Startups

Early-stage African VC firm Microtraction reports portfolio boom despite the weight of COVID-19

Comment

Image Credits: Microtraction

In a year marred by the coronavirus pandemic, it seems that early-stage startups on the African continent are continuing to see some notable growth, both in terms of their business and from investors looking to back them. 

Microtraction, an early-stage venture capital firm based in Lagos, Nigeria, saw funding nearly quadruple for its portfolio.

In a review of the year published last week, the firm noted that 21 companies in its portfolio have raised more than $33 million in funding. This represents nearly four-fold growth over a year ago, when its portfolio raised $6 million (and just $3 million in 2018). The companies’ combined valuation stands at more than $147 million, according to the firm.

Founded by Yele Bademosi in 2017, Microtraction arrived on the continent’s early-stage investment scene with all intent to be “the most accessible and preferred source of pre-seed funding for African tech entrepreneurs.”

Bademosi, who returned to Nigeria from the U.K. in 2015, worked as the general manager for Starta Africa, an online community for African tech entrepreneurs. After his stint there, he saw the need to plug the gap of early-stage funding in Nigeria and the continent at large with Microtraction.

Microtraction does not specify the size of its fund, but what is more clear is that it has attracted a great deal of attention and has built a strong network in part because of who backs it. 

Michael Seibel, the CEO of Y Combinator, is a global advisor and an investor in the firm, and so is Andy Volk, the head of ecosystem for Google Sub-Saharan Africa. Other investors include Pave Investments and U.S.-based angel investor Chris Schultz.

Being entrepreneurs in the past, some of these investors know what it takes to build a startup in the U.S. But it’s completely different in Africa. With no on the ground knowledge as to which startups to fund but an interest to do so, for portfolio diversification and other personal reasons, Microtraction and a few other early-stage investors present the best bets to accomplish this goal.

How fintech and serial founders drove African pre-seed investing to new heights in 2020

At first, Microtraction’s standard deal was to offer portfolio startups $15,000 in exchange for a 7.5% equity. But as a sign of how the market is firming up, that changed last year, and now the firm invests $25,000 for 7% equity.

Microtraction revealed that it accepted more than 500 applications from startups in Nigeria, Ghana, Zambia and Mauritius in its first full year of operation (though, just eight of those companies got investments).

The introductory batch was all Nigerian: four fintech startups — Cowrywise, Riby, Wallets Africa and ThankUCash; a crypto-exchange startup, BuyCoins; a SaaS platform, Accounteer; an edtech startup, Schoolable; and healthtech startup, 54gene.

2019 saw the local VC firm invest in six companies. This time there was a representative outside Nigeria — Ghanaian fintech startup Bitsika. The Nigerian startups included social commerce startup Sendbox; events startup Festival Coins; and communications-as-a-service platform Termii. The rest were unannounced.

Half of its portfolio companies are backed by YC and other global accelerators

Last year (the one this latest review covers), Microtraction announced seven startups. The latest selection includes Nigerian fintech startups Evolve Credit and Chaka; edtech startup Gradely; bus-hailing platform PlentyWaka; and Kenyan credit data marketplace CARMA.

Of the total investments raised in 2019 and 2020, 54gene contributed more than half of those numbers by raising $4.5 million in seed and a $15 million Series A investment. With an ingenious solution to solve the underrepresentation of African genomics data in global genomics research, 54gene got accepted into the winter batch in January 2019, the same month it officially launched.

Excluding 54gene, there were six other African-focused startups in the YC W19 batch. Two out of the six, Schoolable and Wallets Africa, were Microtraction portfolio companies. Others accepted into YC before and after include BuyCoins, Cowrywise, Termii and two unannounced startups.

Microtraction-backed ThankUCash and a second unannounced startup have also joined cohorts at 500 Startups. On the other hand, Festival Coins is the only startup to be selected into Google for Startups Accelerator. With all accounted for, 11 out of the 21 startups are either backed by Y Combinator, 500 Startups or Google for Startups.

The Microtraction team with founding partner, Yele Bademosi (far right). Image Credits: Microtraction

Getting into these global accelerators is a surefire way to receive follow-up investment, ranging from $125,000 to $150,000. From the outside in, startups see Microtraction and other early-stage VC firms like Ventures Platform as a means to that end. There have also been arguments that these firms build startups to be “YC or any global accelerator ready.”

However, Dayo Koleowo, a partner at Microtraction alongside Chidinma Iwueke, debunks it saying there’s no formula behind the numbers we see. He believes YC and other accelerators share the same fundamentals with Microtraction, which revolves around the team, the market and traction.

“We love super technical teams that understand the industry they are in and are likely to succeed without us. We are always looking for companies that are solving huge problems that a lot of people face,” he told TechCrunch. “Also, the tech and startup world moves fast, so we like teams who understand that and can show in real-time that they can execute. I believe that these global accelerators look for these same things.”

Typically, YC and other accelerators may perform extended due diligence and risk assessments before cutting cheques for any African startup without a local backer. Koleowo points out that this might be why Microtraction portfolio companies get accepted quicker. “The icing on the cake is that there is a level of de-risking that has been done by Microtraction and other local investors on the ground before these global accelerators step in,” he added.

