Al Mada Holding Group is one of Africa’s largest private investment funds. The Casablanca-headquartered private holding operates in different fields, such as banking, telecommunications, renewable energy and the food industry.
Over the years, Al Mada’s approach has centered on acquiring majority shareholdings in some of Morocco’s largest private companies, with its portfolio spanning 27 markets (25 in Africa). As part of its strategy and to remain relevant, the firm has had to think through how to help these businesses scale with its influence and foster innovation within its portfolio, how to increase market share across the different fields in which it operates, and how to stay at the forefront of disruptive technologies that may come up in the foreseeable future.
In tandem with addressing these strategic questions, Al Mada patiently observed the remarkable growth of the venture capital asset class in recent years. For perspective, in 2016, funding in African startups was $366 million; in 2022, that number reached $5-6 billion in equity and debt deals.
When examining the funding distribution, three themes have remained constant. While early-stage investing, typically spearheaded by small local investors, leads the way in terms of volume and late-stage investing from foreign investors makes the headlines in terms of value, there’s a dearth of capital at the Series A and B stages, where Africa-focused funds usually backed by development financial institutions (DFIs) are commonly prominent.
Getting into venture capital
Last March, Al Mada, aligning these observations with its objectives, launched a venture capital firm spin-out, Al Mada Ventures (AMV). With a capital pool of $110 million (approximately 1.1 billion dirhams), Al Mada’s overarching plan was to establish an Africa-focused firm to address the gap in growth-stage investing. However, instead of relying on capital from DFIs and foreign institutional investors, it’s utilizing capital sourced exclusively from Africa.
Aside from the anchor, limited partners in the evergreen fund include top-tier corporate and institutional investors based on the continent, managing director Omar Laalej told TechCrunch in an interview. Before Laalej was tapped to lead the Moroccan venture entity, he co-founded the Cathay AfricInvest Innovation Fund (CAIF), a $100 million pan-African VC fund formed via a partnership between private equity firm AfricInvest Group and European-based VC firm Cathay Innovation. Other executives on the team include Yassine Soual (Investments), Narjisse Belmahi (CFO/COO), and Rida Chahoud (Value Creation).
There are only a handful of evergreen venture capital funds in Africa, and according to Laalej, AMV chose this approach to address some pain points in the continent’s venture landscape. According to him, this includes the shortage of patient capital to mitigate some of the cycles the tech ecosystem goes through from a macro perspective that often are not correlated to the fundamental reality that African startups, corporates and innovators in general are facing on the ground.
Africa isn’t the only region to have experienced more than a 50% decrease in venture capital funding from last year. But to Laalej’s point, unlike other emerging markets in Latin America, India, Southeast Asia and the Middle East, Africa is at the mercy of foreign capital to grow its tech ecosystem (77% of the investors who funded its startups last year were based outside the continent.)
The matter is compounded by the reluctance of many local private and public corporations, pension funds, multinationals and investment firms to allocate a portion of their cash and balance sheets and delve into the venture capital asset class. Al Mada, through its venture arm, hopes to change the narrative. If it manages to back winners that make outsized returns and create local and global impact, other legacy institutions might follow suit. Orange Ventures Africa and Helios Digital Ventures are some examples of corporations and private equity firms establishing venture arms.
Investment thesis of an evergreen fund
As a recipient of corporate venture capital, AMV intends to tackle the communication and feedback gap between corporates and startups. Typically, when these parties notice problems in different markets, it’s mostly via different lenses, and they don’t always agree on how to tackle them. AMV seeks to bridge that gap by connecting its startups with some of Al Mada’s subsidiaries, fostering collaboration within both portfolios.
