Konnichiwa, Africa: Japanese VCs Flood Continent Dominated by China
WHY YOU SHOULD CARE
For years, China has dominated funding on the African continent. Now a wave of Japanese venture capitalists is flooding African tech with cash, offering an alternative.
By Nick Dall
- Since 2017, three major Japanese venture capital firms have invested tens of millions of dollars in African startups.
- Japanese money is allowing a continent swamped with Chinese cash — often with conditions attached — to look for alternatives.
- The partnership is in turn helping Japanese investors fix a problematic image they suffer from in other tech hubs.
The COVID-19 pandemic threatened to complicate Ghanaian agri-preneur Desmond Koney’s search for seed funding for his business Complete Farmer. But while most venture capitalists were wary of sinking cash into developing markets, the Japanese VCs at Kepple Africa Ventures and Samurai Incubate Africa quickly stepped in to provide the capital — and expertise — he required. Working with Japanese investors “has been very good,” says Koney. “I’m already talking to both of them about future funding rounds.”
Koney is by no means alone. In the past three years, an oversupply of capital in the Japanese startup system has seen three Japanese venture capital funds invest tens of millions of dollars (raised from private and corporate investors in Japan) in close to 100 startups across the African continent. TIBU is bringing quality health care to Kenyans’ front doors. LULA is pioneering company ride-sharing in South Africa. And Numida is bringing tech-based microfinance to Ugandan entrepreneurs.
The African startup market needs capital, so there’s some room for Japanese investors. That’s the gap that we are trying to fill.
Ryosuke Yamawaki, Kepple Africa Ventures
These Japanese investors are offering Africa, its governments and its private sector a meaningful alternative to Chinese funding, which has so dominated the continent in recent years that it has spawned suggestions of neocolonialism by Beijing and has sparked backlash in several nations. China’s expansion on the continent — it is the largest investor in Africa — has coincided with the withdrawal of the U.S. from its traditional global role over the past few years, at a time Europe too has been bogged down by its own internal economic and political fissures. Unlike private Japanese VCs, China’s investments in Africa are almost entirely driven by state banks, loan agencies and public sector giants. But there’s much more on offer in Africa than just geopolitical interests. There’s hard money to be made too, suggest Japanese investors.
“Africa is tomorrow’s market,” says Nairobi-based Ryosuke Yamawaki of Kepple. “The African startup market needs capital, so there’s some room for Japanese investors. That’s the gap that we are trying to fill.”
And then some. Since launching in 2018, Kepple has invested $12 million in 61 firms in nine African countries, and they’re showing no signs of stopping there. Samurai, which was established in the same year, has invested in around 25 companies in Nigeria, Kenya, South Africa, Ghana, Uganda and Rwanda, says managing partner Rena Yoneyama. And in the same period, Asia Africa Investment & Consulting (AAIC) has invested in 20 firms across the continent.
While some Japanese VC funds are setting up offices in places like Silicon Valley, Israel, Singapore and Bangalore, there’s a perception in these established markets “that Japanese capital isn’t that great … decisions are slow and communication is tricky,” says Yamawaki. Africa, whose VC landscape is largely undeveloped, provides an opportunity for Japanese funds to make investments — and to change perceptions.
Yamawaki is a case in point. He sees himself as a “smart middleman” and has lived in Africa for 10 years. “It doesn’t work for Japanese corporates to invest directly in African tech startups. It’ll take a year to make one deal,” he says with a laugh. Yoneyama, who lived in Morocco for three years and spent the second half of 2019 in Africa (COVID-19 has kept her in Japan this year), also places a priority on quick decision-making.
Koney was very impressed by the speed with which both Kepple and Samurai invested in Complete Farmer. But he is at pains to point out that each investor brought far more than just fast cash to the table. Kepple has created a knowledge-sharing platform for the 60-plus firms in their portfolio, which has been “a great way to grow the business,” says Koney, “especially during COVID.” Yoneyama of Samurai, meanwhile, is always just a phone call away, he says: “Whenever I make a big decision, I know I can talk to Rena about what to do.”
While AAIC focuses mainly on the health care sector, Kepple and Samurai are “sector agnostic,” says Yoneyama, having invested in energy, fintech, agriculture, retail, logistics, transport, entertainment and health care startups thus far. Geographically, all three funds have made most of their deals in Nigeria (both Kepple and AAIC have offices there), Kenya (where Yamawaki is based) and South Africa. But one look at their portfolios shows they’re willing to invest wherever opportunities present themselves.
Having spent so much time in Africa, they know it won’t all be smooth sailing. Political instability is an ever-present threat. Take for instance the recent protests in Lagos, which have left many in the tech scene unnerved. Currency depreciation is another big challenge, says Yoneyama, even for companies that experience exponential growth in local revenue.
But they’re not letting any of this discourage them. Yoneyama says she’ll spend the next two years investing in companies across the continent. And Yamawaki hinted at the possibility of launching another fund to attract large corporate investors from Japan.
Investing in Africa is “super exciting,” says Yoneyama. “We’re all new to the game and no one knows who is going to win …”
While this is certainly true for the competition between venture capitalists, you can bet your last yen that innovative African startups will be the real winners.
- Nick Dall, OZY Author Contact Nick Dall