54 Collective will provide equity funds from US$250,000, non-dilutive loans of a similar figure, and free hands-on support for its founders.

Many venture capital (VC) firms in Africa remain at the periphery of the startups ecosystem, only intervening when funding rounds are on.

This detached presence has done little to accelerate growth for many brilliant innovations across the continent. During a funding winter, like the one that began last year, early-stage and women-led startups are doomed to collapse. 

54 Collective, which recently rebranded, realized the need for a differentiated model. While funding is crucial, 54 Collective understood that tailoring capital in tandem with the specific nature of a startup was the key to unlocking growth. The VC decided to sculpt itself into a Pan-African and sector-agnostic enterprise, capable of integrating a variety of support needs for its portfolio startups. 

During an interview with Investing like an Executive, 54 Collective CEO Bongani Sithole said that introducing catalytic capital and interactive support for founders would be the first step to their new vision. African startups also need mentorship, marketing skills, partnership options to expand, and insights into product improvement. 

“We have realized that capital is important but it is not the whole story. The importance of us building a support structure to help entrepreneurs is unique,” said the CEO of 54 Collective, Bongani Sithole.

54 Collective will provide equity funds from US$250,000, non-dilutive loans of a similar figure, and free hands-on support for its founders. The VC intends to double down on its non-dilutive loans, which it envisions as a more elaborate way of supporting early-stage startups. 

According to Sithole, when early-stage startups in dire need of funding slice away much of their ownership to VCs to secure equity funds, founders are unable to take risks and channel enough creativity into the enterprise. This eventually leads to stunted innovation, a stagnation of ideas, and inevitable collapse. 

Those startups that cannot secure non-dilutive loans but are unwilling to surrender enough equity to raise funds, end up delaying expansion and innovation thus facing a similar downfall. For 54 Collective, funding needs to be allocated to startups while considering these eventualities in order to balance out how much money a startup needs without locking down a founder’s vision for growth. 

“We have seen early stage ventures die quickly because they don’t have enough capital raised through equity to build and derisk their model,” Sithole added. 

Gender parity 

According to Africa: The Big Deal, out of 100 most-funded startups in Africa, only 4 are women-led. Between 2019 and last year, women-led startups raised US$209.3 million, representing only 1.54% of total funding for the period under review. This figure signals a disturbing under-representation of women in one of Africa’s fastest rising sector. 

To entrench more parity, VCs are now gearing up to introduce special funding drives that will target female founders and bridge the existing gap. 54 Collective intends to bring women at the forefront of the tech ecosystem by guaranteeing an additional US$150,000 for women they fund. 

“We want to increase parity of investments between women and male counterparts,” Sithole said. 

The Need to scale up

54 Collective is setting up efficient capitation models and support stakes for African founders because these are the only factors that are needed to drive growth. The best exemplar for a growing enterprise is one that not only stations itself in the home market but expands to other new markets. By working with a network of investors, founders are assured of multifaceted support. 

“The idea for us is to break the barrier and challenges we consistently see in various regions in Africa. Our goal is to help entrepreneurs start to think about the entire continent as an opportunity to build and serve,” said Bongani Sithole. 

Only 11 out of 54 countries in Africa contribute to 70% of the GDP. This is a perplexing fraction that indicates there is a lot to be done by firms supporting enterprisal development. VCs are currently at the vanguard of this vision and understand the dynamics of growth. Therefore, they need to find better ways to strengthen portfolio startups, by driving market expansion and balancing liquidity. 

“We need more bold and visionary founders in Africa. When we look at African founders in many ways, if we can help them to think about scale, to think about Africa as a huge geography, and opportunity to build and scale – It would be very important,” said Sithole.