“If you take the simple-to-use tool of a startup on a B2B basis and you marry those with the underwriting capability of a large insurance provider, now, you can create some magic because insurance today in sub-Saharan Africa has a penetration rate of less than 3% which is incredibly low,” said Laalej, describing how an insurtech can partner with a corporate operating in the health insurance space. “And in a time where digitalization is growing at a time where awareness for the need of financial inclusion is growing, I think it’s clear to us, at least, that there are certain plays where we combine corporates’ dry powder and firepower with the startups’ innovation and ability to consolidate a large pool of people and small enterprises — then create a lot of value for our shareholders and our ecosystems.”
Susu, a French- and Ivorian-based startup providing insurrection services targeting diabetes and hypertension patients in Francophone Africa, is one of AMV’s portfolio companies. The VC firm recently co-led a $4.9 million seed round in the four-year-old startup. AMV has also backed a Moroccan health tech startup, a Netherlands-based operator of a hotel booking platform with customers in Africa and is in talks to invest in an Egyptian fintech.
Laalej notes that while the Casablanca-based firm maintains a sector-agnostic approach, there is a deliberate positioning to capitalize on the sectors of expertise held by Al Mada and other Limited Partners (LPs). These sectors encompass financial services, health, logistics, renewable energy, mining, distribution, retail, education and telecom. For AMV, the innovation it backs should align and complement these legacy sectors, thereby building bridges in terms of both product and geographical reach.
“We’re very strong in North Africa, Francophone-speaking West Africa and Central Africa and want to capitalize on our network in those regions. We want to help startup founders scale their products and services into regions where we strongly understand the local environments across different topics, from regulatory frameworks and go-to-market strategies to unit economics and benchmarking,” noted Laalej. “Then, we will also create bridges with other regions where we’re not necessarily as present but want to build our presence in markets like East Africa and southern Africa or even Anglophone West Africa.”
Growth-stage investor but opportunistically seed
Notably, this strategy extends beyond African startups to include foreign companies operating on the continent, pre- or post-receiving a check from the year-old firm (case in point: the aforementioned Netherlands-based hospitality startup). One thing to note, however, is that the three startups in AMV’s portfolio are in the seed and Series A stages. It’s a notable shift from the fund’s initial approach to addressing the gap in growth-stage funding where the likes of TLCom Capital, Partech Africa, Norrsken22, Algebra Ventures and CAIF ply their trade.
Why this is the case, according to Laalej, is that AMV, after fundraising, noticed a relatively low quality of Series A and B startups in the market. He attributes this to several factors, one of which is that many startups capitalized on the abundant funding environment, particularly between 2020 and 2021, and as a result, have managed to secure a significant runway extending 18 to 24 months. Consequently, the primed startups haven’t felt the immediate need to seek additional funding in the market in 2023.
“While we were fully aware of this as we were closing the fund, we decided that we were going to try to source our deal flow of Series A and Series B by taking an earlier approach,” he said. “We now want to invest in some of the most mature seed startups that we could identify in the market and be a bit proactive about doubling down on the ones that we think will be able to go to markets and raise a Series A round and that’s what we’ve done.”
AMV intends to build a portfolio of about 20 companies with tickets ranging anywhere from $500,000 to $1 million per seed opportunity and anywhere from $2-6 million for Series A and Series B opportunities, with the ability to deploy up to $8-10 million for follow on investments in its winners.
In contrast to its private equity industry, venture capital in Morocco remains a relatively niche subset of private capital, especially compared to Egypt. However, recent years have witnessed modest growth in venture capital deal activity in Morocco. In 2022, over $126 million was invested in the country’s startups, reflecting an upward trajectory from $29 million in 2021. Several funds, including Outlierz Ventures and UM6P Ventures, have emerged locally, and the launch of AMV is a noteworthy indicator that Morocco’s venture capital ecosystem is maturing and coming of age.
“Beyond the fact that we strive to deploy the largest African capital for African entrepreneurs and international entrepreneurs looking to spend time and effort on the African continent, we hope local and international corporates will join the party to invest their time and some of their resources back in young entrepreneurs addressing major fundamental gaps in our societies in Africa because the future is very bright, our population is resilience, and very hungry for success.”
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