Product Management Confabulation
What Product Managers are talking about.
Dubai-based early-stage venture capital firm COTU Ventures is announcing that it has raised $54 million for its inaugural fund to support startups in the Middle East from pre-seed to seed stages. With a final close achieved last year, COTU Ventures, which identifies and backs founders from the inception to post-product launch, invests between $500,000 to […]
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Last year was a good 12 months of firsts for African tech startups.
For the first time, the sector attracted over 1,100 unique investors in 2022, which in turn resulted in a record fundraising haul of $6.5 billion, according to data from Partech.
In fact, even some of the excesses of 2021 were eclipsed when the number of investments on the continent rose higher in 2022 than they had a year earlier, boosted by early-stage firms flocking to fund startups in the wake of landmark exits of homegrown companies like Jumia and Paystack.
What drove such volumes when the rest of the world was reining back the collective enthusiasm of 2021? To find out, we polled a few investors who had the highest volume of deals in Africa last year.
It turns out that while later-stage investors, mostly international VC firms, grabbed headlines by writing immense checks, pre-seed and seed-stage investors were instrumental to the growth of the continent’s tech ecosystem.
In Africa, incubators, accelerators, angels and seed investors easily outnumber larger funds — simply because it’s much harder to raise a large fund here. They accounted for more than 70% of the 1,100+ investors that participated in at least one deal on the continent last year.
“This shows that Africa’s investment landscape is still very promising because it continues to grow, and there’s increasing interest in multiple startup ecosystems, including nascent ecosystems. There’s also been an increase in syndicates and investment groups consisting of Africans at home and in the diaspora, as well as an increase in the number of founders of later-stage companies who are now investing in other founders,” said Kola Aina, general partner at Ventures Platform.
“These are all indications of a growing ecosystem,” he added.
However, the investor community also recognizes that there’s still a long way to go and a slew of opportunities left to tap.
“We are slowly building a more durable capital base for African tech. Having 1,000 active investors is not enough,” said Stephen Deng, founder and partner of DFS Lab. “We need thousands of active investors that support the different startup stages, especially on the growth side, offering both equity and debt.”
That said, Africa didn’t go unscathed — several investors noted that they did see deal flow and cadence slow down in 2022 and expect investors to be more careful about who they invest in and at what point.
“We definitely noticed deals were happening slower,” said Karima El Hakim, country director of Plug and Play Egypt.
“A round that would’ve closed in one or two months in 2021 took three or four months in 2022 [ … ] We have definitely seen valuations tighten, and a lot of startups have pivoted into less cash-intensive business models.”
Read on to find out what these prolific investors have to say about hot startup sectors in Africa, investment trends, their predictions for 2023, how to pitch them and more.
We spoke with:
Your firm was among the African investors that wrote the most checks to startups in the seed stage last year. How do you balance writing so many checks and funding the best companies?
We go back to first principles, starting with the core of our thesis. We also have a very wide top funnel such that in 2022, we made initial contact with over 2,500 startups and ideas, and eventually only partnered with less than 1% of that top of the funnel. We also get strong referrals from our community of founders, which improves our signal-to-noise ratio.
There’s a pretty strict house process, regardless of how many deals we do. Over time we’ve continuously optimized that process to ensure we are efficient in how we review deals and how soon we can give founders feedback.
Firms that back a lot of startups are often criticized for not doing their due diligence and labeled lazy for using “spray and pray” tactics. How does this affect the investment landscape? Has this led to unrealistic valuations?
Markets are cyclical — founders and investors adapt to prevailing market conditions. Today, the market dictates a slower and more deliberate pace in the face of global economic uncertainty. This is a development we welcome, as it means that our penchant for due diligence and rigor is now back in vogue. The investment landscape remains unchanged even if things are a little slower; startups with strong fundamentals and good traction will attract capital and do well.
The most active African investors were involved in 15-20 deals, according to a report on African VC activity in 2022. How was that volume of deals possible in a year when investors retreated heavily? Will we see similar numbers in 2023, or will things change?
Despite the gloomy macroeconomic conditions, many investors still believe in what is possible in Africa. We expect to make more investments this year within the context of a few market trends, such as lower valuations, more emphasis on profitability and capital efficiency, more cost reduction initiatives, and opportunities for corporate buyers with strong balance sheets to acquire startups.
“We did see some unrealistic valuations in 2021 — it was almost as if founders forgot how to build with, say, $200,000. I stayed away from such deals.” Olumide Soyombo, co-founder, Voltron Capital
What differences did you notice in the investment landscape in 2022 compared to 2021? Were deals less or more competitive?
