Zazuu, the fintech marketplace for cross-border payment networks in Africa that raised over $2 million from investors like Launch Africa and Founders Factory, has shut down after failing to raise funding. “We explored every option before making this decision,” the company said in a LinkedIn post announcing the closure.

Zazuu was founded by Kay Akinwunmi (CEO), Korede Fanilola (COO), Tosin Ekolie (CTO), and Tola Alade (CDO) in 2018 and raised a $200,000 seed round from Launch Africa and ODBA in August 2021. A year later, the company raised $2 million from Launch Africa, Founders Factory Africa, ODBA, HoaQ, Tinie Tempah, Jason Njoku, Babs Ogundeyi, and other angel investors. 

Africa has the highest rate for remittance services for any continent; the average rate for sending money to the continent from Europe hovers around 9% and could be as high as 22% in some instances. Zazuu, which started as a simple Facebook and Telegram chatbot informing users of daily FX rates, evolved into a full-blown aggregator that listed more than 17 Africa-focused remittance providers on its platform before its closure. 

The startup operated on the belief that a marketplace where customers could choose the cheapest remittance option could help lower prices by bringing transparency and increasing competition. Akinwunmi told TechCabal in March 2022 that Zazuu had the lowest rate anyone transferring money to Africa could get on the platform, at 1.5%. The startup also said that almost a hundred thousand users had used its Search and Compare service, which customers used to compare prices to find the best rates for sending money to Africa.

Adewunmi told TechCabal in May 2022 that one of the challenges Zazuu faced in its earlier stages was explaining to customers and potential partners what they were trying to build. He added that another challenge Zazuu faced was licensing requirements and the costs attached to them. 

Zazuu’s shutdown is another in a series of startups shutting down this year as funding dries up for Africa’s tech ecosystem. By the end of October, African startups had raised less than $2.8 billion this year, which represents less than half of the $6 billion raised last year. Lazerpay, a crypto startup that shut down in April, also blamed a lack of funding for its closure. WhereIsMyTransport, a South African mobility startup, also shut down in October, citing an inability to raise new funding. 

Founders Factory Africa has secured $114 million in funding to scale its model across the African tech ecosystem. The additional funding comes from the Mastercard Foundation and Johnson & Johnson Impact Ventures, an impact fund within the Johnson & Johnson Foundation, and follows on from previous investments by Standard Bank, the Small Foundation, and Netcare.

Founders Factory Africa’s portfolio cuts across 55 ventures in 11 African countries. The portfolio covers fintech and healthtech companies and includes Asaak, an asset financing startup for boda boda drivers in East Africa; Envisionit Deep AI, a South African medical technology company using AI to transform medical imaging diagnosis; Fresh Source, an Egyptian food tech startup.

The studio says it will use this funding to become sector-agnostic, address gender imbalances in the ecosystem, broaden its capital investment offering to include non-dilutive capital, and strengthen internal capacity.

The venture studio combines a traditional venture capital approach with what it describes as, “bespoke hands-on venture support.” In addition to equity checks of up to $250,000 for ventures at the idea, pre-seed and seed stages, it can invest up to $150,000 in additional equity-free capital to “catalyse investments.” This non-dilutive funding is meant to provide founders with additional runway to pursue growth and catalyse other investors. 

“We are excited to have new and dynamic funding, which follows on from previous investments into Founders Factory Africa by Standard Bank Group, Small Foundation, and Netcare Group,” said Alina Truhina, co-founder of Founders Factory Africa.

“Our new fund will allow us to continue supporting the continent’s most promising early-stage ventures – and their exceptional founders – with the capital and resources they need to fuel their growth,” said Sam Sturm, the chief portfolio officer of Founders Factory Africa. 

Editorial Note:

Corrected the amount of additional equity-free funding Founders Factory Africa invests in portfolio companies.

Corrected a previous statement that implied that Founders Factory Africa is the same as Founders Factory UK.

