The sister company of Africa-focused merchant bank Constant Capital is aiming to raise US$100m for a venture capital fund to invest in African start-ups – and is targeting firms that can shake up financial services and payments platforms.
Constant Capital, set up in 2006 by brothers Ike and Chinedu Echeruo, provides investment banking products and advice on fundraising and other deals for companies in Africa, in particular Nigeria and Ghana.
They formed Constant Ventures to invest in start-up and early stage firms that are capable of scaling up and tapping into Africa’s vast potential. The company now wants to go to another level with its fundraising.
“We think the space of venture capital investing in Africa is a huge opportunity. Digital transformation is going to make such a difference to the way people live, and so it will make a huge difference on the returns investors can make,” Ike Echeruo told IFR in an interview.
Constant Ventures says markets in Latin America, India and South-East Asia are three to five years ahead of African markets, so it analyses those regions for trends. It sees potential for superior returns in financial services and platform/marketplace companies, where young firms can build scale in Africa by using smartphones and the internet and extend access to credit, savings and investments, or with digital platforms that pull together sellers and buyers.
The absence of infrastructure in many parts of Africa is both a hindrance and a blessing, which some mobile phone companies have already taken advantage of.
“There’s a step change opportunity in the potential to transform the way markets work,” Echeruo said. “You don’t have all the legacy systems. That’s the challenge, but it’s also the opportunity to build something fresh.”
Constant Ventures typically invests US$50,000 to US$250,000 in launch rounds, and it wants to invest in 40–50 startups. Successful companies will get more funding as they grow, and it expects to invest in five companies at the Series A stage, providing about US$15m to each.
“Our investment strategy is we try to invest at the pre-seed stage, or even an idea stage, and we expect to continue to invest in the winners through to Series A," Echeruo said.
It has invested in nine companies so far, putting in US$3.2m, and wants the fund to give it the capacity to invest quickly if needed. The duration of its planned fund is 10 years and it is targeting a return on investment of five to 10 times.
Constant Ventures’ biggest investment so far is in Appzone, a payments network using blockchain, which has been approved by the Nigerian Central Bank and adopted by Nigeria's big banks, Echeruo said.
The Echeruo brothers grew up in Nigeria and studied in the US, then Chinedu worked in investment banking for JP Morgan and Ike worked at Wall Street law firm Thacher, Proffitt & Wood. They moved back to Nigeria and started Constant Capital, which provides a suite of trading and capital markets products, and said it has arranged US$3bn of deals for firms, including being lead adviser on a US$100m convertible bond issue in 2007 for Skye Bank (now Polaris Bank). The bank and VC unit have about 40 staff in Nigeria and Ghana.