The Origins and Evolution of the Future Africa Fund

The Future Africa Fund began its journey in 2015, originating from the initial angel investments made by Iyinoluwa Aboyeji and Nadayar Enegesi. Both were co-founders of Andela, a talent company with a focus on the African market and a base in the U.S.

Aboyeji continued these investment activities even as he transitioned into and subsequently departed from Flutterwave, the fintech company he helped establish.

Formalization and Initial Investments

In January 2020, the fund was officially structured, with Aboyeji assuming the role of general partner and Enegesi becoming a limited partner.

Concurrently, it was announced that the fund had already deployed $1.5 million across 19 different companies located throughout Africa.

The Rise of Syndicate Funds

The concept of a syndicate fund gained traction in the months following, largely influenced by the disruptions to investment activities caused by the global pandemic.

Syndicates are increasingly becoming a significant force in African investment, both for companies seeking capital and for investors looking to participate. A substantial portion of capital for promising African startups is often distributed among numerous investors.

Syndicates provide a mechanism for consolidating this fragmented capital, creating greater investment capacity.

Challenges in Raising Institutional Investment

During the initial phase of the pandemic, Aboyeji publicly stated, through a blog post, that Future Africa Fund was actively seeking institutional investment.

However, securing funding proved challenging, as travel restrictions prevented him from visiting key financial centers like London, New York, and Washington, DC – locations where significant institutional and development finance capital is concentrated.

The Launch of Future Africa Collective

In April, the fund adapted to these circumstances by launching a syndicate arm known as the Future Africa Collective.

“A significant funding gap exists for early-stage African startups,” Aboyeji explained to TechCrunch. “Our research consistently indicated the need to address this gap.”

“We realized we couldn’t tackle this challenge independently and therefore created Future Africa Collective to broaden access to African startups. We view ourselves as innovators in this space.”

How Future Africa Collective Operates

Future Africa acts as the lead in the syndicate, responsible for identifying investment opportunities, performing thorough due diligence, and securing allocations for investors, who are referred to as backers.

The AngelList Model

This model closely resembles that of AngelList, a platform founded by Naval Ravikant and Babak Nivi, designed to facilitate fundraising for startups from angel investors.

AngelList has built its infrastructure around syndicates – investment structures that enable investors, known as backers, to co-invest alongside experienced investors, referred to as leaders.

Roles of Syndicate Leads and Backers

Syndicate leads are typically seasoned angel investors or founders who have successfully built startups, possessing valuable insights into the startup ecosystem.

Conversely, backers often have limited experience in startup investing, and even those with some experience may prefer to delegate investment selection and management to the expertise of the syndicate leads.

Scale of Syndicate Investing on AngelList

AngelList currently lists over 200 active syndicate leads, with typical investment amounts ranging from $200,000 to $350,000.

These syndicates have collectively invested over $2 billion in startups worldwide.

The Rise of Syndicate Funds for African Startups

Similar to Aboyeji, two further Nigerian technology entrepreneurs – Bosun Tijani and Jason Njoku – have initiated syndicate funds within the last twelve months.

Tijani serves as the co-founder and Chief Executive Officer of Co-Creation Hub (CcHub), a widespread African innovation hub maintaining locations in Kigali, Lagos, and Nairobi. He is also an active angel investor, and through CcHub’s accelerator program and the Growth Capital Fund, a partner fund, Tijani has provided investment to over 40 startups.

Given the existing success of these other funds, what prompted the launch of a syndicate? Tijani explains that the syndicate aims to address the difficulties inherent in traditionally structured investment vehicles. Let's explore this further.

In 2019, Nigeria represented over 53% of all diaspora remittances sent to the African continent. These funds are largely utilized for household expenses. Tijani envisions the CcHub Syndicate as a channel through which a portion of these remittances can be directed to enhance the quality of capital available to local entrepreneurs. He posits that the syndicate will enable Africans living abroad, passionate about contributing to their home countries but lacking the resources to become limited partners in conventional fund structures, to co-invest alongside CcHUB in rapidly expanding technology companies throughout Africa.

“We view the syndicate as a supplementary tool to our venture capital fund, providing bridge financing to companies demonstrating proven success as they seek funding to achieve key milestones before their subsequent funding rounds,” he stated.