South African startups appear to have weathered the double whammy of a funding crunch and declining economic landscapes better than their Big 4 peers. The country is also a leader in venture building. The two points appear unrelated at first glance, but is South Africa’s concentration of venture builders an underestimated edge? I think so.

In the second quarter of 2023, South Africa recorded a 12% decline in funding compared to the amount of investment received in the same reporting period in 2022, according to a TC Insights report. But in the previous quarter of 2023, South Africa was the only country in the big four ecosystems (Egypt, Kenya, Nigeria, and South Africa) to record increased funding (by 22%) relative to its performance in Q1 of 2022.

Two quarters is probably not a good indicator of investor sentiment in Southern Africa, and the prevailing wind does not suggest that the venture funding freeze will thaw soon. But still, it is a relative net gain.

This is partly explained by the fact that South Africa is not heavily dependent on capital from foreign investment firms. “While there is a general slowdown, more funds in South Africa are closing compared to elsewhere on the continent,” David Saunders, director of growth and strategy at Briter, a research firm told TechCabal. 

Regardless of funding performance, South African startups have to deal with the wider economic headwinds that have slowed growth to a crawl. Individuals, big businesses and small businesses alike have all been affected by a cost-of-living crisis and rolling blackouts.

“It’s hard to ignore the macro environment at the moment. South African consumers are financially distressed, large enterprises are cutting capital expenditure, and power outages continue, putting pressure on startups both commercially and operationally,” Nicole Dunn, co-founder and executive at Revio, a South African payments and invoicing startup told TechCabal. Despite this, she is upbeat about the prospects of South African startups, even though she concedes that a few might fail.

During the funding boom, startups in East and West Africa saw more deal activity at the early stage and tended to raise significant sums as they reached the later growth stage. This helped fuel the rise of unicorns (young and fast-growing companies valued at more than $1 billion) and a U-shaped startup funding pattern, Saunders explained. South Africa on the other hand, follows an inverted U pattern. There was less deal activity at earlier stages. But significantly more deals were consummated for companies at their mid-stage. This was followed by a decline in funding for later-stage ventures.

That South African startups exit early” might partly explain this U-shaped pattern.  Keet van Zyl, co-founder and partner at venture capital firm Knife Capital, believes there is some legitimacy to the hypotheses. Because of the “significant follow-on financing gap for high-growth local startups with proven traction,” it makes more sense to sell to a bigger and older company, van Zyl told TechCabal’s Ephraim Modise earlier this year. His firm just closed a $50 million fund to back startups with “high exit potential.”

Against this backdrop of an ecosystem with more exits on average compared to their peers. And participation from larger corporates. venture building is becoming the matron—and surrogate in some cases— for early-stage companies in South Africa.

Venture builders find their mojo

As economic headwinds become stronger and set against the context of a global decline in venture funding, venture builders have emerged as dominant players in South Africa’s startup scene. Especially at the early stage. Venture building is a more hands-on investing model where an in-house team of experts work to build ideas or young companies into full-fledged businesses. Startups get capital and talent who work full or part-time to design products build the startup from the earliest stages and the venture builder gets a significant portion of discounted ownership in the fledgling business. Some venture studios simply charge fees for their services.

One such studio is Specno, an app development agency that combines building apps for clients with high-touch venture investing and consulting. It was founded in 2018 by Daniel Novitzkas and Jacques Jordaan as a side project during their post-graduate program at Stellenbosch University, South Africa.  The now five-year-old company has grown from a team of two to a 40-person with clients in South Africa, the Netherlands, the United States, and the United Kingdom. It recently opened an office in the Netherlands.

From its head office in Century City, an upscale suburb in Cape Town, Specno serves roughly 100 global clients and portfolio companies with a mix of corporate and technical consulting, a paid accelerator program and investment support.

Specno does not have a fund it invests from, but it taps a network of 250 global angel investors and also invests capital from its business in favoured startups. Novitzkas says they plan to raise a fund for their investments. Right now, his firm focuses on helping startups “unlock their competitive advantage to growth.” “We reverse engineer the process of raising funding,” Novitzkas said, adding that its investor network allows it to help up to 6 startups find funding in a typical month.

