What we know (and don’t) about Goldman Sachs’ Africa VC investing

Goldman Sachs is investing in African tech companies. The venerable American investment bank and financial services firm has backed startups from Kenya to Nigeria and taken a significant stake in e-commerce venture Jumia, which listed on the NYSE in 2019.

Though Goldman declined to comment on its Africa VC activities for this article, the company has spoken to TechCrunch in the past about specific investments.

Goldman Sachs is one of the most enviable investment banking shops on Wall Street, generating $36 billion in net revenues in 2019, or roughly $1 million per employee. It’s the firm that always seems to come out on top, making money during the financial crisis while its competitors were hemorrhaging. For generations, MBAs from the world’s top business schools have clamored to work there, helping make it a professional incubator of sorts that has spun off alums into leadership positions in politics, VC and industry.

All that cache is why Goldman’s name popping up related to African tech got people’s attention, including mine, several years ago.

When I first started covering African startups roughly a decade ago — and talking about it in business circles — there was mostly skepticism.

If the U.S. has flyover states, back then Africa was a flyover continent for Silicon Valley and Wall Street investors. Few really believed the region would ever produce a viable tech sector.

A number of affirming events since have shifted that perspective. Goldman Sachs betting on African startups, beginning in 2014, is one of them.

Goldman’s Africa VC arm

There’s some we know (and more we don’t) on the who, what and why of Goldman Sachs’ Africa investing.

On the “know” side, Africa VC investments for Goldman are managed by a unit with a name cast for a military novel: the Strategic Situations Group. The head of Africa for that group is London-based Jules Frebault, a member of Goldman Sachs since 2010 (according to his LinkedIn profile) who came to the firm from Cerberus Capital Management.

The first time I heard of the Special Situations Group was on a source call in 2015. Fitting to its enigmatic name, not much more is known about the unit or Frebault’s role, except that he selects and manages Goldman’s Africa VC investments.

On Goldman Sachs in Africa overall, the company has an office in Johannesburg’s cushy Sandton district and recently named banker Jonathan Penkin as head of its South Africa operations.

Goldman runs brokerage and investment banking operations out of its South Africa practice. It’s not clear if the office plays a role in the company’s Africa VC activities.

Goldman’s latest annual report doesn’t mention VC investing in Africa or provide much granularity on its overall Africa activity. Africa is accounted for within Goldman financials as part of EMEA — or Europe, the Middle-East and Africa — with no Africa-specific line-item data or reporting.

It’s relevant to note that Goldman Sachs announced it would accept deposits and become regulated as a bank holding company in 2008. The firm now provides some traditional banking services, parallel to its investment banking business, which still generates the largest share of the firm’s revenue.

In 2016, Goldman launched a consumer banking product branded Marcus and went mobile with the product this month.

Goldman’s Africa VC investment

Per Crunchbase data and TechCrunch reporting, Goldman Sachs’ Strategic Situations Group has joined five (known) investment rounds in African startups, and led four. There’s data for the overall round amounts, but not Goldman’s investment stakes specifically.

In 2019, Goldman also participated in a $190 million round to Zipline, a San Francisco-based, Africa-focused drone-delivery company, though it’s not clear if that investment came from the Strategic Situations Group.

Goldman’s first (known) investment in a VC-backed digital company operating in Africa was participation in Jumia’s 2014, $150 million Series C round. The company went on to join the $326 million addition to this round in 2016, making Jumia Africa’s first unicorn, with a $1 billion-plus valuation.

Over the last two years, Goldman led three investment rounds in Africa, worth a combined $93 million. That’s pretty significant for Africa, given VC funding for the entire continent only surpassed $1 billion annually in 2018.

In late 2018, Goldman led a $52 million round into South African consumer fintech startup Jumo to support that company’s Asia expansion.

Goldman led a $20 million Series A round in 2019 for Nigerian freight logistics company Kobo360 — a startup with an Uber-like app that connects truckers and companies to delivery services. Off that round, Kobo360 announced it would expand to 10 new countries beyond current operating markets of Nigeria, Togo, Ghana and Kenya.

Frebault named Kobo360’s ability to scale quickly over a short period of time and use of tech to improve efficiency in Africa’s logistics ecosystem as a reason for Goldman’s investment.

“It’s…a business model that’s replicable across multiple geographies on the continent,” he told TechCrunch last August.

In October, Goldman Sachs led a $20 million raise for Twiga Foods, an East African B2B food distribution company that offers supply chain services for both agricultural and FMCG products.

The 2019 event that brought the most visibility to Goldman’s Africa funding circled back to Jumia, Goldman’s first (known) African VC investment in 2014.

Jumia went on to expand online goods and services verticals into 14 African countries (though it recently exited a few), and in April 2019 raised more than $200 million in an NYSE IPO — the first on a major exchange for a VC-backed startup operating in Africa.

Jumia’s had a bumpy road since going public — losing significant share-value after a short-sell attack earlier in 2019 — but the continent’s leading e-commerce company still has heaps of capital and generates $100 million in revenues (even with big losses).

As Goldman’s largest VC investment in Africa, Goldman’s name is also bound to the fate of Jumia and the company’s ability to turn a profit.

Why Africa?

We don’t have any direct input from Goldman Sachs on its motives and strategy for venture funding in African tech.

Frebault has kept his conversations with TechCrunch specific to the rationale for particular investments, without elaborating on the firm’s broader objectives.

It’s possible to speculate that Goldman Sachs is interested in African tech for some of the same macro reasons attracting Silicon Valley’s big names to the continent: with 54 countries and 1.2 billion people, it’s one of the last blue oceans for global tech growth.

The continent is one of the fastest growing tech markets in the world, by year over year growth in startup formation, VC, mobile-penetration and internet penetration.

But even with the argument that every company’s a tech company these days, Goldman is primarily an investment bank and financial services firm with (seemingly) less motive to engage African startups than the Googles and Microsofts of the world.

From here, one could hypothesize that as a banking company, Goldman’s Africa VC activity is aimed at developing digital financial services on the continent, which is a hotbed for mobile payments use cases and development.

But with only one fintech investment in its Africa portfolio, Goldman’s VC choices don’t really support that.

Then there’s the prospect that Goldman’s reason for investing in African tech is profits. Yet, with only one IPO and a handful of exits, African tech is still a long-game when it comes to VC returns.

The fact is, we don’t really know much about the motivations of one of Wall Street’s best-known financial firms investing in African tech, because Goldman hasn’t elaborated on it.

Africa’s not the only place Goldman is playing the venture funding game. The bank backed 58 companies globally in 2019, compared to 81 for Sequoia Capital and 80 for Andreessen Horowitz — two of Silicon Valley’s top VC funds.

So, it could be that Goldman Sachs wants to be recognized as a player in today’s venture funding world, and making proportionate VC investments in Africa is part of its strategy.