On the eve of Founder’s Factory’s rebranding to 54 Collective, The Kenyan Wall Street talked to Bongani Sithole, CEO, on the company’s evolution, the general state of VC on the continent, and what startups can learn from traditional medium and small enterprises (MSMEs).
This interview has been edited for brevity and flow.
The Kenyan Wall Street (TKWS): What is happening at Founders Factory?
Bongani: We have rebranded Founders Factory into 54 Collective which signifies the evolution that aims to reflect our Pan African ambition – to collaborate with entrepreneurs across Africa, help them build without boundaries.
The reason why boundaries are important in this new framing is because we have learned so much about Africa and realized a lot of entrepreneurs find so many of them as they build. In their local markets, the boundaries I am speaking of include currency devluation, political climate, and regulation.
Founders Factory Africa started in 2018, and our goal was to help entrepreneurs both in capital and the assistance they need to grow their businesses. We were very clear that our focus was going to be early stage which means that we look for founders from concept right up to pre-series A and invest into these entrepreneurs. But what we equally have realized was that there was not enough capacity in the continent to essentially help these entrepreneurs, especially early stage.
Our goal, with that in mind, we then decided to build a company that had two capabilities. One is providing services to entrepreneurs, but also giving them capital. We managed to invest into 57 Businesses. Our model was corporate-backed and as such we were an accelerator backed by 3 investors in 3 sectors – Agri-tech, Fintech, and Health-tech.
In that period, we’ve learned a lot around what it means to serve an entrepreneur. We have looked at the evolving ecosystem which the suggested that as a company we also needed to evolve. One, our model. And also how we grow with entrepreneurs across Africa.
As 54 Collective, how do we work with our in-house expertise of 70 people who are across the continent to enable founders to build without boundaries or reduce these boundaries they are struggling with?
TKWS: What lessons from Founders Factory have driven this evolution?
Our specialists work side by side with these entrepreneurs, through these challenges, and our structure enables us to add a critical value to enterprises. We have learned that capital that is dilutive is not enough especially for early-stage founders because you’re still learning and losing too much ownership at that stage is not a good thing for the market or the founder.
With that in mind, we introduced the second part of our investment which is giving dilutive loans at less than 5% that is helping entrepreneurs to have more capital to build businesses at low interest rates you’ll never find across Africa.
We have also increased the size of capital that have decided to put into the market. To date, we are providing under 54 Collective , a range of capital from US$ 200,000 up to a maximum of US$ 500,000. We are intentionally driving women participation in this investment because globally less than 10% of women are getting funding. So, we provide an additional US$ 150,000 to women-led founders.
Lastly, we are not just a commercial company but we embed impact in everything we do . We are clear that we want to get more young people in Africa to participate, create jobs and sustainable change with our fund.
TKWS: What’s the underlying ethos behind the rebranding?
Bongani: There were four things important for us. One was we wanted to move away from an accelerator, which had two offerings in it, build and venture scale programs. We have now moved from that into becoming a venture capital firm that funds ventures right from concept to pre-series A.
The second thing that we have learned is really just around the technical expertise that I spoke about In our first Venture, we were charging for services through equity. So which means that if you came into Founders Factory Africa into one of our accelerator programs, you would typically be paying for those services. And we have now evolved that into a value added support structure through which our venture success platform.
The third thing that we have learned is that being a corporate-backed model needed a wider pool of investors. So just being a corporate-backed venture was not enough. So in this evolution, we started thinking about the type of investors that we can bring in and that has led us to then start to bring in family offices, foundations, thinking about DFIs and global corporates.
The fourth thing we learned was that the three sectors we operated in was not enough. If we wanted to capture the entire market, so we needed to be agnostic. So in this evolution we have moved into a sector-agnostic company. And lastly, we have become a Pan-African company
TKWS: What is your general sense on the VC ecosystem, the season of funding drought, and startup failures, on the continent?
Bongani: In general Africa has had a lot of resilience If you look at what drives Africa and the biggest contributor to our GDP has been the story of entrepreneurs through small businesses and MSMEs. So I think the VC landscape that we started at least 10 or 15 years ago is basically coming into the resilience of African entrepreneurs who understand that with all the challenges that are in front of us, it is important to consistently find ways to solve challenges, in finding ways to build our economy.
I think over the last 10 to 15 years, the VC space was very nascent and the capital that has been raised in less than 10 years. I think starting from 2013 to 2023, seeing over US$ 6 billion coming into the continent . In many ways it’s starting to paint a picture of the global investors looking at Africa as the next frontier market. If you can look generally across the globe, Africa is a high growth continent in many ways.
The cycle between 2020 and 2023 has been difficult for Africa, but if you compare that to China and India you will realize that the impact actually happened a lot more in other continents than Africa. We saw an increase in investments. You know, in a later stage investments, around Series A and beyond in the last 12 months even coming out of this funding winter. And that tells us that the global market is still bullish about the African continent. I see even a much more optimism, in that in the next two decades, Africa will be different within the VC landscape.
TKWS: What can startup founders can learn from MSMEs across the continent?
Bongani: The way we look at entrepreneurship at Founders Factory Africa is more holistic, but the biggest challenge is the person involved in the VC space to make an assumption that MSMEs are not important. The type of capital that flows from either direction is equally important, and they serve different purposes. As VCs we ought to look at small businesses and their resilience, and what they are doing, as a path to enable us to create a new investment cycle and not necessarily replacing MSMEs.
If you look at some of the business models within VCs, like B2B financing companies typically, the venture lead company would be an MSME. We look at entrepreneurship as a value-chain. A VC is led by technology to enable growth, and the traditional brick-and-mortar business serves immediate communities. If you bring both of them together, the learning is we can collectively build the continent because tech-led ventures are enabling small MSMEs to essentially find ways to deliver services in a much better way through technology.
Entrepreneurship is a pathway to building economies but we need to look at technology as a means to an end and not as an end in itself.
TKWS: What do you think is the role of the largest complaints among startup founders about the lack of local VC funding? Do you think there is a role for local capital on seed and early-stage companies?
Bongani: There are two angles to your question. The first is if I look at the last couple of months we have spent quite a lot of time talking to corporates, including high net worth individuals in the continent. We have been trying to understand that is there enough knowledge of VCs as an asset class where the pockets of capital exist, so that we are able to create a cyclical way of getting capital revolve in the continent.
There is still quite a lot of education that needs to happen before local capital gets to VCs as an asset class. I think in the next decade or so, we’re going to see more entrepreneurs exiting their businesses and the hope is, they will take that capital and become VCs themselves and plowing back into the ecosystem in order to create a cyclical capital movement in Africa. We also have to be intentional as VCs in driving capital to where it is needed most, which is early stage and nascent markets.
