainers to help close brand deals, helping fintechs navigate regulatory challenges in Ghana, or helping companies close deals with prospects that become their top customers.
I know there’s that meme about VCs saying “let me know how I can be helpful”, but in that sense, we’re not strictly venture investors and really look at ourselves as operators. It’s why, for example, Pave is a holding company and not just a venture firm. Venture is a necessary tool for us in building technology businesses, but it’s one method of many, and we’re trying to bring the different methods together in whichever way works best for our respective parties and in a way that is actually helpful. And that often requires a much more hands-on approach.
We hear so much about the disruption of tech companies, but in such a nascent environment, and in these markets, in particular, I can see how tech companies can also really benefit from the credibility provided by the status quo. So that was the idea – we can help tech companies in a particular way, but also we like tech companies for all the things they can do that traditional companies can’t?
KA: Something like that. For me it was extremely obvious – just looking around the world, we saw how in other markets the tech sector is creating more billion-dollar companies than any other sector, and that the simple bet was that the same thing is going to happen in Africa.
At the same time, I also saw pretty clearly that the prevalent model for funding tech entrepreneurs in our markets wasn’t working. In those days, it was often wealthy industry leaders who would bring entrepreneurs in under their investment holding company and/or invest directly in an entrepreneur’s business for a majority stake in the company. But what startups really need is to retain a majority of their equity, which they can offer to employees and later-stage investors as the company grows.
So it was clear that we wanted to bring more of the global, founder-led/Silicon Valley-style venture capital model to our markets, to give new companies the opportunity to continue raising capital and ultimately achieve a scale yet-to-be-seen for tech companies in these markets.
Ok, so I can see an investment thesis starting to develop. Then what?
KA: I left Bain.
Nice. What was the plan?
KA: Fortunately, I was well-paid in my corporate role so the plan was to start angel investing with my own money. It was a good place for me to start because I definitely have some “business ADD”, where I’m interested in every business, but also because the portfolio strategy gave us the increased breadth and increased exposure to learn.
Don’t get me wrong – starting with angel investing when few others were giving money to 20-somethings with little business experience was frankly scary. It sounds so silly saying it now because the African ecosystem has been growing at least from a pre-seed and seed perspective, but we literally felt like this is either gonna work really well or we’re gonna have eggs on our face and look like idiots.
I think it’s working out.
KA: Yeah, baby steps.
Ok, so you were angel investing, it was scary. At what point did that activity formalize into Pave with its three-pronged strategy you described earlier?
KA: So the angel investing and some initial JVs acted as proof points. Sayo was just leaving Bain at that time – this was 2014 – and we were ready to turn up the muscle and increase the amount of capital behind the deals we were doing. And we made a strong sell.
We were also fortunate to benefit from the foresight of our Chairman, Tunde Folawiyo, Sayo’s father, who is really good about backing younger people with a little bit of capital. His backing and involvement formalized the access we were looking for, to incumbent industries, and really allowed us to pick up our pace in doing deals.
I know at some point thereafter you guys co-founded Microtraction, as the primary entity in which you did your early-stage deals. What’s the story there?
KA: As Pave became more avid early-stage investors, it became increasingly important for us to help build the bridge to well-capitalized investors overseas, and in Silicon Valley, in particular.
Around that time, some of the partners of Y Combinator took a trip to Lagos2, and I got to spend some time with Michael Seibel, the Managing Director of YC. And I was complaining to him about YC’s pricing model, which I felt completely discouraged venture in Africa. I told him that they weren’t encouraging local investment when the companies to come out of their program were valued at $20 million, and this was a particular problem because these startups were more likely to fail if they did not have the local support.
But he wasn’t interested – he simply told me to stop complaining and invest earlier!
And I thought his response was both rude – and correct. Even though we were not typically used to investing that early at that stage – at the MVP or prototype level – that was the answer because we are not gonna change the participation of the international parties that want to invest in Africa.
Fortunately, Yele and I had been talking at that time for a while, and we had a mandate to co-found different types of ventures. So I turned to Yele and I said, “I think we should build a pre-seed fund” – a place that the very best African founders come to for funding, for their very first check to build amazing companies that are gonna transform the continent.
So we said to Yele, if you co-found it, we’ll bring the capital and support with strategy, help you build the team, and we’ll help to grow it. Yele said yes to that, and the rest is still a story being told.
And Michael Seibel is an LP in both Microtraction funds to this day.
I understand that Pave wasn’t investing as early at the time, but why did it need to be a separate fund? Why not do it as Pave?
