TLcom Capital targets $150M for its second fund to invest in 20 African startups

TLcom Capital, the Africa-focused venture capital firm known to have made bets on Andela and Twiga, is raising $150 million for its second fund targeted at making early- and late-stage investments.

The firm has reached the first close of $70 million, according to a statement shared with TechCrunch. It’s almost the equivalent of what TLcom Capital raised in the TIDE Africa Fund, its first fund that achieved its first close in 2017 and final close in February 2020.

In an interview, managing partner Maurizio Caio told TechCrunch that the second fund is expected to reach a second close later this year. When closed, it will represent the largest fundraising yet for the two-decade-old firm, which has $350 million AUM across Africa and Europe with offices in Lagos, Nairobi and London. It will also position the investor to become one of the largest independent VC firms fully dedicated to the continent.

In early 2020, TechCrunch reported TLcom Capital’s $71 million TIDE Africa Fund and how the firm planned to invest in 12 African startups from seed to Series B stages.

However, the firm managed to invest in 11 startups. They include Andela, Ajua, Autochek, Ilara Health, Kobo360, Okra, Pula, Shara, Terragon Group, Twiga and uLesson.

Typically, VCs take five years to deploy capital and then another five years to make follow-on rounds and ultimately exit their portfolio companies via acquisition or IPO. But in TLcom Capital’s case, it took three and a half years to deploy its capital, from late 2017 to mid-2021.

“The exact reason why we stopped investing is that we were trying to understand how much capital we needed to support these companies going forward in full-on rounds,” said Caio. “So, we decided that we didn’t want to invest in another company, just because we wanted to reach a dozen companies without having enough capital for follow-on rounds.”

TLcom’s average investment per startup is around $6 million; however, it didn’t invest precisely that number in a fresh or follow-on round in any of its portfolio companies. Its first African check was in Andela ($40 million Series C), way before its first fund closed in 2020, and is the latest stage at which TLcom invested; Twiga’s $20 million Series B in 2019 is another.

TLcom Capital invested in seed and Series A stages for the other nine investments. The firm has had to invest earlier in some cases, something unconventional for large funds in Africa. For instance, it invested in Okra and Shara when they had nothing more than prototypes and led Autochek’s pre-seed round. According to Caio, this stresses TLcom’s breadth in being the go-to investor for high-growth companies thinking of raising their first institutional check.

TLcom’s participation in leading smaller rounds indicates the growing intensity at which investors battle for deals these days. From local investors such as LoftyInc and Ventures Platform, which have sizable funds to invest super early, to global investors like Tiger Global and Target Global making inroads from pre-seed to Series C, competition within Africa’s venture capital market is heating up.

That said, TLcom–whose team includes Caio, senior partner Omobola Johnson, partners Ido Sum and Andreata Muforo— says it wants to add an extra 20 early-stage startups to its portfolio. Ticket sizes in these companies will range from $500,000 to $15 million.

The firm will most likely tailor its fund structure like its first: part of the capital for early-stage startups, while the rest will be for new or follow-on rounds of companies at growth and late stage. Its first check from the second fund was a lead investment in SeamlessHR.

All 12 of TLcom’s current portfolio companies are based in Nigeria or Kenya. With its new fund, TLcom will expand its focus to Egypt while making more investments across East and West Africa, the firm said.

As with most pan-African funds, TLcom has few local LPs: FBN Quest and Sango Capital. And while the rest are foreign–AfricaGrow (a joint venture between Allianz and DEG Impact), Bertelsmann, King Philanthropies, CDC Group, IFC, Proparco and Swedfund–Caio believes the local LPs doubling down on the fund is a noteworthy sign despite the disparity in LP origins.

“In this first set of investors, we have two African LPs that are coming back with more capital than the previous time. But there’s still work to be done to attract more African investors. Then again, the important thing is that the capital market is learning that Africa venture capital is an attractive space. And the fact that more private investors realize that, without having any institutional constraint to devote resources to Africa, is very encouraging,” he said.

TLcom’s focus still lies mainly in traditional sectors like fintech, mobility, agriculture, healthcare, education and e-commerce. However, Caio told TechCrunch that the firm is willing to invest in startups venturing into web3, crypto and DeFi, newer industries with many upsides where African startups are on the same playing field with other regions.

Over the years, TLcom-backed companies have collectively increased their revenues threefold since receiving money from the firm. Global investors such as Owl Ventures, SoftBank and Index Ventures have also led follow-on rounds in the firm’s portfolio companies. TLcom said that these companies have seen their valuations increase an average of 5x.

African startups raised more than $4 billion in 2021, doubling from when TLcom closed its first fund. Reflecting on this increased activity, Caio urges founders to take advantage of the new influx of capital coming into the continent and achieve massive scale. 

“The big picture is that we are still very early in African VC despite raising almost $5 billion. This is the message to the entrepreneurs: Think big, don’t try to second-guess, focus on the magnitude of the opportunity, because if it’s compelling, you will find capital to support it,” he said.

“Don’t worry about dilution; worry about how much money you need to build a very large company in a large market. Let’s take advantage collectively of more capital coming into the space.”