Experience, a steady hand, and appropriate doses of focus and tests are part of the critical appeal of venture builders. Venture studios usually have a broad network of corporate clients or are directly funded by corporates. This network can prove useful as early customers, potential investors or even acquirers in the long run.

Depending on the type of venture, Louis Buys, Founder and CEO of The Delta, also headquartered in Cape Town says his firm provides anchor support and taps its corporate venture-backed network to build early revenue pipelines. “A revenue pipeline is the best security for [future fundraising],” he explained to TechCabal. So “Customer relationships for early traction is probably the most important thing,” he says South African startups should focus on.”

The Delta also maintains a sales team throughout South Africa and the European Union to provide support and connections for its B2B portfolio companies to find early traction as early as pre-seed. For its consumer tech startups, The Delta works to create go-to-market partnerships in addition to marketing and brand support.

Founders Factory Africa is perhaps the best-known South African venture builder. This is not surprising considering it has a presence in three of the Big 4 countries, except for Egypt. Despite not being physically represented in North Africa, it has invested in at least one Egyptian company. Recent trips to Egypt and neighbouring countries suggest a physical presence on the North African front may not be too far out in the future.

But Founders Factory Africa’s appeal cannot be simply credited to its geographic spread. It combines a traditional venture capital approach with what it describes as, “Bespoke hands-on venture support.” In addition to equity checks of up to $250,000, it can invest up to $150,000 in additional equity-free capital to “catalyse investments.” By backing and co-building some of the better-known startups in its key markets that have gone on to raise capital at more mature stages, the firm has endeared itself across Africa.

One commonly shared feature of some of South Africa’s leading venture builders is their European reach. Like Specno, The Delta has offices in Europe (Berlin and London). And Founders Factory Africa while being an independent entity started life as part of the network of London-based Founders Factory which was founded by Brent Hoberman.

South Africa’s venture builders have had some success—the powerful presence of corporate venture funds in the ecosystem helps. The growth of venture builders in the last five years in South Africa is not seen as special. But it is one of the things that sets South Africa apart from its peers. The creep has been mostly silent and other startup ecosystems are beginning to catch the venture builder fever. It is still early days, however. And the extent to which venture builders can help startups work out early-stage kinks and ease into their legs remains to be seen.

Editorial Note:

Corrected the amount of additional equity-free funding Founders Factory Africa invests in portfolio companies.

Corrected a previous statement that implied that Founders Factory Africa is a franchise of Founders Factory UK.

Nigerian insurtech startup, MyCover.ai, has secured the close of a $1.25 million pre-seed funding round. According to MyCover.ai, the funding will be used to expand the reach of its product, into other African markets. The funding round included participation from Founders Factory Africa and TechStars, who are making a follow-on investment.

Founded in 2021 by Adebowale Banjo, Alexander Igwe-Ifendu, Fred Ebho, MyCover.ai is interested in tackling pain points that exist in the market, ranging from lack of access, inadequate coverage, the unaffordability of insurance products to the poor customer experience surrounding insurance processes. The insurtech startup provides an open insurance API that integrates with insurance companies, such as Hygeia, Leadway, Sovereign Trust, AIICO Insurance and Allianz, to offer over 30 personalised insurance products, allowing other businesses and innovators to embed these insurance products into their platforms.

MyCover.ai aims to provide financial security to Africans by improving access to insurance products, especially Nigerians exposed to a wide range of vulnerabilities including health challenges, asset loss and the potential loss of their livelihood. According to Augusta & Co, only 0.5 percent of the population has insurance. This is understandable in Nigeria where 133 million of its 200 million population are submerged in multidimensional poverty, with the minimum wage pegged at ₦30,000 ($37.69).

The tech startup  is offering its powerful API integration to empower businesses from various sectors to effortlessly integrate insurance into their products and services, with the inclusion of a white label option, without incurring any additional risks or costs. These businesses are presented with the opportunity to offer insurance policies as add-ons on top of their existing core products.

