Startup accelerator Founders Factory Africa is rebranding to 54 Collective in a move to broaden its financial and capacity-building support to innovators across the entire continent. 

• •54 Collective will evolve from an accelerator to a full-fledged Venture Capital (VC) firm with 70 specialists tasked with collaborating with startup founders in mounting obstacles such as currency devaluation and unfavorable regulation, immanent in the African ecosystem.
• •The rebranded financier will also ramp up its capital allocation to the continent’s startups, which will range between US$ 200,000 and US$ 500,000, according to the Founders Factory Africa CEO Bongani Sithole.
• •Sithole affirmed that 54 Collective as a VC would focus on early-stage startups – before the Series A stage.

“We have learnt that capital that is dilutive alone isn’t enough for early-stage startups. At that stage, you’re still learning and losing a lot of ownership through equity, which is not good for the market or the founder,” Sithole said in an interview with The Kenyan Wall Street.

When it was established in 2018, Founders Factory played a crucial role in the development of innovation by providing support services to entrepreneurs. It also relied on a corporate-backed model that saw the firm invest in 57 businesses across the Agri-tech, Health-tech, and Fintech triumvirate. 

However, after realizing that more could be done for startups if they evolved, Founders Factory decided to change their financing model and narrow sectoral-focus to widen their impact on the continental ecosystem. This would essentially strengthen the resolve of nascent innovation and reduce the strain that limited growth initially.

“We introduced non-dilutive loans less than 5% to allow entrepreneurs to have more capital to build businesses at low-interest rates,” Sithole said. “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.”

State of VC funding

Since 2013, funding for startups in Africa has been growing immensely but the boom slowed down last year and is set to continue this year. About US$ 6 billion have been invested in African startups for about a decade, which is a minuscule percentage of what startups across the globe receive.

According to Sithole, this is as a result of heavy reliance on foreign VCs and accelerators who find it convenient to invest in late-stage startups which have a less degree of risk. Early-stage startups are forgotten and only few are capable of breaking the mound to Series A. 

The solution, according to Sithole, is to build up local investment through engagement with corporates and high net worth individuals. Moreover, supporting older startups to finalize exits will enable them to adequately re-invest in newly born startups and create a repetitive process of growth and support.

“We have to be very intentional as VCs to drive capital to where it is needed most, that is, the nascent marker. We can do this by encouraging entrepreneurs to exit and get that capital recirculating in the ecosystem,” said Sithole.

Sithole believes that there is a lot VCs and startups can learn from the traditional MSMEs which contribute greatly to the GDPs of African countries. Their character of resilience and determination to overcome transitional difficulties such as capital shortfalls and tough competition are invaluable now as the startup funding drought continues.

“The cycle between 2020 and 2023 has been difficult for Africa but if you compare that to China and India, you’ll realize that impact happened more in other continents than in Africa. That tells us that even with these challenges, the global market is bullish on the African frontier,” Sithole said.

“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,” he added.