The head of one of the Middle East’s largest and oldest venture capital firms is excited about the prospects of investing in SA start-ups, particularly in fintech, education, content and health.
In the world of technology start-ups, local companies have in recent years been attracting increasing attention from international investors looking to capitalise on the expected African tech boom.
In November, Ozow, a fintech start-up that helps process online payments, received $48m in new funding, led by China’s Tencent, adding to a raft of international companies joining the SA fintech wave. In the same month, Fidelity Management & Research, the world’s fourth-largest asset manager, led a funding round of almost R2bn for Jumo, an SA-based mobile financial services platform primarily offering savings and credit products to entrepreneurs in emerging markets.
Rabih Khoury, partner at Middle East Venture Partners (MEVP), a more than $300m (R4.4bn) venture capital firm, is one such foreign investor looking to SA for growth opportunities.
“We think the ecosystem in SA is quite mature. We’ve met smart people who understand the issues,” Khoury told Business Day during an interview in Dubai. “A lot of these are young companies because things are starting to blossom. We’ve actually been quite surprised by the quality in SA.”
MEVP has set aside $50m for investment in Africa, he says. “About half has been invested so far. We’re looking to raise a new fund, hopefully in the third quarter, that will have an allocation for Africa. The fund will be $150m minimum and it will be our fourth regional fund.
Future returns
“We’ve been watching Africa. It’s very important for us. [A total] 70% of all Arabs are Africans, so we understand Africa and we understand the challenges of emerging markets.”
Since its founding in 2009, his firm has primarily focused on investments in the Middle East and Arab countries, including those in North Africa such as Morocco, Tunisia and Egypt. Now MEVP is looking to the rest of the continent for future returns.
“We invest from Turkey to Pakistan, however our core markets have been the UAE, Saudi Arabi and Egypt. Last year, we did our first non-North Africa investment in Africa. We invested in a Nigerian fintech company called Verto that helps companies with naira currency exchange needs to fund their exports.
“We’re very bullish on Africa because of what technology has already done for it. Mobile phones can be a wallet, they can give access to the internet. They’ve completely changed the continent. We believe there are other technologies that will also do the same.”
Backing this intention with capital, the firm has partnered with MultiChoice’s Innovation Fund with some of the businesses on its accelerator programme.
“Working with the MultiChoice Innovation Fund helps us contribute to building an ecosystem and training entrepreneurs that, as they mature, will create good investment opportunities for us. We’ve done it before in countries such as Lebanon. We understand that you have to start with the entrepreneurs. They understand the local pain points that technology can resolve.”
Bykea backing
MultiChoice-backed small businesses recently raised R240m from international investors in Dubai in their drive to increase foreign capital flows to SA-based technology start-ups.
This would not be MEVP’s first time working with an SA outfit. The company has co-invested with Naspers on deals including the backing of Bykea, a mobility platform in Pakistan.
Khoury says solutions being offered by SA start-ups in areas such as fintech, health tech, education and energy are gaining more attention from firms because they can often be scaled or used in other emerging markets.
“We invest in technology-enabled access. Everyone needs access to content, financial services, education and healthcare, for example. You cannot build hard infrastructure or branches everywhere. A lot of the stuff can be solved through technology.”
In recent years, these are the business models that have gained the most attention from investors.
Yoco, one of the fastest-growing SA fintech companies, raised $83m in July 2021 in series C funding to scale its offline and online offerings and expand to new markets. In the same month, online education business Gol became the first SA start-up to reach a $1bn valuation after a $200m capital raising, earning it the coveted “unicorn” status.
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