VC investor: Forget the middle class, Africa’s opportunity lies in low-income demand by Kate Douglas

Maurizio Caio (left) and Omobola Johnson (right) talk about TLcom’s VC fund for tech companies in sub-Saharan Africa during a round table discussion in Cape Town.

London-based venture capital firm TLcom Capital is expanding its presence on the continent with the opening of it Lagos office. The firm, initially focused on backing telecom, media and technology ventures in Europe and Israel, has turned its attention to sub-Saharan Africa in recent years.

TLcom opened its Nairobi office in 2013 and has recently appointed Omobola Johnson, Nigeria’s former minister of communication technology, to head up the Lagos office. Johnson has previous private sector experience as the managing director of Accenture in Nigeria.

Maurizio Caio, TLcom’s founder and managing partner, first recognised the continent’s opportunity a few years ago when he saw how well some European companies with an African focus were doing.

He believes there is a considerable opportunity for African tech companies to leverage existing technology to solve problems and meet basic needs, such as access to electricity, health, education and commerce.

“Despite the hype around the middle class, the vast majority of big, rising demand on the continent is coming from low-income segments,” he said at a media round table in Cape Town yesterday.

“There’s gigantic demand for vast underserved verticals. And there’s very affordable technology – that is mobile and internet – which is actually much more penetrative [in providing] the services and products that people really need. That’s the opportunity.”

Capital gap

A major limitation facing tech companies and entrepreneurs is the shortage of capital available in the market, highlighted Caio. “And we believe one of the main reasons why capital is not flowing into Africa venture capital is because there is this perception of the Africa risk.”

He added this misconception is aligned with the “myth” that venture capitalists cannot achieve profitable exits from their investments in African companies.

“If you have a good company, you can exit,” he continued. “It is a not an exit problem – it is a quality of company problem.”

One reason for a shortage of quality investment-ready companies is the lack of enabling ecosystems for tech entrepreneurs. And Caio said TLcom is placing a strong emphasis on mentorship to help strengthen the quality of the businesses the fund invests in.

Returns, not charity

“We have collected hundreds of potential companies, and we are confident that for every 100 companies, there is one that is worth investing – which is the standard healthy relationship.”

According to Caio, the firm is prioritising companies with the highest potential to deliver strong returns. TLcom’s investments will be between US$500,000 and $10m.

“For this cycle we need to be very merciless in focusing on the highest potential entrepreneurs – to make a point and to demonstrate that high returns are possible.”

“We are not in the charity business here. We are in the venture capital [business], enabling companies to actually be profitable, create jobs, and certainly accelerate inclusion.”