What the Twiga Foods Series B Financing means for Africa Venture Capital by Maurizio Caio and Andreata Muforo, Partners, TLcom Capital
On October 28, Twiga Foods (“Twiga”) announced one of the largest financing rounds of the year in the Africa VC space, a $40 million financing including the conversion of a $10.3 million note, an equity investment of $23.75 million of new cash into the business and debt for $6 million. Goldman Sachs and TLcom Capital were the two largest providers of capital, together with investments from Creadev, Wamda and the IFC.
Why is a young Africa-based company that is moving fruit and vegetables from farmers to street vendors in Nairobi attracting so much private capital? And what does this financing round tell us about the progress of the Africa VC space?
TLcom Capital has supported Twiga for many years: we believe that the ability to attract private capital from global investors such as Goldman Sachs, and add to commercial technology VC funds, such as TLcom, represents growing evidence of the value generation upside of tech-enabled business models that are successfully addressing challenges in the massive and inefficient consumer markets of Africa.
The key drivers of this upside are the attractiveness of the market served by Twiga, its business model and superior business strategy, and its exceptional management team and execution capabilities.
1. Targeting a large, growing, underserved and inefficient market: Twiga is operating in a gigantic African consumer market (fresh fruit and vegetables and FMCGs) in which (a) the inherent fragmentation of the supply (farmers) and retail space (street vendors), and (b) the way fresh produce and FMCG products are transported and stored, together result in increased cost and lower quality products to consumers. The average Kenyan spends an unsustainable 46% of income on food, while the average Nigerian spend 56%. Twiga has harnessed technology to aggregate supply and demand of fresh produce and to optimize logistics to both lower the cost and increase the quality of products. For years, aid assistance has tried to solve supply chain market failures without achieving sustainable solutions. But technology offers a massive market solution when applied to bring down the price of fundamental goods and services in order to align with the reality of vast, and underserved, low income demand.
2. Designing and executing a robust business model based on technology at the service of strong business fundamentals: Twiga has developed a tangible competitive advantage based on a platform that combines cost leadership and massive improvement in customer value. Cost is optimized by aggregating a dramatically fragmented retail demand, which drives (a) a much simplified supply chain that frees up vast amounts of value that can be returned to farmers and vendors; and (b) predictability of offtake for the farmers, allowing investment, yield improvements and higher product quality. Value is delivered to vendors through frequent delivery to the vendor’s duka (point of sale), eliminating the need for time-consuming and expensive self-supply from the Nairobi market, daily adjustment of orders and vendor financing. Technology enables simplification of the supply chain, optimization of delivery routing, mobile-based ordering, cashless payment, the growth of dukas as a result of their ability to serve local demand at lower prices with higher quality products, and greater profitability for the duka.
3. Strong management teams that align technology, capital and human resources for successful execution: One of the most outstanding features of Twiga is the management team, which is competent, experienced, committed and has a strong vision and strategy. In addition to a very high-quality C-level across the board, the two founders, Peter Njonjo — a seasoned FMCG distribution professional, and Grant Brooke, a thinker and starter — are complementary in many ways. Twiga has shown an ability to win not only in the food market, but crucially also in the relevant capital and labor markets. The leadership team also serves as a role model to motivate African tech entrepreneurs for years to come.
TLcom believes that if Africa continues to generate companies of this caliber, more private capital will flow into the Continent and more entrepreneurs will be able to start and scale game-changing enterprises such as Twiga. The company is growing fast in terms of revenues and employees, has shown the ability to scale, and can look forward to continued major growth in Nairobi and many more African cities. The management team does not hesitate to raise and invest significant capital to execute on a successful business model that leverages technology to serve a massive underserved market.
Capital markets will consistently reward propositions of this kind. The growth of African VC depends on this type of focus: on the magnitude of the opportunity, on business models characterized by winning strategies, and on teams that can use technology to scale fast across the Continent.
Africa VC needs more companies like Twiga, as well as private capital and boards that encourage risk- taking and support management teams that embrace strong trajectories of major value generation.