KA: Yeah, I made the argument to our shareholders that it couldn’t be Pave for a number of reasons. First, our three-pronged approach meant that our focus was broad, and as a result we were inevitably missing some deals, which became a problem. Second, to develop the pipeline, we needed to build a stronger consumer-facing brand and investment process – which in Microtraction’s case included standard deal terms that enabled us to write checks faster. And third, building Microtraction as a separate entity was really an opportunity for us to partner with Yele, and to implement our strategy of identifying and backing strong founders on the continent.
Did this initial experience with Microtraction then inform your fund-of-fund strategy?
KA: Sort of. If we’re going to get into the other elements of Pave, I think it’s helpful to understand our broader ambitions. Our ultimate goal, like many other African founders and investors, is to help transform the continent. There are inherent limitations to what any one firm, or two individuals, can achieve. If there were 10 more of us, we would build 10 more Paves, so we knew that we needed to develop an incentive model to empower more smart people around us.
I’ve always been particularly inspired by certain communities, like the Jewish community, for example, for building incentive models and network effects within their communities, to find success, build wealth, and transform their environments together. I remember meeting one guy and he had backed probably five to ten strong investment companies, that had different focuses and advantages and approaches. And then they had then gone on to back 10 to 20 really great companies. Their network effect was insane…there was nothing that they could not achieve if they put their minds to it – jointly they own or have influence over many sectors.
That was the starting point of us saying, for Africans to develop the African continent, we need to do way more of that. We need to back each other.
So back to the fund-of-funds, it became a part of our strategy to back other emerging fund managers and broaden the Pave network of companies exponentially. It made sense, as Microtraction found initial traction as a fund, to see how many other Microtractions we could back and/or help build…that led to Magic Fund, The Flip Capital and the list continues…
And I gather the other prongs of your strategy with venture-building or JVs follows a similar logic?
KA: Exactly. We’re trying to work with the best (and most) founders in an incentive-aligned and positive-sum way. Also, we’ve made a lot of their own mistakes and seen a lot of things across our network, which are lessons we wish to impart to our partners.
With venture building, where there are great prospective founders who want to build something, we can provide hands-on resources and help, a first check when they’re ready, and effectively act as a co-founder in the businesses in question. And we’ve found this to be particularly successful when it’s a founder-led initiative or, in other words, it’s an idea the founders are particularly passionate about.
Likewise, in our JV strategy, we’ve really learned over the years what a good partnership looks like and, in particular, what good partners look like. It’s those that take the continent seriously and actually plan to invest in the continent and build a business or sector over time, as opposed to looking for arbitrage opportunities or something more short-term focused. But we do fewer JVs now than in the early days, as a result of these more strict parameters.
So what’s next for Pave?
KA: Pave’s near-term vision includes doing more of the same, and getting more intentional about how we build out the platform. Every new deal we do, we become more valuable to our existing founders and partners, and we get even more valuable to the next founder and partner. And for Sayo, who’s more product-oriented, I know he’s thinking a lot about how we can “productize” our platform and capabilities.
As for me, I’ve always viewed long-term success as getting to the point when we can choose a sector and decide to fix a problem in a sector on the continent, in a sustainable way. So we are less driven by what we see and instead we can say “we want to fix waste disposal”, for example, and we can mobilize the capital, we have the credibility based on our track record of execution, and we can have the connections – the business capital – to pool all the stakeholders it takes to make it happen.
So we’re starting to get more specific and deeper into certain industries and investment themes and, in the short term, we hope that we’ll be able to validate our model – backing people early, coming ahead of the crowd, thinking a little bit differently – beyond any question to just keep building.
And the last question for now – after around 10 years of Pave, do you have one particular lesson that you’d like to share?
KA: It’s never as easy as it looks. I’ve found that to be true across all entrepreneurial stories. You might read the stories afterward that focus on the positives, but even with Pave, this story is not entirely representative. We lived off of our savings and didn’t take a salary for the first eight years, because any money we took for salaries was money we wouldn’t be able to invest in new companies or opportunities.
I know a lot of people are attracted to the sexiness of entrepreneurship, but it takes a ton of sacrifice, and hardly ever does it happen the easy way. Building things, going against the status quo, and creating value from something new is really hard. But perhaps that’s why we’re so interested in partnering with great founders who are willing and able to do just that.
Thanks so much. I know there are many more lessons and wisdom to share – we’ll have to do this again and get deeper into the insights next time.