Entrepreneurship Zone: 07 February 2023 :: Seasoned investor talks opportunities in Africa’s tech space, from healthcare to education

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Entrepreneurship Zone: 07 February 2023 :: Seasoned investor talks
opportunities in Africa’s tech space, from healthcare to education

 

	
 


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Natalie Kolbe is managing partner of the recently launched investment
outfit Norrsken22, established by Klarna co-founder Niklas Adalberth and
Hans Otterling, partner at Northzone. The firm has already raised $110
million for its Norrsken22 Africa Tech Growth Fund that will invest in
tech-enabled business on the continent. The fund is also backed by 30
unicorn founders, including Olugbenga Agboola, co- founder of Flutterwave;
Niklas Zennström, co-founder of Skype; Jacob de Geer, co-founder of iZettle;
and Niklas Östberg, co-founder of Delivery Hero.

Prior to her current role, Kolbe was global head of private equity at
investment firm Actis. She spoke to James Torvaney about the fund’s
objectives and the areas where she sees the biggest investment opportunities
on the continent.


Give us some insight into the establishment of Norrsken22. Why has the fund
been set up and why did you come onboard?


The fund was borne out of the fact that there is a dearth of capital in the
growth stage of technology businesses on the continent.

Although there is seed capital available to get businesses up and running,
once they need large amounts of capital to accelerate their growth, they
have struggled to find it on the continent, and often end up going to
Silicon Valley, or other developed markets, in search of funding. These
investors often lack the context or understanding of African markets.

Our management team brings together the worlds of early-stage venture
capital and more established growth-stage investing. The fund’s management
team includes Lexi Novitske (based in Lagos) who is the founder of Acuity VC
and comes from the world of venture capital, as well as Ngetha Waithaka
(based in Nairobi, also ex-Actis) and myself (in Johannesburg), who have
more growth-stage investing experience.


What type of businesses are you looking to invest in?


We wanted to focus specifically on the major tech hubs in sub-Saharan
Africa – Nigeria, Kenya, South Africa, and Ghana – and on the four sectors
where we see the most exciting growth opportunities: fintech, edtech,
medtech, and market enablement (businesses addressing inefficiencies in the
B2B marketplace).

For this fund, we are looking for tech-enabled businesses that are light in
capital with space to grow. The majority of the capital will be invested in
series B and C rounds. We are not necessarily looking for businesses that
are already profitable, but they should have revenue and an established
client base. We want businesses that have great founders, good unit
economics, and the potential to scale beyond their markets, and possibly
even to other regions, such as India and South America.

In general, we have a preference for B2B businesses, because there you can
acquire customers that already have scale and become profitable more
quickly. However, we are still interested in B2C companies that can acquire
customers in an efficient and scalable way; whilst they can be unprofitable
for a long time due to spending so much money on marketing to acquire
customers, if you get it right the potential valuation can be significant.

We plan to invest in around 20 businesses at an average ticket size of
US$10 million each.


In which areas of the medtech segment do you see the biggest opportunities?


There is huge potential and an acute market need in the healthcare space.
Private facilities – where they are available – are only accessible to a
very small part of the population, whilst government facilities are often
overstretched and of poor quality. Technology has the potential to improve
physical and cost accessibility, as it can enable people to get quality
healthcare from anywhere.

Remote diagnostics is one area that we are interested in. Covid has
actually helped accelerate trends here, as people are now more confident in
trusting online diagnostics. There are a number of interesting businesses
already in the diagnostics space that are at the growth stage and can absorb
capital.

We have also been looking at businesses addressing pharmaceutical supply
chains, which are very inefficient. There are big opportunities for
businesses that can cut out expensive middlemen and link the manufacturers
directly to the retailer, or help retailers with inventory management and
traceability, as counterfeit drugs are a big problem for many retailers and
consumers.

Helping address inefficiencies in hospital and physician management, is
another area with lots of opportunity. As an example, most hospitals still
have manual processes and documentation management systems. However, this is
a hard nut to crack because there are a lot of gatekeepers restricting
access to the various institutions. As such, it’s not an area where we have
seen many companies succeed.


And where is the potential in edtech?


As with healthcare, there is a two-tiered education system across the
continent, with a large gap between the private and public offerings.

There are big opportunities in vocational training, and e-learning for
people that are already in the workplace. That’s probably the easiest area
to take online, because it’s a market that is already online and already has
the means to pay for the product. Corporate training is another vertical
that can be digitised quite easily, as well as online tutoring and
e-learning marketplaces.

As with healthcare, there is also scope for solutions that improve the
efficiency of the organisations themselves; for example, products that
support bricks-and-mortar universities to digitise their processes and take
their curricula online.

We will definitely consider investment in each stage of education, although
schooling and higher education are a bit more difficult because there is a
higher regulatory burden. But there is still a massive opportunity with so
many young people looking for quality education.


You’ve highlighted ‘market enablement’ as a segment in which you would like
to invest. Please elaborate.


Market enablement is about breaking down barriers of cost and inefficiency,
usually in the B2B space, and connecting informal to formal markets. This
includes digital marketplaces, supply chain management, and also businesses
that help other businesses acquire and engage customers. For example, there
are already a few businesses doing ‘Uber for trucks’, connecting truck
operators to new customers, and grouping together partial loads.

It also includes businesses creating efficiencies in warehousing and fleet
management, or businesses using data and artificial intelligence to
understand and ease bottlenecks in manufacturing processes. Cross border
trade is an area with a lot of inefficiencies and high costs, and thus high
opportunities.


How is the Norrsken22 fund structured?


The fund has a 10-year life cycle, with investments to be made over the
first five years.

We have completed the first close at $110 million, and are ready to start
investing. However, we expect subsequent closing to raise the total
available capital to $200 million.

Although Norrsken22 is not an impact fund, 22% of the carry from the fund
will go to the Norrsken Foundation to help support the African
entrepreneurship ecosystem.


What is the exit strategy for Norrsken22’s investments?


Exits are most likely to be “strategics” – that is, companies being
acquired by international businesses looking for access into the African
market, as opposed to building from scratch. Stripe’s acquisition of
Paystack is a good example of this.

In three to five years’ time, I also expect pan-African M&A to become a
viable exit route. As businesses become successful in their verticals, we
will start to see evolution and consolidation across various regions. For
example, where one business has done very well in a specific vertical in
East Africa, and another in the same vertical in West Africa. What we may
see here is these different businesses combining to form a continental
mega-business.


Are there any businesses you would be reluctant to invest in?


We would hesitate to invest in capital intensive businesses – such as heavy
waste management, or solar home technology – or businesses using very deep
tech with long development cycles.

It’s not that these are not good investment opportunities – there are a lot
of very exciting tech-enabled businesses in those spaces – but these
businesses do not fit perfectly in Norrsken22’s mandate.


What trends do you see in the tech investment space in Africa?


The only word for the tech space in Africa right now is “exploding”. The
invested capital is doubling every year (except for 2020, due to Covid-19),
and we expect this exponential growth will continue. As more technology
businesses grow, there are lots of synergies between these different sectors
that will drive further growth.

Up until now, the technology industry on the continent has been dominated
by fintech. But it needed to be. Payment railways were the first layer that
needed to be laid down for other tech-enabled businesses to work. Now that
we have seen that, it paves the way for the next layer of digitally-enabled
companies.



The Norrsken22 investment team (left to right): Lexi Novitske, Ngetha
Waithaka and Natalie Kolbe

 

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