These specialized Africa VC funds are welcoming co-investors

That said, there’s no denying the significance of Microtraction’s advisory board in playing a part as to why half the firm’s portfolio are in global accelerators. Besides the names mentioned earlier, some of its past advisors included Lexi Novitske, former PIO at Singularity Investments; Dotun Olowoporoku, VC at Novastar Ventures; and Monique Woodward, ex-venture partner at 500 Startups.

And with the growing trends of globalization, plus the acceptance of a more decentralised approach to building and operations in the tech industry because of COVID-19, it’s a trend that might continue for a while.

More TechCrunch

The TechCrunch team runs down all of the biggest news from the Apple WWDC 2024 keynote in an easy-to-skim digest.

Here’s everything Apple announced at the WWDC 2024 keynote, including Apple Intelligence, Siri makeover

Hello and welcome back to TechCrunch Space. What a week! In the same seven-day period, we watched Boeing’s Starliner launch astronauts to space for the first time, and then we…

TechCrunch Space: A week that will go down in history

Elon Musk’s posts seem to misunderstand the relationship Apple announced with OpenAI at WWDC 2024.

Elon Musk threatens to ban Apple devices from his companies over Apple’s ChatGPT integrations

“We’re looking forward to doing integrations with other models, including Google Gemini, for instance, in the future,” Federighi said during WWDC 2024.

Apple confirms plans to work with Google’s Gemini ‘in the future’

When Urvashi Barooah applied to MBA programs in 2015, she focused her applications around her dream of becoming a venture capitalist. She got rejected from every school, and was told…

How Urvashi Barooah broke into venture after everyone told her she couldn’t

Slack CEO Denise Dresser is speaking at TechCrunch Disrupt 2024.

Slack CEO Denise Dresser is coming to TechCrunch Disrupt this October

Apple kicked off its weeklong Worldwide Developers Conference (WWDC 2024) event today with the customary keynote at 1 p.m. ET/10 a.m. PT. The presentation focused on the company’s software offerings…

Watch the Apple Intelligence reveal, and the rest of WWDC 2024 right here

Apple’s SDKs (software development kits) have been updated with a variety of new APIs and frameworks.

Apple brings its GenAI ‘Apple Intelligence’ to developers, will let Siri control apps

Older iPhones or iPhone 15 users won’t be able to use these features.

Apple Intelligence features will be available on iPhone 15 Pro and devices with M1 or newer chips

Soon, Siri will be able to tap ChatGPT for “expertise” where it might be helpful, Apple says.

Apple brings ChatGPT to its apps, including Siri

Apple Intelligence will have an understanding of who you’re talking with in a messaging conversation.

Apple debuts AI-generated … Bitmoji

To use InSight, Apple TV+ subscribers can swipe down on their remote to bring up a display with actor names and character information in real time.

Apple TV+ introduces InSight, a new feature similar to Amazon’s X-Ray, at WWDC 2024

Siri is now more natural, more relevant and more personal — and it has new look.

Apple gives Siri an AI makeover

The company has been pushing the feature as integral to all of its various operating system offerings, including iOS, macOS and the latest, VisionOS.

Apple Intelligence is the company’s new generative AI offering

In addition to all the features you can find in the Passwords menu today, there’s a new column on the left that lets you more easily navigate your password collection.

Apple is launching its own password manager app

With Smart Script, Apple says it’s making handwriting your notes even smoother and straighter.

Smart Script in iPadOS 18 will clean up your handwriting when using an Apple Pencil

iOS’ perennial tips calculating app is finally coming to the larger screen.

Calculator for iPad does the math for you

The new OS, announced at WWDC 2024, will allow users to mirror their iPhone screen directly on their Mac and even control it.

With macOS Sequoia, you can mirror your iPhone on your Mac

At Apple’s WWDC 2024, the company announced MacOS Sequoia.

Apple unveils macOS Sequoia

“Messages via Satellite,” announced at Apple’s WWDC 2024 keynote, works much like the SOS feature does.

iPhones will soon text via satellite

Apple says the new design will lead to less time searching for photos.

Apple revamps its Photos app for iOS 18

Users will be able to lock an app when they hand over their phone.

iOS 18 will let you hide and lock apps

Apple’s WWDC 2024 keynote was packed, including a number of key new updates for iOS 18. One of the more interesting additions is Tap to Cash, which is more or…

Tap to Cash lets you pay by touching iPhones

In iOS 18, Apple will now support long-requested functionality, like the ability to set app icons and widgets wherever you want.

iOS 18 will finally let you customize your icons and unlock them from the grid

As expected, this is a pivotal moment for the mobile platform as iOS 18 is going to focus on artificial intelligence.

Apple unveils iOS 18 with tons of AI-powered features

Apple today kicked off what it promised would be a packed WWDC 2024 with a handful of visionOS announcements. At the top of the list is the ability to turn…

visionOS can now make spatial photos out of 3D images

The Apple Vision Pro is now available in eight new countries.

Apple to release Vision Pro in international markets

VisionOS 2 will come to Vision Pro as a free update later this year.

Apple debuts visionOS 2 at WWDC 2024

The security firm said the attacks targeting Snowflake customers is “ongoing,” suggesting the number of affected companies may rise.

Mandiant says hackers stole a ‘significant volume of data’ from Snowflake customers

French startup Kelvin, which uses computer vision and machine learning to make it easier to audit homes for energy efficiency, has raised $5.1M.

Kelvin wants to help save the planet by applying AI to home energy audits