It’s exciting times for growth-stage investment in Africa as Norrsken22, a Pan-African venture capital firm, achieves the final close of its debut fund, raising a total of $205 million, surpassing its initial target. This also highlights a keen interest from institutional investors in supporting 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, along with managing partner Natalie Kolbe and general partners Ngetha Waithaka and Lexi Novitske. This venture capital firm, nearly two years old, has operational teams in Nigeria, South Africa, Kenya, and Ghana.
The partners launched the fund, named the Norrsken22 African Tech Growth Fund, in January last year after reaching the first close at $110 million. Approximately 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 Delivery Hero co-founder Niklas Östberg.
Norrsken22 began its fundraising at a time when there was a significant surge in capital flowing into the tech sector. In addition to discussions with several development finance institutions (DFIs) and family offices, a prerequisite for raising a large fund in Africa, the firm aimed to achieve the final close by the end of 2022. However, the global tech investment landscape has experienced a pullback since then, impacting fundraising efforts across the board, including from institutional investors. In 2022, venture capital activity in Africa reached $5 billion to $6 billion. So far, in 2023, it has dwindled 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 VC activity.
The current slowdown in tech investments caused a year delay for Norrsken22 to achieve its final close. Nevertheless, this accomplishment is noteworthy considering the challenges many VC firms, both local and global, are still facing 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 a renewed fundraising momentum observed at the beginning of 2023. Additionally, the extensive experience of Norrsken22’s founding team in African investments, along with the backing of other limited partners, mainly founders of the unicorn startups, played a significant role in attracting interest and support for the fund, she remarked.
After the initial close of the fund, which saw support from SEB Pension Foundation and a few family offices, Norrsken22 attracted the likes of British International Investment (BII), International Finance Corporation (IFC), U.S. International Development Finance Corporation (DFC), Standard Bank and Norfund as new limited partners.
Investing in Series A and B rounds
International funds typically spearhead most large deals in Africa, while local investors primarily concentrate on pre-seed to Series A rounds with smaller to medium-sized funds. Large Africa-focused funds like Norrsken22 aim to bridge the gap from growth to late-stage investments. Approximately 50% of Norrsken’s capital will be allocated to building its portfolio with Series A and B companies; the remaining will be reserved for follow-on investments, primarily in the B and C rounds, according to Kolbe.
In a statement, the firm said it is focused on “entrepreneurs developing fintech, edtech, medtech [health tech], and market-enabling solutions that will deliver strong returns and have a positive impact across Africa.” So far, the Pan-African growth-stage fund has made five investments, including challenger bank TymeBank, B2B commerce retail platform Sabi, identity verification solution Smile Identity, auto financing platform Autochek and financing app for informal merchant communities Shara.
“The kind of value that we bring is for companies that are looking to grow beyond their borders and building up multi-country, Pan-African businesses. Having three general partners in the beacon economies of sub-Saharan Africa: Nigeria, Kenya and South Africa, we were able to provide the companies with people on the ground and networks on the ground, and we also understand the nuances of growth and opportunity in each of our markets,” Kolbe said on Norrsken22’s investment strategy. “Also, these are startups looking for an investor that can write a big check and can follow on in future rounds and anchor those rounds. That’s become very important, particularly now as liquidity becomes a bit tighter on the continent.”
Norrsken22’s target remains investing in approximately 20 startups. The fund’s typical investment ticket size averages around $10 million. Yet, it may go as high as $16 million, encompassing follow-on rounds in select portfolio companies, as discussed by the partners in a previous interview.
Thinking about exits
Like Norrsken22, several other growth-stage firms, including Partech Africa, TLcom Capital, Algebra Ventures, Sawari Ventures, and Novastar Ventures, have raised one to two funds over the past couple of years to address the shortage of capital in Series A and beyond. However, some of them have also invested at the pre-seed and seed stages, a possibility that Norrsken22 may explore if the right opportunity arises. “We have put a small amount aside for the opportunistic earliest stage. If something comes to us and looks exciting, we may put small amounts of capital in, but that’s not where our focus is at all,” remarked Kolbe.
Indeed, a key focus in the investment strategy of a growth stage fund is preparing portfolio companies for exits. According to the general partner, Norrsken22 thoroughly evaluates the potential exit scenarios, including working to identify potential buyers for its portfolio companies and assessing the valuations they might offer at the end of its investment period. This diligence is critical and the firm has declined investments where a compelling exit case was not evident, she added.
The managing partner posits that the firm is looking at exits for its portfolio companies through international strategic buyers and consolidation involving local industry leaders. Large multinational corporations in Africa could also present exit opportunities to startups. Some of these companies often struggle to innovate in-house and may seek innovation by acquiring tech businesses, 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 council of business leaders in multinationals across banking, telecommunications, agriculture and real estate.