African venture capitalist talks about opportunities in skincare, social commerce and more
Eloho Omame is co-founder of FirstCheck Africa, a venture capital fund that invests in high-growth women-owned businesses across the continent. She is also recently appointed partner at venture capital firm TLcom Capital and former managing director and CEO of entrepreneurial community Endeavor Nigeria.
Omame speaks with James Torvaney on the venture capital industry in Africa and reveals the thinking behind two of the company’s investments: skincare company Uncover and social commerce platform Tushop.
Can you start by giving us some information about the FirstCheck Africa fund?
We launched FirstCheck Africa in 2020. The vision was something similar to Female Founders Fund or BBG Ventures (US-based venture capital firms investing in women-founded businesses), but focused on the African continent.
There have been timely conversations throughout 2020 and 2021 – record years for fundraising globally and in Africa – about the lack of diversity in venture capital and the relatively small amounts of capital going to founders under -represented, in particular the foundresses. Women-led businesses raise on average 50% less per deal than non-female-led start-ups, despite research suggesting that diverse teams tend to build better businesses. This capital access gap creates a return-driven investment opportunity for a fund like FirstCheck Africa.
We also believe the ecosystem is at a significant inflection point when it comes to women-led businesses. The market is changing to become more diverse as founders. The volume and value of funding for African women-led businesses has quadrupled in the past three to four years, and the share of funded businesses with at least one female founder has increased to 17% in 2021 from less than 10. % in the decade to 2019.
What type of companies are you looking to invest in?
We invest in the pre-seed stage, alongside peer venture capital firms such as Ingressive Capital, Future Africa, Ventures Platform and DFS Lab.
Our initial checks are up to $250,000 per transaction, and there is room for further follow-on investments. We are open to investment in most African countries and so far we have deployed funds in all four major markets: Nigeria, Kenya, South Africa and Egypt.
FirstCheck Africa is sector independent – we have previously invested in companies in healthcare, commerce, education and financial services. The main criterion is that portfolio companies must be technology-driven with very high growth potential. And to qualify as “women-founded,” companies must have at least one female founder.
What is your vision of the venture capital market in Africa today?
I think that despite some of the challenges globally, the venture capital ecosystem in Africa is healthier than it has ever been.
There was a period of overheating, with a level of exuberance in the market. A lot of foreign capital has arrived in recent years. But much of that capital wasn’t strategic – it came with higher risk tolerance, but less due diligence and less to offer in terms of relevant support and advice.
With what is currently happening globally (rising interest rates and less tolerance for high-risk speculative investments), much of this capital is starting to shrink. This is actually a positive sign because a healthy ecosystem needs discipline, and it needs rational capital.
Seven or ten years ago, there were hardly any venture capital funds focused on Africa. Now there is more capital and there are more investors. We are seeing second and third time investors raising funds, and many investors have accumulated significant dry powder that they have yet to deploy. These are all positive signs. Now that we have gone through the first phase of development, where the digital rails – B2B infrastructure, payments and logistics – have been put in place, this puts us in a good position for start-ups that rely on these rails.
Uncover, skincare company backed by FirstCheck Africa. Can you explain why this was an attractive investment opportunity?
One of our portfolio companies is Uncover, a truly innovative skincare brand in Kenya that has combined K-beauty (a global skincare category originating in Korea, with products based on scientific research from cutting-edge, innovation and unique ingredients) with traditional African ingredients, formulate innovative and research-backed products specifically for African skin and for the African market.
They have a digital brand building strategy that is truly unique in their space. The company uses social media very effectively – they have managed to create viral moments in order to grow their brand’s audience among millennial women.
But building a successful direct selling brand in Kenya is different from building a brand in the United States, for example. While the reach of social media is growing very rapidly, many purchases are still made through traditional means; through physical stores such as pharmacies and marketplaces. Uncover has a “hybrid rails” approach, where they use community building and targeted social media strategies to reach customers at the top of the funnel – the “discovery phase” – and then make it as easy as possible purchase through their website or in physical stores through a network of distributors.
Do you think this strategy would also work well in West African markets like Nigeria?
Yes, I believe the same strategy would work in Nigeria. The dynamics of the skin care industry are similar there.
Nigeria is a much larger market than Kenya, and many cultural trends on the continent are driven by Nigeria. Nigeria is a very trend driven market and if you can create virality there, chances are the rest of Africa will follow.
There are already a few skincare manufacturing companies in Nigeria, but they tend to be small and artisanal, or cosmetic brands that have added skincare instead of skincare brands . There are certainly opportunities for more.
Your company has also invested in the social commerce start-up Tushop. What was the motivation behind this investment?
We invested in Tushop, also in Kenya, which is a social commerce business selling groceries and household items. They use a model that has seen great success in China, where they work with a network of “community leaders” – well-connected people in specific communities – to help them sell their products.
Community leaders find end users, aggregate demand and arrange delivery from middle mile to last mile, enabling Tushop to place bulk orders with manufacturers and wholesalers, and achieve significant savings for end users . This means that Tushop can focus on shopping savings without having to worry about last mile delivery.
What I particularly like about this company is that the founder is hyper data driven and focused on the underlying economics of the unit. It’s a big red flag for us as investors when we don’t know how the economics of the business work at scale – for example, what is the customer lifetime value and how it compares at cost per acquisition.
The two companies you mentioned were inspired by East Asia. Do you think this is a trend?
Entrepreneurs realized some time ago that they couldn’t just take models from the US and transplant them to Africa – the market dynamics are very different. People are no longer simply trying to create “the Amazon of Africa”.
I think there are some similarities between African and Asian markets, for example the importance of offline. Many entrepreneurs are looking to Asia and companies like Alibaba and Baidu to see how they are doing.
What advice would you give to entrepreneurs trying to raise venture capital funds?
Founders should remember that investors meet many different founders. They have limited capital and need to be convinced that your business is the best place to invest their next dollar. But they need to see that this is not just an attractive business proposition, but a compelling investment case.
We are looking for three main things: first, a great founding team.
Second, we are looking for big companies. Is there a large enough addressable market? Are there good operating parameters?
Finally, it must also be an excellent potential investment – the valuation must make sense and there must be realistic exit opportunities.
One of the things I like to see that sets founders apart is that they’re data-driven. As investors, we want you to show us data that gives you valuable perspective and insight that no one else in the market has. Even in the very early stages, it is possible to be data-driven. For example, if you’re presenting a pre-revenue business with a limited operating history, it’s possible to articulate this by discussing best-in-class metrics and comparing your aspirations to those.