In 2010, Sam Sturm quit his job as a teacher to become a filmmaker. While he waited to hear back from the film schools he’d applied to, he joined the leadership team of an edtech startup to make ends meet.

Two years at that job was what it took for him to realise he wanted to learn to scale businesses – so he swapped film school for business school.

Following business school, he and Roo Roger spent the next five years running the Spring Accelerator program that has helped several entrepreneurs across East Africa and South Asia to grow their businesses. Two of those businesses are Ugandan motorcycle hailing company SafeBoda and Bangladesh based healthcare company Maya.

Together with Roo Roger, Alina Truhina, and Kofo Sanusi, Sturm decided to partner with Founders Factory UK to launch Founders Factory Africa.

“Founders Factory Africa was born based on the belief that entrepreneurs are the drivers of emerging economies. These entrepreneurs are on par with others in developed economies but they don’t have the support needed,” Sturm said.

Founders Factory Africa (FFA) started two years ago and now has a portfolio of 23 businesses with plans to add about 15 more within the next year.

For this episode of Ask An Investor, our conversation with FFA’s Chief Venture Architect, Sam Sturm begins with a pertinent question regarding Founders Factory Africa’s brand identity.

Daniel Adeyemi: What’s Founders Factory Africa about and how are you different from Founders Factory UK?

Sam Sturm: While they’re related, Founder’s Factory Africa (FFA) is not a spin-off from the Founders Factory in the UK (FF London). We are sister organizations and work very closely together. 

The founders of FFA had been working together for five years prior to launching FFA. We’re a team of practitioners who are familiar with emerging markets and what it takes for ventures to be successful, particularly in Africa. 

We exist to help entrepreneurs move their ideas further along the maturity curve faster than they would without us. This means putting in cash but also partnering to deliver hands-on support to solve their most pressing challenges. 

As a result, we can partner across the early-stage spectrum. We invest in existing businesses looking to grow. We’re usually looking at a seed or pre-series A – that’s our sweet spot for scaling.

We also build businesses with founders. At FFA, we recognize that each venture is different, with unique challenges and needs.  From customer acquisition to working with them to develop and execute a growth plan, the spectrum of what we’re able to do and the kind of support we’re able to provide is broad. 

Our investors at FFA are Pan-African corporations. We have Standard Bank, the continent’s largest bank, as our investor for our FinTech vertical and Netcare, which is the largest private hospital network in South Africa as our healthcare investor. These relationships allow us to leverage the assets, resources, and experience of these corporations to help our ventures grow. 

In addition to our investors, we are part of the Founders Factory global family. Founders Factory has a portfolio of over 100 ventures worth over £250 million. 

Being part of that network gives us access to capital, resources, and investors, for our ventures;  putting them on this global stage. 

Our belief is, we are not building South African businesses or investing in Nigerian businesses. We believe that the businesses that we are working with ought to be and can be pan-African and we believe that the best pan African businesses should be global.

DA: What’s your investment focus? I notice you only mentioned fintech and healthcare.

SS: Yes, for now. But I’ll say that our interpretation of fintech and healthcare is pretty broad.

Our fintech portfolio includes logistics, shipping, payment and neo banking. For healthcare it’s really about wellness and health insurance – the latter falls between healthcare and fintech. We recognize that there are amazing things happening across the spectrum. 

DA: What do you look for in companies you invest in?

SS: Look, every business at different stages will have different metrics and ought to have proven different things. 

First, we always want to see a real user need that’s being solved. Even if it’s a niche need, if the solution to it can be delivered at scale, we’re interested. 

Then, a scaled market opportunity in solving that need, we believe those needs should cross borders and address multiple segments of the population. 

We also look for credible founders, who we believe can develop the solutions necessary. That credibility can mean that they’ve run two startups before. Maybe both failed, but they have the experience. It can also be they have really specific industry relationships. We are looking out for someone who is insistent that they are right and also able to admit when they are wrong and to act upon that information. 

The final thing we look for is evidence. For an early-stage business, it can be transcripts from 50 customer interviews where most people tell you that this is a problem. 