For global venture capital, 2021 was an outlier. But last year was when things started to cool down, starting with public markets and then manifesting at the late-stage startup cycle.
The challenging market conditions impacted fundraising — we noticed that, in comparison to 2021, some rounds took longer to close, some founders had to raise less than they initially planned, and at more conservative valuations. Sadly, some investors pulled out of deals.
We also noticed an increase in debt funding, which doubled from 2021 to $1.5 billion, which we believe is an indication of the maturity of the ecosystem and the growing/diverse financial needs of entrepreneurs.
Did your investment strategies change along with the current market conditions?
Not really; if anything, we feel the market geared down to where we were: favoring diligence and rigor over speed.
The African tech market in 2022, for the first time, had over 1,100 active investors and saw more deals signed compared to 2021. What does this say about the current state of Africa’s investment landscape?
This shows that Africa’s investment landscape is still very promising because it continues to grow, and there’s increasing interest in multiple startup ecosystems (including nascent ecosystems).
There’s also been an increase in syndicates and investment groups consisting of Africans at home and in the diaspora, as well as an increase in the number of founders of later-stage companies who are now investing in other founders.
These are all indications of a growing ecosystem.
Looking forward, which sectors will you continue to keep an eye on, and which trends do you expect to take off? Why?
We have seven key areas of interest that we remain committed to: financial services and insurance, life science and health tech, edtech and digital talent accelerators, enterprise SaaS, digital infrastructure, agtech, and food security.
That said, we follow innovations closely and are open to exploring new verticals. Currently, we’re excited about AI and climate technologies, because they offer an unprecedented opportunity to create a better, more sustainable future for all while ensuring Africa is not left behind.
How do you prefer to receive pitches? What’s the most important thing a founder should know before they get on a call with you?
Warm introductions are very nice, but not always accessible to every founder; this is why we have a channel for receiving decks through the application link on our website.
The investment team reviews decks and arranges meetings with founders building companies that align with our thesis.
Our thesis is the most important thing founders should be aware of because that’s our initial criteria for screening. We are an early-stage fund that invests in market-creating innovations solving for non-consumption in Africa.
In 2023, we’re looking to invest in more companies in Francophone West Africa, and East and North Africa. We are also looking forward to backing more female-led companies, and we are usually very excited to invest in pre-seed companies.
Your firm was among the African investors that wrote the most checks to startups in the seed stage last year. How do you balance writing so many checks and funding the best companies?
We have strong relationships with most of the continent’s leading incubators, accelerators and venture-building studios. We can cherry-pick the top companies graduating from these programs before their demo days, which is a win-win for both the programs and for us.
Similarly, our solid relationships with Series A and Series B VC funds on the continent (and globally) creates an environment where they refer great companies to us that they really like, but are just a bit too early stage for them.
The most active African investors were involved in 15-20 deals, according to a report on African VC activity in 2022. How was that volume of deals possible in a year when investors retreated heavily? Will we see similar numbers in 2023 or will things change?
Africa accounts for about 17% of the world’s population, around 4% of the world’s GDP, but only about 1% of global venture capital.
This capital funding-economic value-target addressable market arbitrage opportunity is blatant and is constantly being tapped into (and rightly so) by investors who have done their homework.
They understand African technology-driven ventures will continue to grow and scale from:
I expect to see similar numbers in 2023, and hopefully even better.
What differences did you notice in the investment landscape in 2022 compared to 2021? Were deals less or more competitive? Did your investment strategies change along with the current market conditions?
Last year was definitely a more circumspect and cautious investment landscape compared to the bull-run in African VC in 2021. Deals were a lot more competitive in 2021, because some founders were able to raise at often unrealistic valuations.
After a record 2022, 8 investors explain why it’s ‘still just Day 1’ for Africa’s startup ecosystem by Tage Kene-Okafor originally published on TechCrunch
Even as VC funding dries up across the world, development finance institutions (DFIs) from Europe are looking to African startups to deploy their dry powder.
British International Investment (BII), a DFI from the UK, told TechCrunch recently that it will deploy $500 million into startups by the end of 2026, and half of that amount has been earmarked for African tech companies. In addition to backing VC funds in the region, the organization aims to make more direct equity investments in startups, adding to the four African companies it invested in last year.
