A first-time fund manager shares insights on raising a $50 million fund, discussing finding the right investors and convincing them to invest.
Raising capital can be a challenging task, requiring extensive conversations and the search for suitable investors. This struggle applies not only to startups but also to venture capital firms seeking funding.
While challenges in raising funds are commonly discussed for African startup founders, the hurdles faced by African investors launching their first funds are less explored.
In a detailed account, an African entrepreneur, in collaboration with an accelerator manager and tech expert, narrates his journey of launching a debut fund. Despite clear objectives of revolutionizing African VCs’ return models and backing overlooked early-stage startups, the path to achieving these goals has been arduous.
(This interview has been edited for clarity)
TC: What is the size of the fund you’re targeting?
*James: We aim to lead and co-invest in deals with a target fund size of $50 to $70 million, planning to provide checks ranging from $2 million to $5 million on average, including co-investing in Series B rounds.
TC: How did you determine this amount?
James: We calculated the fund size by considering the number of companies we intend to support and worked backward. Our evaluation factored in our capacities, networks, resources, and the transformative support we aim to deliver. We opted for a focused platform strategy to offer substantial assistance rather than diluting our impact with a large portfolio. Our fund size decision was guided by estimating the number of companies we plan to back through financial modeling.
Furthermore, leveraging our expertise, resources, and sector knowledge from past experiences played a key role. This included the networks we could offer to our portfolio companies and the direct support we could provide, all influencing our choice of fund size.
TC: How much personal capital did you contribute to the fund?
James: 1%-3% of the fund.
TC: What motivated you to start a fund?
James: With a background in entrepreneurship and strategy consulting, my experiences and observations of challenges in the African VC landscape prompted me to venture into VC. The young VC ecosystem on the continent, primarily focused on early-stage investments, lacks substantial growth-stage funding.
While celebrating startups securing pre-seed and seed funding, the absence of follow-on investments for scaling companies to reach Series B caught my attention. This gap may result from a lack of growth-stage investors rather than inherent issues with the startups. Discussions with LPs from DFIs revealed concerns about underwhelming returns from many funds, hinting at a broken model.
To address these issues, we are developing a unique investment approach to better support companies and reshape the investment landscape.
TC: How did you craft your investment thesis?
James: Our