Prior to the 2014 founding of Andela by Aboyeji and the launch of CcHub’s $500,000 accelerator program, Jason Njoku of iROKO had already begun making investments in startups.

Two years after establishing the African entertainment company in 2011, Njoku and his co-founder Bastian Gotter created SPARK, a company builder and a $2 million fund. The fund, supported by High Net Worth Individuals (HNIs) investing between $100,000 and $500,000, has undergone several adjustments to maintain its viability.

Currently, the fund is in the process of realizing returns, but this hasn’t deterred Njoku from personal investing. His individual portfolio, coupled with SPARK’s successful exit through Paystack, has established a reputation allowing him to operate online communities where he provides insights as an angel investor for a fee.

He shared that Investzilla emerged when several investors expressed interest in accessing his investment opportunities following Paystack’s acquisition.

“For the past few years, I’ve been informally advising and directing investors to companies, so this simply formalizes the process,” he explained. “Investzilla investors may not identify as HNIs, but they aspire to invest $3,000 to $10,000 in multiple early-stage companies each year. Investzilla is dedicated to facilitating this opportunity for them.”

Essentially, the Future Africa Collective, CcHub Syndicate, and Investzilla are focused on improving access to funding for African founders. The objective is to mitigate venture capital flight, a growing concern within the ecosystem. But how do these initiatives function, and what progress have they achieved to date?

Understanding Syndicate Investment Models

Generally, investment syndicates utilize an application process to onboard new investors. Following a thorough vetting procedure and approval, these backers gain access to potential investment opportunities and can select deals individually. A one-time joining fee is typically required as part of this process.

Investzilla, for example, requires a $500 membership fee. Subsequently, investors can allocate between $5,000 and $15,000 to over ten early-stage companies each year. Although a formal launch announcement is pending, Njoku reports a soft launch occurred in January with 20 investors, and several deals are currently in the pipeline awaiting completion.

Syndicate Fee Structures and Membership

In contrast, the CcHub Syndicate commenced operations in December 2020. While the specific administrative fee isn't publicly disclosed, Tijani indicates a minimum investment of $5,000 per backer.

To date, the syndicate has attracted over 400 members, encompassing individuals, investment groups, and institutional investors. More than 30 investors have completed the required KYC (Know Your Customer) verification. Last month, the syndicate announced the successful raising of $267,500 to bolster the bridge financing rounds of three Nigerian startups.

The Future Africa Collective levies annual membership dues of $1,000, and selects a portion of its backers for syndicate participation four times per year. Each quarter, investors are offered five startups for potential investment, with a minimum commitment of $5,000. Within a year, Future Africa Collective has expanded to over 160 members.

Collectively, these members have invested in excess of $1 million across 14 startups throughout Africa.

Transaction Fees and Carried Interest

It’s important to note that all three syndicates impose a transaction fee, calculated proportionally to the investor’s check size, for each investment made.

Furthermore, each syndicate charges carried interest – a percentage of any positive returns generated by the investments. Future Africa, for instance, has a 20% carry. Should an investor contribute $5,000 and the investment yield $20,000, the syndicate would receive $3,000 in carry, leaving the investor with a $12,000 profit.

Investzilla also applies a 20% carry, while CcHub Syndicate operates with a 15% carry rate.

Investment Return Timelines

Regarding the anticipated timing of investment returns, Aboyeji explains that the Future Africa Collective is structured to facilitate returns through secondary sales.

“We retain the discretion to determine exit strategies, but any opportunities are discussed with the syndicate members,” he states. “Returns are distributed to syndicate members who invested in specific startups upon an exit event.”

The projected timeline for these exits across the syndicates generally ranges from 5 to 10 years.

Future Growth and Impact

Given the existing gap in seed-stage funding within Africa, the founders anticipate increased participation from a wider range of investors employing diverse syndication models.

Njoku expresses optimism about the influx of capital into Africa’s technology sector, suggesting that if these syndicates can secure commitments from over 200 angels investing between $3,000 and $10,000 in at least five startups annually, the continent could witness greater involvement from high-net-worth individuals in technology investments.

“Achieving this would translate to $2 million to $10 million in early-stage funding each year, potentially attracting capital that might not have otherwise been available,” he explains. “Founders like Iyin and Bosun, having generated substantial wealth through African tech, inspire confidence and demonstrate the attractiveness of this asset class to executives and HNIs.”