Inside the mind of a VC: 7 questions with Samuel Touboul
Where are the biggest opportunities in Francophone African venture capital hidden? How do you conduct due diligence in this space and what will the next year bring for this region? We spoke to Samuel Touboul, Partner, Saviu Ventures ahead of SuperReturn Africa - read the full interview below:
What are you looking for when assessing investment opportunities?
At Saviu we focus on early-stage investments, mostly in Francophone Africa, or in other geographies but into start-ups willing to develop in Francophone Africa. At our stage of investment, the two main criteria are the quality of the founding team (more than their experience their capacity to listen, explore new ideas; and thus ability to pivot if needed), and the market traction, how small it may be, as a proof of a product / market fit. Saviu funds are not “spray and pray” funds and we tend to invest in a limited number of start-ups which we spend a lot of time supporting in their day-to-day business. It is therefore very important for us that there is a real fit between our very entrepreneurial DNA and the company that we plan to help and support all along its development path.
What’s the most important question to ask a start-up in which you’re considering an investment?
The most important question is why, the second is what, and the third one is how. We need to understand why an entrepreneur is willing to start this long, and sometimes painful journey (and if he is willing to put all his time and efforts in the venture), what he is planning to develop, launch, or create, what his company is or will be selling to clients, and finally how he plans to do it, the operations, recruitments and processes he wants to implement to move from a simple proof of concept to a full fledge smoothly operating company.
Where are you seeing the biggest opportunities in African venture capital now?
In terms of geography, we continue to believe, as we did in the past 5 years, that Francophone West Africa shows much more opportunities for VC funds than other geographies in Africa. The start-ups eco-system is still in its infancy and can only show maturity and growth, the currencies are quite less volatile than in other regions, and the economic and linguistic integration of the region allows for faster and easier crossing of the boarders for start-ups, which more than an asset is a necessity in our regions of investment.
In terms of sector while previous years were marked by profitable investments in the Fintech, E-logistic and E-commerce industries, we believe now that specialized Fintech (Loans and credits, InsureTech, …) still have a great future, but that new sectors are emerging with interesting investment opportunities to be involved-in, such as HealthTech, EdTech, or ClimateTech.
How do you conduct due diligence to ensure minimal risk and high returns?
Once again Saviu funds are not “spray and pray” funds and we tend to invest in a small number of start-ups, in order to spend time supporting their business once investment is made. Due Diligence at Saviu may therefore be more in depth than for other early-stage investors, with several interviews with the founding team, tech, financial, legal and tax due diligence (either internal or with support from consultants), and most importantly meetings with the clients and stakeholders of the company, in order to assess that any revenue traction, even minimal, is real, and most importantly to check the good reputation and reliability of the founding team. As a consequence we tend not to invest the first time we meet a startup, but more to follow the founders on several months / years in their first iterations, in order to invest at the right time, on the right project.
What are the biggest challenges the LPs and GPs alike are facing in venture capital, and how are they different (if at all) in Africa from for example Europe, Asia and North America?
Within Venture Capital in Africa, as in other geographies, LPs are facing the inherent risk of a company not finding its market, and therefore the necessary growth to finance its operations, and this is why LPs rely on GPs’ experience to avoid such selection mistake. Africa in addition bears the risk in several countries (apart from Francophone Africa) of very volatile currencies, which can reduce to null the performance of a EUR / USD denominated fund. Africa is also characterized by smaller economies and markets, and therefore the necessity for startups to very quickly and efficiently cross boarders. Finally in many sectors the lack of regulation may create an additional risk, which can from one day to the other put a whole business model out of order.
However, investing in Venture Capital in Africa also offers quite very strong assets compared to VC in Europe or more developed market. First the potential for growth offered to tech companies is much higher in Africa than in other regions. In Africa users are already connected, demand is there, and only the offer needs to be created (most startups in our regions do not face any competition, only an adoption risk). Secondly in Africa funds benefit from a drastically lower competition among investors than in other markets, which offers opportunities to invest at fair valuations, to take the necessary time for due diligences, and to avoid the pitfall of investing for deploying, for a much healthier strategy of investing for returns. Finally, and most importantly, Africa gave birth to a generation of entrepreneurs who are aware of the scarcity of investors in their region, and therefore of the necessity to generate revenue and profitability fast. While founders in Europe are focused on how to raise funds to cope with cash burn, entrepreneurs in Africa are focused on how to make revenues and quickly reach breakeven, which is key to higher investment returns in the region.
How are you expecting the market to evolve in 2023-2024 regarding venture, fundraising and start ups?
In 2023 in Africa, at a macro level, the Venture Capital / Start-up eco-system seems to have been hit as in other developed region, by a decrease in fundings from investors, lower valuations for start-ups, and for some of them bankruptcy. However, this vision has to be drastically nuanced as macro data are highly biased by the absence in 2023 of “super-deals”, Series C and beyond, and large scale-ups that had raised in previous years at insane valuations, without the necessary pillars to support their growth. On a micro-level what we see on the ground is that Seed to Series A start-ups are still performing well business wise, valuations have more stabilized than decreased, and when they did they thus offer good investment opportunities for VC funds. At Saviu we see the current economic context more as a necessary cleaning / selection phase of the sector, an opportunity to make investments at discounted rates, which shall see emerging in 2024 healthier and stronger tech companies, with an ability to grow and generate preferential returns.