Despite the challenges presented by the coronavirus pandemic throughout the past year, early-stage companies across the African continent are demonstrating considerable expansion, both in their operations and in attracting investment. 

Microtraction, a venture capital firm specializing in early-stage investments and located in Lagos, Nigeria, experienced a near four-fold increase in funding for the businesses within its portfolio.

According to a year-end assessment released recently, 21 companies supported by the firm have collectively secured over $33 million in funding. This signifies a substantial rise compared to the previous year’s total of $6 million (and $3 million in 2018). The combined estimated value of these companies exceeds $147 million, as stated by the firm.

Established by Yele Bademosi in 2017, Microtraction entered the African investment landscape aiming to become “the most readily available and favored source of pre-seed capital for African technology entrepreneurs.”

Bademosi, having relocated to Nigeria from the U.K. in 2015, previously served as the general manager for Starta Africa, an online network for African tech entrepreneurs. Recognizing a deficiency in early-stage funding within Nigeria and the broader continent, he founded Microtraction to address this need.

Microtraction does not disclose the total size of its fund, but it has garnered significant interest and cultivated a robust network, partly due to its prominent backers. 

Michael Seibel, the Chief Executive Officer of Y Combinator, functions as a global advisor and investor in the firm, alongside Andy Volk, who leads ecosystem development for Google Sub-Saharan Africa. Additional investors include Pave Investments and Chris Schultz, a U.S.-based angel investor.

These investors, many of whom have direct experience as entrepreneurs, understand the complexities of building a startup in the United States. However, the African market presents a distinctly different set of circumstances. Lacking firsthand knowledge of which startups to support but desiring to participate, Microtraction and similar early-stage investors offer a viable pathway for portfolio diversification and other investment objectives.

Initially, Microtraction’s typical investment offer was $15,000 for a 7.5% equity stake. Reflecting the strengthening market conditions, this changed last year, with the firm now providing $25,000 in exchange for 7% equity.

Microtraction reported receiving over 500 applications from startups based in Nigeria, Ghana, Zambia, and Mauritius during its first complete year of operation, though only eight of these companies ultimately received funding.

The firm’s inaugural investments were all in Nigerian companies: four fintech businesses — Cowrywise, Riby, Wallets Africa and ThankUCash; a cryptocurrency exchange, BuyCoins; a software-as-a-service platform, Accounteer; an educational technology startup, Schoolable; and a health technology company, 54gene.

In 2019, the local venture capital firm invested in six companies, including its first investment outside of Nigeria – Ghanaian fintech startup Bitsika. The Nigerian startups included social commerce platform Sendbox; events-focused startup Festival Coins; and a communications-as-a-service provider, Termii. The remaining investments were not publicly disclosed.

A significant portion of its portfolio companies have received support from YC and other prominent global accelerators

During the last review period, Microtraction revealed its investment in seven new startups. This recent group features Nigerian fintech companies Evolve Credit and Chaka; the edtech company Gradely; the bus-hailing service PlentyWaka; and the Kenyan credit data marketplace CARMA.

Considering the total funding secured in 2019 and 2020, 54gene accounted for over half of that amount, successfully raising $4.5 million in seed funding and a $15 million Series A investment. The company, which offers a unique approach to address the limited representation of African genomic data in worldwide genomics studies, was admitted to the winter program in January 2019, coinciding with its official launch.

Aside from 54gene, an additional six African-focused startups were part of the YC W19 cohort. Of these six, two – Schoolable and Wallets Africa – were already part of the Microtraction portfolio. Other companies that have been accepted into YC at various times include BuyCoins, Cowrywise, Termii, and two startups that have not yet been publicly named.

Furthermore, Microtraction-supported ThankUCash and another unnamed startup have participated in programs offered by 500 Startups. Meanwhile, Festival Coins stands as the sole startup selected for the Google for Startups Accelerator. In total, 11 of the 21 startups within the portfolio have benefited from the backing of Y Combinator, 500 Startups, or Google for Startups.

However, Dayo Koleowo, a partner at Microtraction alongside Chidinma Iwueke, refutes this notion, stating that there is no specific formula driving these results. He posits that YC and other accelerators prioritize the same core elements as Microtraction: the strength of the team, the size of the market, and demonstrated traction.

“We prioritize exceptionally skilled technical teams with a deep understanding of their respective industries, and those who are likely to succeed even without our involvement. We consistently seek companies tackling significant challenges faced by a large number of people,” he explained to TechCrunch. “The technology and startup landscape is rapidly evolving, so we favor teams that recognize this and can demonstrate their ability to execute effectively in real-time. I believe these global accelerators share these priorities.”

Generally, YC and comparable accelerators conduct thorough due diligence and risk evaluations before investing in African startups lacking local support. Koleowo suggests that the involvement of Microtraction may expedite the acceptance process for its portfolio companies. “A key benefit is that Microtraction, along with other local investors, provides a degree of risk mitigation before these global accelerators become involved,” he noted.

It is also important to acknowledge the influence of Microtraction’s advisory board in contributing to the success of half of the firm’s portfolio companies in securing places in global accelerators. In addition to those previously mentioned, past advisors have included Lexi Novitske, formerly of Singularity Investments; Dotun Olowoporoku, a venture capitalist at Novastar Ventures; and Monique Woodward, a former venture partner at 500 Startups.

Considering the increasing trend of globalization, coupled with the growing acceptance of decentralized approaches to building and operating within the tech sector – a shift accelerated by COVID-19 – this pattern is likely to persist.