The recently launched Savannah Fund is specializing in US$25k to US$500k investments in early-stage high growth technology ventures. The fund aims to bridge the seed-stage, angel and venture capital investment gap that currently exists in Africa. VC4Africa spoke with Mbwana Alliy, who started the Savannah Fund together with Erik Hersman and Paul Bragiel.
You’ve described the Savannah Fund as a ‘micro VC.’ Can you explain why you use this description and give us background on how the fund came about?
“We are not a traditional VC in the sense that we have a big fund and have to deploy lots of money. I have written extensively about this on my posts on Afrinnovator, a smaller fund means we are able to focus on smaller seed deals which is what feeds the bigger rounds later on. The design of the fund stems fro our observation of the ecosystem. The plummeting cost of launching internet startups also plays to this trend. We’ll also do deals that enhance the infrastructure for other innovators and startups in Africa. There are lots of gaps to be filled on the continent that enable others to build on top of.”
The fund is backed by, amongst others, successful American internet entrepreneurs. Was it hard to get them on board?
“I did over 250 pitches and that doesn’t include follow on with those that wanted more detail and further conversations. I convinced them the same way every other entrepreneur who raises money does; With a focused and clear pitch. Typically to investors that had a link to Africa and who understand the problem or cared enough about the ecosystem. Some investors had been with us to East Africa as part of our trips with ‘i/o ventures’ a few years back.”
Tell us about the Savannah Fund accelerator programme that starts in September?
“We have a simple accelerator form at savannah.vc/accelerator. It should be clear we are looking companies with some traction, not just an idea. We look for entrepreneurs who can learn and adapt versus being stubborn or stuck on a plan. They should also be lean and not overly confident on their idea/IP, but have a bias on executing.
Technical ability in the team is extremely important, we even have a coding test we’ll make each technical team member of the startup go through. No great tech startup is built without a good technical team. We’d rather not accept startups that can’t even adjust their product when they need to adapt fast.”
CP-Africa recorded a G+ Hangout with Mbwana Alliy, the Founding Partner of the Savannah Fund.
You offer each company that makes it into the fund US$25,000 in exchange for a15% equity stake – non negotiable. How have you calculated this percentage and can you explain why you chose this model?
“It’s a take it or leave it scenario and this sets the valuation for every startup at the same page – after all there are other accelerators which offer better or worse terms. It’s like asking a university why their fees are so expensive or cheap. If the startup feels it’s worth more, then maybe they can draw from our independent seed fund and negotiate.
Startups need to figure out what their real position is. Some startups with no customers and technology believe they are valued at $2M. I have seen VCs in Africa ask for half the company for $50k and control the entrepreneur. Deals like this effectively strangle the startup before it even gets going.
Part of the exercise of the entrepreneurs is to think long and hard about what value they derive from an accelerator and if it’s worth what they give up. We have great mentors and a network of follow on investors, if that’s not worth it for them there are plenty of other accelerators. No one forces you to go to Harvard or Oxford and live with the consequences, but you hope the price is worth it.”
You’ve written about how VC’s in Africa are not taking enough risk. Please elaborate on this and tell us how the Savannah Fund is going to change this in the long run?
“Its a structural problem based on past fund size and assumptions of minimum deal sizes in tech. We’re bringing a specific style to investing that is rooted in Silicon Valley angel investing. That’s why I even call us a ‘micro VC’ or angel group. We are blend of both in that we can help work at the early stages of a startup and also be hands off and accept the early stage risk. Readers can read my blog to learn more.”
What are the biggest differences between Silicon Valley and the East African startup space? And, looking at the involvement of US investors, what kinds of possibilities in the US do you see for companies that you will invest in?
“We want to connect the best startups we fund to Silicon Valley because we believe that global tech companies still might need connecting to the ecosystem there. It’s no secret that the likes of Google, Facebook, Apple etc. grew up in Silicon Valley, however, what has changed is where these companies can come from. Increasingly startups come from all over the globe and we want to include Africa.
It, however, doesn’t mean that every startup needs to go to Silicon Valley, as some maybe have regional or continent wide ambitions. It’s that African startups can benefit from that ecosystem as they grow for business development partnerships, hiring and follow on funding.”
Where do you want the Savannah Fund to be in 5 years?
“ In 5 years we want to be the leading early stage technology investor in Sub-Saharan Africa. We plan to do about 30 companies through the accelerator and about 20 independent seed investments. When factoring in half of the accelerator investment will fail, we’ll manage about 35+ investments in 5 years. We will focus on disruptive and transformative web and mobile companies. Whatever web and mobile touches: we are interested!”