It can be a proof of concept, maybe you have a hundred users, but every single one of your users is coming back and giving you great ratings or referrals. 

It’s not always about the popular metrics. I think very frequently people get caught on revenue metrics or growth metrics and look, those are important. What we look for is the evidence that’s right-sized for the company’s stage.

DA: More specifically, what type of fintech and healthcare companies are you looking to invest in?

SS: We’re looking for different things at different times as healthcare and fintech are broad. 

For example, in healthcare recently, we’re really interested in ventures that are looking at women’s health and in pharmacies. 

We’re also interested in solutions that are looking to drive down the cost of healthcare. We decide on these themes based on our view of what the market is interested in and what our investors are invested in. 

That will drive specific investment cycles for us. Having said that, we’re always looking for the best businesses. We will develop investment themes, but it’s rare that we won’t consider great businesses outside of them.

DA: How can entrepreneurs reach you?

SS: We are constantly doing calls for applications on our website and social streams and we are constantly sharing job opportunities within our portfolio companies. 

Our entrepreneurs are also constantly making introductions to other people they think would be a good fit. It’s also great encouragement that our founders find the Founders Factory’s value proposition and our work valuable.

DA: How much do you usually put in and what does it get you?

SS:  $250,000 in cash in our build program. It’s typically $50k to start with the ability to follow-on with up to $200K and provide nearly double that value in services. In our scale program, it’s $100,000 in cash and roughly $200,000 in services. 

In terms of equity, on the scale side, we generally ask for between 5 – 8%, depending on evaluations and existing traction. 

On the build side, depending on maturity, it can go anywhere from 15% up to 30%. Investing roughly $600,000 worth of value in a business that all they have is an idea is a lot much riskier for us and that’s why you’d see us taking close to 30%. 

DA: You mentioned about $200,000 worth of services, what do these look like?

SS: We don’t start off by developing a scope of work that says this is all you’re going to get. We are a venture building studio, and this means that a business can expect to get support from members of our makers lab and our product team: private coaches, product managers, product designers, etc. 

We are much more than advisors. We are on those calls together. Even right now our head of engineering is running the interviews along with one of our entrepreneurs for a CTO. 

DA: Why is hands-on support so important to you?

SS: We believe that capital isn’t the only way to support a business. You need it so that you can execute but at the end of the day, capital isn’t what solves problems. 

We believe that the challenges of product-market fit,  customer acquisition, or retention are not the kind of challenges that capital alone can solve. 

Those are the challenges that you’re looking to entrepreneurs to solve, that you’re looking to the team to solve. If you can supplement them with experienced and talented people you’d be successful.

DA: For red flags, what types of businesses aren’t you interested in?

SS: There are plenty of businesses that only want money. If that’s the case, we’re generally not the best fit. 

I would argue though that that’s also not the kind of founder that we would want to work with because a founder that only wants money thinks they have everything figured out. I want to work with a founder who recognizes that there are people who know things. That’s the type of leader I am. I want people around me who know more than I do. 

We want to work with people who believe deeply in what they’re doing, but also believe that the best way for them to get there is to build it, build an ecosystem and a support network around them. And that’s what the best entrepreneurs do.

DA: How long does it take to vet these companies – due diligence?

SS: I think we just recently did a deal in somewhere between four to six weeks but it generally takes a little longer than that, about a few months. 

Our due diligence is less about documentation though. That is part of it but it’s much more around the entrepreneur and opportunity. 

I want to know that they have an idea about what the revenue is going to look like, but I care much less about their three-year financial projections because those projections are going to be wrong and that’s okay. 

We’re focused more on the entrepreneur’s understanding of the market? Do they have a credible pathway to success? What evidence do they have that tells us that there’s an opportunity here?

We sometimes might take longer because we are deeply engaged with the founder and working closely with the founder to figure out the answers to those questions.

DA: Okay, what do you think about Mergers & Acquisitions / Exits?

SS: Founders Factory makes money through exits. Yes, we believe that the businesses we invest in are scalable and we believe that scale means exits. 

