Nigerian investment firm Aruwa Capital Management has raised $35 million in the first close of its second fund, with an initial target of $40 million. The firm now aims for a final close of $50 million, with a hard cap of $60 million.
Fund II boasts a mix of returning and new investors. Notably, the Mastercard Foundation Africa Growth Fund (MFAGF) and the Visa Foundation have continued their support, while the fund also welcomes new investors, including Nigeria’s Bank of Industry (BOI), the British International Investment (BII), and the Electrification Financing Initiative (ElectriFI).
“Aruwa Capital’s momentum is a powerful reminder of the catalytic effect of what’s possible when we invest with intention and equity. At MEDA, we’re proud to be part of Fund I and now stand alongside Fund II as an anchor investor,” Dorothy Nyambi, President & CEO, MEDA (Fund Manager, The Mastercard Foundation Africa Growth Fund), said.
Aruwa Capital has built a strong track record with its first fund, making 11 investments across sectors such as healthcare, energy access, and consumer business. It also made key investments in tech-enabled businesses, including FairMoney and OmniRetail, both of which were featured in the Financial Times’ list of the fastest-growing companies in Africa.
While Fund II continues to focus on small and medium-sized businesses, its geographic focus will remain on Nigeria and Ghana. The firm is committed to maintaining close relationships with its portfolio companies, ensuring continued growth and development.
According to Adesuwa Okunbo Rhodes, Founder of Aruwa Capital Management, the firm’s investment strategy will remain unchanged for Fund II.
The 11 companies funded by Aruwa Capital in Fund I have seen revenues grow 22x in local currency since receiving investment, and over 200,000 direct and indirect jobs have been created.
As one of the few female-founded investment firms in Africa, Aruwa Capital takes a gender-lens approach in its investments. The firm invests between $1 million and $3 million in businesses within critical sectors and prioritises businesses either founded or led by women. In fact, 73% of Fund I companies were either founded or led by women.
“In the midst of the current challenging fundraising environment, we are excited to have raised 90% of our target fund size for Fund II. This indicates our investors’ confidence and trust in our ability to execute on our proven investment strategy and double down on achievements recorded so far,” Rhodes said.
Fundraising for Fund II began in November 2023, and by July 2024, commitments for the first $20 million had already been secured, despite a challenging funding environment.
While African funds are increasingly being launched to support local SMEs and startups, many of them still rely on foreign capital. However, with the Bank of Industry now on board as an LP, Rhodes notes that local firms must work to convince local capital allocators of the viability of the venture capital and private equity asset class.
“A lot of local institutions still need a lot of education around the private equity asset class. They’re used to investing in government bonds and treasury bills, so you really need to convince them to invest in riskier alternative assets. To do that, you need to showcase a strong track record,” Rhodes noted, adding that significant capital could be unlocked locally.
The Bank of Industry (BOI) is one of the key new investors in Fund II, with Dr. Olasupo Olusi, Managing Director at BOI, expressing pride in being the first local institutional investor.
“Aruwa has consistently demonstrated a strong track record in bridging SME funding gaps and catalysing both local and international capital. We look forward to a productive partnership with their team and portfolio companies.”
Drawing on the experiences from Fund I, Rhodes highlights the importance of conducting thorough due diligence on potential investments. In response to increased reports of founder misconduct, the firm plans to take an even deeper look into the character of the founders of potential portfolio companies.
“Spending more time on the character of the founder is something we’re going to do more of in Fund II. We’re also going to be intentional about culture improvement within organisations and retention of staff. You can’t build a company without good people implementing your strategy,” Rhodes said.
Aruwa Capital plays in a unique space that combines the discipline of private equity with the risk-taking nature of venture capital. However, this approach means the firm does not invest in pre-seed or pre-revenue businesses. Portfolio companies are required to have a minimum of $500,000 in annual revenue.
“The way that we do due diligence is a very private equity approach, I guess, because of my own background as a private equity practitioner. We take four to six months to conduct proper due diligence, and in that way, it’s very different from the venture capital approach,” Rhodes explained.
