Young and seasoned entrepreneurs alike are out looking for other people’s money to either start or scale up their businesses and Africa’s tech scene is alive with capital from angel investors and more formalized venture capital firms. Spark Venture Fund is one of the more visible funds in Kenya capitalized by leading telco Safaricom under management of TBL Invest. I have received many requests to give more insights into the deal pipeline of the million dollar fund so here we go!
Unlike the general gut feel, “I see you, I like you, here’s a cheque” model that angel investors often run with, the pipeline at the Safaricom Spark Fund is intense. Around ten new leads are received every week, ranging from very brief emails to fund led sourcing on companies who operate in the target areas of mobile commerce, payments, data and messaging, SME, cloud, media content and infotainment. The total averages 500 annually.
Only about ten percent of these leads will fulfill additional criteria. This means that to proceed further down the funnel businesses must have; a Kenyan base, a working product, an active user base, revenue coming in and a good team. Of these, only another ten percent will be at a stage where they need funding and pass the non-compete test with the fund principle. It takes 14 working days from that first interaction via email to a go or no go decision.
If the green light is given, a deeper analysis of the company starts and Safaricom also looks for an in-house champion to ensure maximum possible value add to the selected company when the time comes. At the end of another 14 working days a term sheet is ready. A term sheet outlines investor terms and covers areas such as capitalization, governance and exit. Negotiating the term sheet either ends in no agreement, a “go”, or a “wait”, with the whole process taking about 2 weeks. During term sheet negotiations there is a lot of emphasis on ensuring the company understands the terms and understands what it means to have the fund on board as an investor. TBL will typically take a board seat and will manage the investment, with clear chinese walls towards Safaricom, such that there also is not future conflict. This way the company benefits from the fund managers experience where they have invested in many growth companies. TBL have seats in many boards, and have a good network of potential investors for future rounds, whilst also benefitting from having a strategic relation with Safaricom. If terms are accepted by the company approval is sought from the Investment Committee to begin due diligence.
Over the course of a month, the fund will interview clients, suppliers, the team, do reference checks and agree on the strategic plan so that everyone is on the same page. At the close of this, a final term sheet is drawn up and an approval for investment is sought from the committee. After approval there is the legal documentation and disbursement process, which takes another 14-28 days.
The real work starts post investment with a 5 – 7 year roadmap where the investee implements its plans, closes on more financing rounds and gets more investors on board. The end game for the fund is to make a return and it will sell its shares either in an IPO or to another equity or strategic investor.