These are exciting times for growth-stage investments in Africa. Norrsken22, a pan-African venture capital firm, finally closes its first fund, raising a total of $205 million, exceeding its initial target. This also highlights a strong interest on the part of institutional investors to support African startups at an essential phase of their journey.
Norrsken22, established by five individuals with extensive experience in venture capital and private equity, includes founding partners Niklas Adalberth and Hans Otterling, as well as managing partner Natalie Kolbe and general partners Ngetha Waithaka And Lexi Novitske. The nearly two-year-old venture capital firm has operational teams in Nigeria, South Africa, Kenya and Ghana.
The partners launched the fund, called the Norrsken African Technology Growth Fund22, in January last year, after reaching the first close at $110 million. Around 59% of the funding came from a consortium of 30 unicorn founders globally, including Flutterwave CEO Olugbenga Agboola, Skype co-founder Niklas Zennström, iZettle co-founder Jacob de Geer and co -Delivery Hero founder Niklas Östberg.
Norrsken22 began its fundraising at a time when there was a significant increase in capital flowing into the technology sector. In addition to discussions with several development finance institutions (DFIs) and family offices, a prerequisite for raising a significant fund in Africa, the company aimed to achieve final close by the end of 2022. However, the global landscape of Technology investing has seen a rise since then, impacting fundraising efforts at all levels, including from institutional investors. In 2022, venture capital activity in Africa reached 5 to 6 billion dollars. So far in 2023, it has narrowed to a range between $2.5 billion and $3.4 billion (based on data from The big deal And Briter Bridges), reflecting the decline in overall venture capital activity.
The current slowdown in technology investments has delayed the final closing of Norrsken22 by a year. Nonetheless, this achievement is remarkable given the challenges that many venture capital firms, both local and global, still face in raising or closing their funds. What’s even more impressive is that the growth fund was oversubscribed. Managing Partner Kolbe attributes this success to new fundraising dynamics seen in early 2023. Additionally, the Norrsken22 founding team’s extensive experience in African investments, as well as the support of other limited partners, primarily the founders unicorn startups, played an important role in generating interest and support for the fund, she noted.
After the initial closure of the fund, which benefited from the support of the SEB Pension Foundation and a few family offices, Norrsken22 attracted companies such as British International Investment (BII), International Finance Corporation (IFC), US International Development Finance Corporation (DFC), Standard Bank and Norfund as new sponsors.
Investing in Series A and B rounds
International funds typically originate most of the large deals in Africa, while local investors primarily focus on pre-seed Series A rounds with small and mid-sized funds. Large Africa-focused funds like Norrsken22 aim to bridge the gap between growth and late-stage investments. Approximately 50% of Norrsken’s capital will be allocated to build its portfolio with Series A and B companies; the rest will be reserved for follow-on investments, mainly in rounds B and C, according to Kolbe.
In a statement, the company said it was focused on “entrepreneurs developing fintech, edtech, medtech.” [health tech], and market-friendly solutions that will generate strong returns and have a positive impact across Africa. So far, the Pan-African Growth Fund has made five investments, including a challenger bank TymeBankB2B commerce retail platform Sabiidentity verification solution Identity Smileautomobile financing platform Automatic control and financing application for informal trading communities Shara.
“The type of value we bring is aimed at businesses looking to expand beyond their borders and create pan-African, multi-country businesses. Having three general partners in Sub-Saharan Africa’s flagship economies: Nigeria, Kenya and South Africa, we have been able to provide businesses with people and networks on the ground, and we also understand the nuances of growth and opportunities in each of our markets,” Kolbe said of Norrsken22’s investment strategy. “Also, these are startups looking for an investor who can write a big check and be able to track future rounds and anchor those rounds. This has become very important, especially at a time when liquidity is becoming a little tighter on the continent.”
Norrsken22’s objective remains to invest in around twenty startups. The fund’s typical investment ticket size averages around $10 million. Still, that could reach $16 million, encompassing follow-on rounds in select portfolio companies, as the partners explained in a previous interview.
Think about outings
Like Norrsken22, several other growth-stage companies, including Partech Africa, TLcom Capital, Algebra Companies, Sawari VenturesAnd Novastar Ventures, have raised one to two funds in the last two years to address the lack of capital in Series A and beyond. However, some of them have also invested in the pre-seed and seed stages, a possibility that Norrsken22 could explore if the right opportunity presents itself. “We set aside a small amount for the first opportunistic step. If something comes to us that seems exciting, we can invest small amounts of capital into it, but that’s not at all where our focus is,” Kolbe remarked.
Indeed, a key objective of a growth-stage fund’s investment strategy is to prepare portfolio companies for exit. According to the general partner, Norrsken22 carefully evaluates potential exit scenarios, including identifying potential buyers for its portfolio companies and assessing the valuations they could offer at the end of its investment period. This diligence is essential and the company has declined investments where a compelling exit case was not evident, she added.
The managing partner says the firm plans to exit its portfolio companies through international strategic buyers and consolidation involving local industry leaders. Large multinational companies in Africa could also provide exit opportunities for startups. Some of these companies often struggle to innovate internally and may seek innovation by acquiring technology companies, which can be integrated into their operations or kept as separate entities under a different brand. Norrsken22’s debut fund is supported by an advisory board comprised of business leaders from multinationals in the banking, telecommunications, agriculture and real estate sectors.