Sufficient Balance: Opportunities in African Fintech

Epilogue: Investing with DFS Lab

Thank you for joining us.

We created Sufficient Balance because we found ourselves spending the first few conversations with new investors interested in African fintech explaining the history and  limitations of the market rather than talking about the merits of individual startups or a thesis for the future generation of fintech on the continent.

We hope that this series will live on as an evergreen (as long as possible in this fluid environment) resource for those who want an easy-to-digest intro to African fintech and one view on how ecosystems across the continent might continue to grow.

DFS Lab was built from the ground up to bridge the gaps we’ve discussed. We aim to be a transparent, authentic investor for our founders and a credible, high-performing partner for our co-investors. We do a few things differently:
 

We source and diligence teams through a scout network of the most accomplished fintech founders in Africa

The catalytic impact of a strong founder-driven angel group can be demonstrated through Silicon Valley’s “PayPal Mafia” made up of 20 of PayPal’s founders and early employees. They were personally a part of at least 323 angel or seed investments through June 2018. The PayPal Mafia, including their roles as institutional investors, contributed 1,005 investments into the ecosystem through that same time period.

We hope to see a similar network emerge for Africa’s fintech ecosystem. Our cohorts will have our founder scouts co-investing alongside DFS Lab, putting personal capital into the deal and serve as mentors for teams throughout our process. In exchange, we share some of our equity with the scouts. We chose scouts not only based on their startup success, but also their ambition to guide the next generation of fintech founders in their markets. We aim to support their own angel investing careers and jumpstart the virtuous cycle of founders investing in founders. Here’s a few of our founder scouts:

We work hard to help raise capital 2X faster than the ecosystem average

In Chapter 5, we highlighted how the average time to raise a pre-seed round in Africa is 6 months while the average time to raise a seed round in Africa is over 13 months. That won’t give strong teams a fair shot at success, especially those without the personal funds available to bootstrap.

Our bootcamp week occurs after our first check and before pre-seed rounds. The five days are structured as Design Sprint where we prototype and test concepts in-person with each team. It’s a week of cohort community building, mutual due-diligence, and product pressure testing. It also happens to be one of the most efficient ways to deeply understand early-stage startups we’ve come across.

In a nutshell, here’s our process:

• First Money: A $10K initial investment for 2.5% that takes a month on average

• Pre-Seed: Approximately 100K pre-seed investment a month or so later

• Seed: A $1-3 million seed round after a 6 month acceleration period

We focus on not missing winners

Picking winners in venture capital is very hard. Many agree that venture returns follow a power law distribution where a handful of investments will drive almost all returns. The cost of missing “winners” far outweighs the cost of investing in a less successful startup. But winner picking is a poor strategy for most. AngelList looked at thousands of deals on its platform and found that only 10% of even skilled early-stage investors would beat an index of credible deals. They conclude that “individual investors could benefit from viewing the index as the default and then overlaying individual deals that they like.”

Our cohort SPV allows this choice. We offer investors two ways to invest into DFS Lab cohorts:

• A pre-seed SPV that serves as an index of our startups in that cohort – an investment is evenly distributed across cohort all teams

• Direct investments that allow co-investors to pick teams they particularly like

Co-invest with us

We’ve been supporting African fintechs since 2016 and have been involved with some of the strongest teams on the continent including:

A pro forma analysis shows 107% IRR and 3.8X capital return to date on our portfolio thus far. Just the five companies above are valued at over $60 million dollars by their last priced funding round or convertible note valuation.

We’re looking for startups and co-investors to join the DFS Lab community.

If you’re interested in our investment terms, you can reach us through this form.

For startups, please sign up to be notified when our application goes live in the coming weeks.