From the Eyes of an Overseas VC: Top African VC Lights the Way Forward for Japanese Companies

Written by Hiroto Sorita, edited by the Universe Editorial Team

This is Hiroto Sorita from Global Brain (GB), responsible for investing in African startups.

Natalie Kolbe, Managing Partner of the African venture capital firm Norrsken22 visited our office in March. We had a discussion on the potential of Japanese companies in Africa.

The hope and star of mega tech founders

Norrsken22 is a venture capital firm founded in 2022 with a keen focus on fintech, edtech, medtech, and market enablement.

The firm stands out from others in that it has secured investment from over 30 mega tech founders including Flutterwave, Africa’s largest fintech company; Skype; and Mojang Studio, the developer of Minecraft; to name a few. This means Norrsken22 can leverage its investors’ in-depth business know-how and experience when supporting its portfolio companies.

Furthermore, joined by experienced Partners who have supported African entrepreneurs for decades, the firm is increasingly garnering trust from stakeholders in the venture capital industry. Natalie herself spent 19 years at Actis, one of the leading UK private equity firms focused on the Emerging Markets, where she was Global Head of Private Equity.

On the day of our meeting, Natalie and our CEO Yurimoto shared the characteristics and strengths of their firms and had a Q&A session.

Natalie showed her interest in exploring the potential of collaboration between African startups and Japan by asking questions such as “Are Japanese companies interested in investing in African Venture funds?” and “Is it realistic for Japanese companies and banks to acquire African startups?”

Yurimoto shared his view that he sees Africa as the next growth market after China and India, and expressed his eagerness to embark on long-term investments with local venture capital firms including Norrsken22, agreeing to collaborate going forward.

What Japanese companies can learn from Norrsken22

We then moved on to discuss “what Japanese companies should keep in mind when entering the African market” and “the aims of founders investing in Norrsken22.” From here onwards, I would like to recap what we learned from Natalie. (The questions in bold were all asked by the Universe Editorial Team.)

──Many are mega tech founders investing in Norrsken22. What is their aim?

Natalie: They invest mainly for two reasons.

First, Africa has attractive investing opportunities. The continent has a large youth population, and the rapid expansion of digital connectivity infrastructure and access to smartphones is opening up doors for new tech businesses to emerge and thrive. There are real problems to solve with innovative technology and therein lies the opportunity.

Given this background, we invest in technology businesses that offer access to goods and services that are often taken for granted in developed countries. Like access to credit, healthcare, high-quality education, and electricity. In Africa, technology is the only way we can provide that access at a price point that ordinary consumers can afford. Demand for technology driven solutions will continue to increase, as it drives down cost and opens accessibility.

Secondly, many of these unicorn investors who are expanding their businesses globally can see that Africa is a large consumer market.

They want to learn through our fund what the market is like, what the challenges are, and what the opportunities are. They are using us like a “window” into Africa before they put big money in to expand their business into Africa. This is a potential route that Japanese companies could take as well when approaching the African market.

──Norrsken22 focuses on fintech, edtech, medtech, and market enablement. Why these four sectors?

Natalie: Out of the four sectors, fintech and market enablement are the ones with the largest investment opportunities now.

For example, today, most retail transactions in Africa are done in cash, and there is no doubt that much of that will shift towards digital payments. Africa consists of 54 countries, each with their own currencies and payment methodologies. There is a lot of opportunity in connecting the fragmented payment markets and streamlining the processes.

In addition, Africa has the lowest credit penetration in the world. Shifting away from cash to digital payment allows Africans to build a credit history, which in turn will enable them to access credit, empowering them to grow their businesses even more.

Another big opportunity is the fragmentation of the supply chains in Africa. Most retail transactions in Africa happen through informal markets and SMEs like mom-and-pop stores. Africa does not have the large shopping mall infrastructure that you will see in the developed world. There are therefore a lot of inefficiencies in the supply chain. Market enablement technologies like marketplaces, platforms, last-mile logistics, and e-commerce are able to streamline supply chains and remove cost and logistical inefficiencies.

Edtech and medtech are still early in Africa but we are starting to see some early stage opportunities in these sectors too.

If you have a look at the supply of health care and education on the continent, what is supplied by the government is often of low quality and under supplied. We cannot build schools and hospitals and capacitate them with teachers, doctors, and nurses fast enough to catch up with the growing population. As a result, the average African with an average income cannot afford sufficient health care and education.

The only way to solve this problem is through technology. Technology will help to lower the cost of health care, education, and infrastructure, thereby making these critical services more accessible. Startups in these sectors have a significant opportunity to drive catalytic change.

Hiroto: GB’s focus in Africa are fintech, health care, commerce, logistics, and climate tech. Referring to Natalie’s focus sectors, medtech is encompassed in health care and market enablement is part of commerce. We highly resonate with Norrsken22’s investment sectors.

Speaking of edtech, Japan has a strong presence in Africa built through its long years of supporting fundamental education, and I think we have some business potential in the education sector. However, developing nations are unable to offer fair and equal education opportunities. We need to identify the market turning points when investing and expanding business in the edtech sector. In Egypt, Japanese elementary schools’ customary class meetings and daily classroom duties have been coined as TOKKATSU and this has been implemented in elementary schools nationwide as an initiative spearheaded by the President (in Japanese only). It shows how the Japanese educational system can create new business opportunities.

──Speaking about Japan-Africa collaboration, we see more and more Japanese companies working with African startups and investing in African venture capital firms. What should Japanese companies be mindful of when approaching Africa?

Natalie: The impression I’ve had is that there is growing interest in Africa from Japanese companies, banks, and VCs. What’s interesting for me is that Japanese companies tend to go deep with one relationship. In doing so, they are learning from just one company in a specific industry. It’s great if that one works out, but if it doesn’t work out, they will have to start a new relationship all over again with a different company.

An alternative way that Japanese corporates could learn from a wider variety of businesses would be to invest in funds like ours or GBs and other or set up corporate venture capital (CVC) funds. If the fund you invest in has 30 portfolio companies, you could learn from all 30 and it helps diversify your risk.

But I don’t think there is a right or wrong approach. If you go deep with one company you get in-depth insights, and if you work with multiple companies (through a Fund), you get broader insights. It’s either you go deep with one or you go broad. Being mindful that there are two different approaches may be helpful when choosing your development strategy.

Hiroto: I also think both ways work. What’s more important is to work with the right partners depending on your business sector or purpose. For example, a CPG company that wants to expand their sales network should ideally work with a well-established local retailer. A business company that wants to launch a new business in the same country can invest in a fund and choose an ideal partner from the emerging portfolio startups which may include fintech companies.

Some Japanese companies have actually succeeded in expanding their businesses by working hand in hand with African companies, and others are kicking off investment in African funds. I agree with Natalie that there is no one way to learn, but it all depends on what the company is looking for.

Wrap-up

We had many takeaways from Natalie, who has a long history of investing in the African private equity and venture capital space. Norrsken22’s first fund has attracted investments from many mega tech founders, demonstrating their high conviction towards the African market.

To channel higher-quality investment in Africa, the continent at the center of the world’s attention, GB is excited to stay in touch with Norrsken22 and strengthen our collaboration furthermore.

More to come on African startups in GB Universe. Stay tuned.

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