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“We like to invest in businesses where the founders are in control.” — Ian Lessem on HAVAÍC’s investment thesis

December 08, 2021 · 6 min read
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The bulk of the funding that goes to African startups comes from outside the continent. In 2020, 71% of the money invested in Nigerian startups came from outside the country. It is a similar story in other countries. 

In recent years, however, the number of investors on the continent has increased, and this could be attributed to early startup founders’ successes. Consequently, seeing African investors either lead or make up the majority of investors on a startup’s cap table is fast becoming the norm.

One of these investors is HAVAÍC, a South Africa-based investment firm. Techpoint Africa had a chat with Ian Lessem, where he explained the firm’s origins and how they make investment decisions. The interview has been reproduced below.

How did HAVAÍC get started?

So we started the business about seven or eight years ago, recognising that there was a lot of tech talent coming out of South Africa and places like Kenya and Nigeria, but very little smart capital supporting these businesses. My partners and I, along with the rest of the team, come from what you would call a very traditional investment background, so we’ve worked in investment banks, M&A’s, etc. We know what it takes to scale businesses. We recognised a gap in the market to number one, find these businesses, and help them grow locally and internationally.

What is HAVAÍC’s investment thesis?

We invest in early-stage technology companies that solve real-world challenges. So early-stage for us is post-revenue seed up to Series A. Revenue could be pretty small, maybe just one customer. Importantly, we only invest in businesses where we feel we can add value, so typically, we take a strategic role on the board, helping the businesses scale.

Number two, the businesses need to be tech-enabled and use their platforms to scale locally and internationally. Thirdly, we focus on businesses that solve actual challenges, so we don’t invest in what we call ‘nice to haves’. An example would be Twitter. Those who invested in the early stages have done very well, but it’s not solving any problems. If you look at our portfolio, we have startups providing financial inclusion. We have many fintech, healthtech, and business productivity companies.

What is HAVAÍC’s average ticket size in these companies?

We take minority stakes, so we invest from $100,000 to $1,500,000, and we don’t go above 24.9% in the companies. Importantly, we like to invest in businesses where the founders are in control.

By your standards, what should a startup not be doing?

At the moment, I’ll say the topical one is a lot of hot money coming in. Some investors don’t have any experience working in Africa and often push the founders to adopt strategies that work elsewhere but not necessarily in Africa. 

Obviously, different parts of Africa have different nuances so the biggest mistake we’ve seen is founders being caught up in this hot money and taking money from people who don’t have the expertise to give them the help that young businesses need. 

Also, agreeing to chase metrics that may be suitable in other markets but are not ideal in their domestic markets. So you’re doing things because that’s how they are done elsewhere, but it’s not necessarily a smart way to do things locally. 

Another thing is that some entrepreneurs start businesses to solve problems that they or someone they know faced. While that is an excellent place to start because they’re often quite passionate about it, what may be a problem to me may only be my problem; it may not be a problem for other people. 

So what that means is that sometimes entrepreneurs who have not done their research assume that the problems they are solving must be relevant to lots of other people. We often come across businesses that are solving just a small problem, and that’s not a bad thing. But when an entrepreneur says they want to scale into other markets, we may say that problem is not a real problem in those other markets, and doing so would be unrealistic. So I guess it’s essential to understand your market opportunity, and from there, you work out who the right investment partners are.

Are there investment opportunities that you regret passing on?

To be honest, we do not regret any. I sometimes think when we’re on the fence, it’s probably at that point where a business is servicing a large customer market in its local base, and they are doing quite well from a revenue point of view. Then, the question is can they replicate this in other markets? If we pass on it, it’s because we feel that they can’t or there isn’t a market opportunity in those markets. This is why I wouldn’t say we regret passing over an opportunity.

What is HAVAÍC’s biggest success story?

There are many, but in South Africa, it would be hearX, which provides audiology solutions to the mass market using technology. The product is a smartphone-powered hearing aid. It’s called hearScreen, and they’ve successfully expanded into the US, so they’ve got partnerships with Amazon and many other businesses and are selling thousands of these hearing aids across the US. They’re now entering the UK, so that’s a great example of a local company that has expanded into the US and now Europe. 

In West Africa, we invested in Kuda Bank, which has been quite a success story. When we invested in the company, the revenue was quite low; I think they had about 200,000 active users. It’s only been a year and a bit, but those 200,000 customers have grown to over 2 million customers, and they’ve received support from top global investors, including Valar and Tiger Global. 

In East Africa, we have another fintech called Tanda. They provide basic digital financial services to dukas. In South Africa, we call them spaza shops, but they’re just local shops. They have more than 20,000 shops. Through their services, Tanda provides cash in cashouts and has probably become the most prominent provider in East Africa. They’re expanding into other parts of Kenya, Uganda, Tanzania, etc., so that’s a great success story as well.

How do you deal with failed investments?

We probably have scenarios where things have not gone according to plan. One scenario has to do with my point about things working in one market but not in another. So we invested in a business that was one of our earliest investments in South Africa, where it did very well, but when it looked to expand to other markets, it didn’t do as well.

In that case, we responded by changing the offering to what the US customers wanted, and we split the company. So we started the US business using some of the technology from the business, but in a very different way, so you’d probably call that a pivot. Fortunately for us, we managed to sell that business to Mailchimp in the US, so I guess what could have been a bad story turned out to be a decent story in the end. I guess that would be a product-market fit problem. 

Another one that is a bit more sensitive and difficult would be when founders have quarrelled, and you as an investor have to try and sort this out. The actual product is still very good, but when two people are not getting along very well, that sets a bad tone for everyone else. 

What trends would you like to see in the startups coming from Africa?

So we see a lot of technology coming out of South Africa that could be used in the international markets, so we have 15 companies and three international exits in our portfolio. Those 15 companies are not all South African, but they service over 4 million customers in 180 companies worldwide. So while their main operations are in South Africa, Kenya, or Nigeria, they are very much international businesses. So we want to see African businesses succeed internationally. 

The other one is using technology to service a large part of Africa. I guess that’s why fintech seems to get a lot of airtime because you don’t need a physical bank as long as you have a mobile phone and a decent Internet connection. It’s one example, but there are many others – eCommerce, education, logistics, etc. You don’t need a classroom to teach people. So we hope that more entrepreneurs start taking up the challenge of serving other sectors with a similar impact as fintech.

If you’re an early-stage entrepreneur with some revenue, HAVAÍC may be willing to invest in you. Simply send an email to info@havaic.com, and someone will be in touch with you.

Chimgozirim Nwokoma

Chimgozirim Nwokoma


Accidental writer, covering Africa's startup landscape and its heroes. Find me on Twitter @chigo_nwokoma.

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