Early-stage VC firm Launch Africa Ventures makes its first exits, modifies its approach for Fund II

Launch Africa Ventures, an early-stage venture capital firm, has confirmed minor adjustments to its investment strategy as it starts to deploy from its second fund and has started making its first exits.

Launch Africa Ventures, which was founded in July 2020 by Zachariah George and Janade du Plessis and has Margaret O’Connor as its chairperson, closed its first fund, Launch Africa Ventures Fund 1, in March 2022 at US$36.3 million, with contributions from 238 institutional and retail investors across 40 countries. With 133 investments made through that fund, it became the most active venture capital firm on the continent.

As part of its second fund, Fund II, which managing partner Zachariah George told Disrupt Podcast should close by the second or third quarter of next year, the Mauritius-based fund has invested a total of US $4.3 million in 16 startups from across the continent, according to media reports in June.

George thinks that just 12% of Fund I’s investments are no longer in operation, which is a great percentage from a venture capital standpoint. At the moment, Fund I’s internal rate of return (IRR) is 31%. Additionally, Launch Africa has begun its initial exits.

“Most of our exits in our fund come through secondaries; we typically look at either partial or full sales of our portfolio companies at Series A, and definitely at Series B,” George said.

“It’s important as a fund manager to balance the need for IRR versus the need for liquidity. So part of our strategy is to make sure that we hold on to our best performing assets, or call it your your top quintile, and make sure that your second and third quintile companies are actively out there as secondary sale options, to other funds, private equity firms, corporates, funds of funds, et cetera.”

In addition to its seven stock exits over the past year, Launch Africa has made three cash exits through secondaries thus far.

“We’re on a good wicket, as they say. And we’re busy raising for Fund II, and deploying at the same time,” George said.

In the meantime, Fund II is being used to modify the firm’s approach. The second fund is more diversified than Fund I, which was much more fintech-focused.

“The sort of over-reliance on fintech that we had in Fund I, because of the market and the timing, is a bit different as the markets evolved in Fund II. So, if you’re talking four or five years ago, you needed to have a lot of investment into fintech, especially payment gateways, payment rails, lending, SME financing, and invoice discounting companies, because that paved the way for the evolution of other sectors, like health-tech and ed-tech,” George said. “So now that we’ve seen that fintech investment landscape mature, there’s now a lot smarter money going into other sectors.”

Climate-tech is one of those, and Launch Africa is getting much more involved in it. Its Mezzanine Impact Fund was introduced in September and allocates mezzanine growth capital to top technology firms that exhibit strong ESG practices.

“We did not have a lot of climate-tech deals in fund one, simply because most of the climate-tech deals in Africa tend to be very CapEx-heavy, very asset financing heavy,” George said.

“However, in Fund II we are seeing a lot of deals in the carbon credit space, the carbon sequestration space, and platforms for e-mobility that don’t have the the CapEx burden that other climate-tech deals have. So, we are a little more open to more climate-tech deals in Fund II, and obviously AI deals, but especially in the warehousing logistics space.”