TLcom Capital reveals plan to raise $150M for its second fund to invest in 20 African startups

TLcom Capital, the Africa-focused venture capital firm known for its investments in Andela and Twiga, is raising $150 million for its second fund, which will invest in early- and late-stage companies.

According to a statement shared with TechCrunch, the firm has reached its first close of $70 million. It’s nearly the same as what TLcom Capital raised in its first fund, the TIDE Africa Fund, which had its first close in 2017 and its final close in February 2020.

Managing partner Maurizio Caio told TechCrunch in an interview that the second fund is expected to close later this year.

When completed, it will be the largest fundraising for the two-decade-old firm, which has $350 million in AUM and offices in Lagos, Nairobi, and London. It will also position the investor to become one of the continent’s largest independent VC firms.

TechCrunch reported in early 2020 about TLcom Capital’s $71 million TIDE Africa Fund and how the firm planned to invest in 12 African startups from seed to Series B stages.

Nonetheless, the firm was able to invest in 11 startups. Andela, Ajua, Autochek, Ilara Health, Kobo360, Okra, Pula, Shara, Terragon Group, Twiga, and uLesson are among them.

Typically, VCs deploy capital for five years, then make follow-on rounds for another five years before exiting their portfolio companies through acquisition or IPO. However, it took TLcom Capital three and a half years to deploy its capital, from late 2017 to mid-2021.

“We stopped investing because we were trying to figure out how much capital we needed to support these companies going forward in full-on rounds,” Caio explained. “So we decided that we didn’t want to invest in another company just to reach a dozen companies without enough capital for follow-on rounds.”

TLcom’s average investment per startup is around $6 million; however, it did not invest exactly that amount in any of its portfolio companies in a fresh or follow-on round. Its first African investment was in Andela ($40 million Series C), which closed in 2020, and is the most recent stage in which TLcom has invested; Twiga’s $20 million Series B in 2019 is another.

TLcom Capital invested in the other nine investments at the seed and Series A stages. In some cases, the firm was forced to invest earlier, which is unusual for large funds in Africa. For example, it invested in Okra and Shara when they were just prototypes and led Autochek’s pre-seed round.

This, according to Caio, emphasizes TLcom’s breadth as the go-to investor for high-growth companies looking to raise their first institutional check.

TLcom’s participation in leading smaller rounds demonstrates the increasing ferocity with which investors compete for deals these days. Local investors such as LoftyInc and Ventures Platform, which have sizable funds to invest super early, are competing with global investors such as Tiger Global and Target Global, who are making inroads from pre-seed to Series C.

That said, TLcom–whose team includes Caio, senior partner Omobola Johnson, partners Ido Sum and Andreata Muforo— says it wants to add an extra 20 early-stage startups to its portfolio. Ticket sizes in these companies will range from $500,000 to $15 million.

The firm’s second fund structure will most likely be similar to its first: a portion of the capital will be allocated to early-stage startups, while the remainder will be allocated to new or follow-on rounds of companies in the growth and late stages. The second fund’s first payment was a lead investment in SeamlessHR.

The current portfolio companies of TLcom are all based in Nigeria or Kenya. TLcom’s new fund will expand its focus to Egypt while also making more investments in East and West Africa, according to the company.

As with most pan-African funds, TLcom has few local LPs: FBN Quest and Sango Capital. And while the rest are foreign–AfricaGrow (a joint venture between Allianz and DEG Impact), Bertelsmann, King Philanthropies, CDC Group, IFC, Proparco and Swedfund–Caio believes the local LPs doubling down on the fund is a noteworthy sign despite the disparity in LP origins.

“In this first group of investors, we have two African LPs who are returning with more capital than the last time.” However, more work needs to be done to attract more African investors. The important thing, however, is that the capital market is learning that Africa venture capital is an appealing space. And the fact that more private investors are realizing this without being constrained by institutional constraints to invest in Africa is very encouraging,” he said.

TLcom’s primary focus remains on traditional sectors such as fintech, mobility, agriculture, healthcare, education, and e-commerce.

Caio, on the other hand, told TechCrunch that the firm is willing to invest in startups in web3, crypto, and DeFi, newer industries with many upsides in which African startups compete on a level playing field with other regions.

Since receiving funding from the firm, TLcom-backed companies have collectively increased their revenues threefold. Follow-on rounds in the firm’s portfolio companies have also been led by global investors such as Owl Ventures, SoftBank, and Index Ventures. According to TLcom, the valuations of these companies have increased by an average of 5x.

In 2021, African startups will have raised more than $4 billion, more than doubling the amount raised by TLcom’s first fund.

Caio urges founders to take advantage of the new influx of capital coming into the continent and achieve massive scale in light of this increased activity.

“Despite raising nearly $5 billion, the big picture is that we are still very early in African VC.” This is his message to entrepreneurs: “Think big, don’t second-guess yourself, and focus on the magnitude of the opportunity, because if it’s compelling, you’ll find capital to support it,” he said.

“Don’t be concerned about dilution; be concerned about how much money you’ll need to build a very large company in a very large market.” Let us take advantage of the increased capital entering the space as a group.”