Formerly known as the Commonwealth Development Corporation, the BII is not alone: The World Bank’s International Finance Corporation (IFC) and the Netherlands’ Dutch Entrepreneurial Bank (FMO) have each invested in more than 10 startups over the last four years. The IFC also recently launched a $225 million fund to back early stage startups in Africa, Central Asia, Middle East, and Pakistan.
Often attached to countries that had colonized big parts of the continent and still have financial, social and historical ties to countries in the region, these funding initiatives are complementing and offsetting slowing investment from VC funds and other institutional investors.
“It’s a paradigm shift, where ‘development finance’ looks at private enterprise as a vehicle of socio-economic development,” said Dario Giuliani, founder and director of research firm Briter Bridges.
BII’s decision follows plans to double down on its efforts and invest some $6 billion in Africa across five years, and invest $100 million in Egyptian startups. The organization has invested in eight African startups since 2020.
But what’s driving these organizations to invest in Africa despite investors across the world preferring to invest only in safer bets? It seems they’re attracted to tech that enables wider socio-economic development because it offers a scalable and efficient way to make an economic impact.
Usually deploying capital from national or international development funds, DFIs back development and private-sector projects in less industrialized economies to promote job creation and sustainable economic growth. Keen to align with those missions, these organizations seek to back tech startups that can make an impact — for example, tech that grants and increases marginalized populations’ access to financial services, food and energy.
Why international DFIs are looking to African startups to scale impact investing efforts by Annie Njanja originally published on TechCrunch
The massive valuations and funding rounds of 2021 left some room for optimism around the state of the Israeli cybersecurity industry in 2022, instilling a sense of security in Q1 of the new year. While other sectors began to feel the shifting tides of the market as the year progressed, capital continued to freely flow into cybersecurity, further reinforcing the belief that it is a persistently resilient outlier in tech, immune to market instabilities and unable to be shocked into a downturn.
After closing the book on 2022 this week, it is safe to say that this optimism was somewhat misguided. With hindsight, 2021 can be categorized as an anomaly that sent the industry into a tailspin, with bloated valuations exceeding actual revenue and funding rounds scaling at what many warned was an unhealthy pace. The repercussions of this spiral are evident in our 2022 analysis of funding and M&A data for the Israeli cybersecurity ecosystem.
Image Credits: YL Ventures (opens in a new window)
In 2022, overall funding for Israeli cybersecurity startups fell by a dramatic 64%, from $8.84 billion in 2021 to $3.22 billion this year, and the number of funding rounds decreased from 135 in 2021 to 94. When compared to overall funding in 2020 ($2.75 billion over 109 funding rounds), it seems that 2021 was a blip on the radar, and that the industry is returning to where it left off in 2020.
The majority of capital that did flow into Israel’s cybersecurity industry poured directly into seed rounds of early-stage startups.
Our data indicate that the majority of capital that did flow into cybersecurity this year poured directly into one very distinct area: seed rounds of early-stage cybersecurity startups. The average 2022 seed round actually shattered the 2021 record ($7 million), reaching a whopping $9 million. In total, seed funding rose by 65% this year, from $233 million in 2021 to $384 million in 2022.
This striking amount of capital, dedicated to the earliest stages of company building, demonstrates ongoing investor confidence in the cybersecurity industry’s potential to innovate and build solutions for increasingly acute threats.
Image Credits: YL Ventures (opens in a new window)
Furthermore, it indicates the difficulty in raising Series A rounds this year, as investors’ thresholds for these rounds grew in light of the economic crisis. While the number of Series A rounds remained almost unchanged since 2021 (30 rounds last year and 24 rounds in 2022), investors preferred to support the seed rounds of startups that will grow sustainably and cautiously from the get-go.
Image Credits: YL Ventures (opens in a new window)
“Investors understand that seed funding has a clear baseline, as the costs of building a company have not decreased,” says Iren Reznikov, director of Corporate Development and Ventures at Sentinel One. “They know that building a company from the ground up and ensuring that it reaches its Series A round with maximum maturity while hitting all of its benchmarks, costs money. At the same time, investors expect founding teams to set clear goals for reaching their Series A and strive to reach product-market fit at an early stage by engaging with prospective customers faster.”
This confidence is shared by cybersecurity founders, who, despite this year’s market volatility, still believe in the potential to build something meaningful for enterprise protection and business continuity. “Early-stage startups are best poised to respond to the changing needs of a fiscally constrained market,” says Slavik Markovich, co-founder and CEO of Descope, a stealth startup building a service for application developers in the authentication space.