There are now examples of this happening – the Paystacks of the world. They are among the first but they will not be the last. In terms of our portfolio, we’re still very early. No company has exited, but we also don’t expect to have done that yet. That’s not something we expect for the next couple of years. 

We have a number of ventures that have already raised additional funding, those entering markets, or have signed JV deals. 

Some are along a progression that we believe have the potential for future exits. Certainly again, we are often the first money in and we would love for our businesses to be valued at a billion dollars within 18 months, but we recognize that those cases are few and far between.

DA: You have only two investors, How much influence do they have?

SS: It’s a really symbiotic relationship in that our investors recognize that we are experts in the startup markets and what it takes to build a business from scratch and enter new markets. 

For Standard Bank we really trust them to help us understand market opportunities because they’re the largest bank on the continent. They understand the workings of financial systems in a way we don’t.

The same goes for Netcare. We are not doctors or healthcare experts. We look to them for guidance in helping us understand the healthcare landscape. To help us understand if something is viable because of regulatory concerns or if a healthcare solution that someone is promising is clinically viable.  They supplement our knowledge and help us make better decisions about specific ventures. 

At the end of the day, they do not dictate the direction of ventures. 

DA: How patient are they?

SS: The way we see it, you have to be patient with your capital but impatient in your desire to solve problems. 

I think you have to match those two different mindsets and be willing to discover that the path forward is not what you expected. 

That’s the other thing we bring to our corporations, when corporations invest, they usually make a plan and create a roadmap and spend a lot of time doing it and then go execute on it. We know that’s not how startups grow, and it doesn’t allow for iteration and the discovery is necessary for a successful startup. We are bringing that lens to our activities and our investments as well, which is that things are going to change. 

DA: What key trends are you seeing in the market?

SS: Fintech is everything, then quality health. Also, I’m interested in how to support more women-led businesses.

Started in October 2018, Founders Factory Africa is the Africa arm of the UK’s Founders Factory. FFA wants to design, build and scale over 100 African startups over the next five years. Recently, the tech hub announced its first set of investments in Africa in May 2019. In partnership with South Africa’s Standard Bank, FFA selected five startups to join its 6-months comprehensive accelerator programme. These include Digest Africa, LipaLater, Kudigo, Allpro, and EazyHire. All five cohorts received funding between £30,000 and £100,000.

The new partnership with Netcare affords Netcare a niche approach to reach its target. Over the next few years, the FFA program will accelerate five healthtech startups a year and incubate two.
Application for the accelerator program is currently open till September 6, 2019.

Selection for the FFA’s health tech accelerator program considers startups with a Pan-African focus. Also, startups will equally have to be post revenue to be considered for the program, which means the accelerator program is more suitable for growth stage startups.

Meanwhile the FFA incubator program is open for entrepreneurs who want to build a new concept from scratch.

African healthtech startups are working on innovative ways to deliver health care services. Source: ForeMag

Both programs provide funding to healthtech startups. Startups in the accelerator program will receive funding of £30,000, as well as support services from FFA worth £220,000. Incubated ventures will receive £60,000 funding and £100,000 in support services. Startups will also benefit from Netcare’s support network, technologies and expertise in the healthcare sector.

In return, FFA and Netcare will own between 5% and 10% equity stake in each startup.

The FFA-Netcare healthcare comes has emerged at a time when African healthcare sector is gaining more startup attention. In different African countries healthtech innovators are using technology to address different problems affecting healthcare systems.

Innovators like Arone Drones have joined Zipline to develop drone technology to deliver blood and other medical supplies to remote locations. Another startup, RxAll develops mobile innovations used to identify fake drugs on the continent. Ghana’s mPharma, which provides financing and inventory management for hospitals and pharmacies, raised over $9 million in January.

“I believe healthcare is ripe for disruption and innovation”, Netcare CEO Richard Friedland told TechCrunch. “There are so many issues in terms of healthcare delivery in Africa that can benefit from technological solutions”, he added.

The FFA accelerator and incubator program is one way to address these issues.