“A tight economy is usually accompanied by increased fraud and cyber attacks. User adoption and conversion have become even more critical in this market, with businesses looking for solutions that reduce friction for their end customers in order to prevent any sources of churn. Founding teams at early-stage companies that focus on solving these problems will continue to attract investor interest.”
How well did Israel’s cybersecurity industry do in 2022? by Walter Thompson originally published on TechCrunch
The Middle East and North Africa (MENA) was the fastest growing crypto market in 2022, according to a new report by Chainalysis.
Users in the region transacted $566 billion in cryptocurrency between July 2021 and June 2022, up 48% from a year earlier, the report found. In comparison, crypto transactions rose 40% in Latin America, 36% in North America, and 35% in Central and Southern Asia. Other regions saw growth of 22% or less.
For the report, Chainalysis conducted interviews in countries to cast what it described as a “really wide net” and talked to regulators, private businesses, OTC brokers and anyone who operated in crypto across the regions, Kim Grauer, director of research at Chainalysis, told TechCrunch.
Image Credits: Chainalysis(opens in a new window)
In MENA, Turkey remains the largest cryptocurrency market — its citizens used $192 billion of crypto in the period, the report said.
“Based on the data, we see a ton of activity across the board in Turkey, Lebanon, Saudi Arabia, Egypt and the UAE, and that’s just raw transaction value,” Grauer said.
Saudi Arabia and UAE stand out when adjusting for metrics like population size and relative purchasing power, Grauer noted. “In terms of their kind of becoming a crypto hub/hotspot, whether it’s because of regulatory initiatives to develop that market or because there’s more disposable income and [they’re] seeking alternative investments, those two areas seem to be attracting international businesses to relocate there.”
Crypto adoption skyrockets in Middle East and North Africa due to favorable economic climate by Jacquelyn Melinek originally published on TechCrunch
Over the past decade, the Israeli cybersecurity industry has secured its place as a formidable wellspring of technological innovation. No longer famous only for its high level of human technological capital born and bred in elite army intelligence units, the Israeli industry has matured into a veritable ecosystem of its own. With enough capital in this booming ecosystem to grow massive category leaders and cultivate internal M&A, Israeli startups are now major players in the global cybersecurity industry.
In last year’s recap of the Israeli cybersecurity ecosystem, we anticipated that the record-breaking rounds of 2020 and marked-up valuations would continue in 2021, but upon collecting and assessing this past year’s data, we were taken aback by the magnitude. Israeli cybersecurity startups in 2021 raised a stunning $8.84 billion, more than triple the amount in 2020 ($2.75 billion). Investments last year were distributed across 135 rounds, up from 109 in 2020, with 15 startups raising more than one funding round last year.
The cybersecurity market today has limited patience, and a “go big or go home” mindset has permeated as founders focus on laying the groundwork for reaching unicorn status, building multibillion-dollar companies, going public and more. Cybersecurity in Israel has become a polarized market that accepts only two types of startups: potential unicorns and actual unicorns.
Image Credits: YL Ventures
With such early and constantly growing investments, the industry has taken on a new approach that favors the survival of the fittest. It quickly becomes clear who will stay the course and catapult to growth and success, and who will look for the nearest exit with no time to linger in limbo.
In order to achieve this growth, founders are making their goals distinctly clear in investment board rooms. They require more funding for a strong head start and later on for entering the unicorn club at record speed. Fortunately, such sizable amounts of capital are readily available.
Capital allocation for growth rounds in 2021 skewed toward the later stages. Image Credits: YL Ventures
The total amount raised in seed rounds last year increased slightly to $233 million from $203 million in 2020, but Series A rounds surged 140% to a whopping $693 million from $288 million a year earlier. At the other end of the spectrum, growth rounds (Series C and above) rose 300% to an astounding $6.46 billion in 2021 from $1.63 billion in 2020.
“As entrepreneurs, [2021] has drastically changed the industry’s rules,” says Assaf Hefetz, co-founder of Snyk, an Israeli cloud-native application security unicorn. “As threats abound and with skyrocketing demand for innovative solutions, Israeli cybersecurity startups now have an invaluable opportunity to grow big and grow fast. The table stakes are higher [ … ] and in such a competitive arena you have to stand out, or fold.”
The average seed round increased by 35% in 2021, but fewer startups were minted. Image Credits: YL Ventures
The average seed round increased by 35% to $7 million from $5.2 million. As investments rise, so does the bar for entry into the market. Only 58 new startups were founded in 2021 compared with 2020’s 64, a testament to the competitive and highly ambitious landscape.