LoftyInc, the number one investor in Andela, does not adhere to the rules of venture capital investment

“Oh God of creation, the face of our noble cause

Guide our leaders properly

Help our youth know the truth

In love and honesty to grow

And live fair and true

Achieving great heights

To build a nation where peace and justice prevail.

Forty-three years ago, this version of Nigerian National Anthem (Second Section) Created. Like many other Nigerians, Idris Bello and Michael Olugabemi grew up singing it, not knowing that a line of the anthem would later inspire the name of the future African venture capital firm, LoftyInc . Capital Management.

LoftyInc’s journey began nearly 10 years ago with a simple desire to help young Africans transform noble ideas into global businesses that will create high-impact jobs and transcend development challenges.

In 2010, Bello and Olugabemi were engineers working in the United States, and they met after an interview about the entrepreneurship that Bello had awarded during a visit to Nigeria. Realizing that they had the same idea and could do more together, they decided to get involved.

“When we decided to start supporting the business, we didn’t know how to do it,” Bello said. “We didn’t have any model or roadmap. We just knew we wanted to create more jobs and prosperity for people, and we set out to do something.”

At the time, the common way to support businesses was through innovation centers. The duo looked at iHub In Kenya, YCombinator in the US and a few centers in Houston for inspiration.

The solution they came up with was what gave birth to the Wennovation Hub, a place where people can come together to collectively solve common problems they face. The approach then was to bring people together to talk about the problems they faced in their various sectors, in the hope that they would come up with the right questions and solutions.

Along the way, they noticed that after talking about problems and finding solutions, the ideas needed funding to get off the ground. He led this duo on a long and experimental expedition to build what is now known as LoftyInc Capital Management.

Today, LoftyInc operates three funds that have invested more than $12 million in more than 75 African startups such as Flutterwave, Andela and Trella. Recently launched a file The third fund is $10 million.

Idris Bello with Rasha and Doaa Shefaa, Egypt

Daniel Adeyemi: How did LoftyInc Capital Management start?

Idris Bello: Michael and I met because we shared the same interest in solving problems in Africa. We agreed with a clear belief that entrepreneurship is the answer.

The turning point for us was in 2011 when the Massachusetts Institute of Technology (MIT) had a program called Information Technology Acceleration Initiative (AITI). This program involved sending programmers (not called developers at the time) to teach people at the University of Ibadan to code. We heard about this and said we’d be partnering with MIT on the business side of things by working with people trained in programming to bring some of their ideas to life. The first group of startups we invested in came from this program.

While working on the business side, we realized that these companies also need money to run.

So we decided to go home. We decided to pool money from different people (angel investors). I remember sending the first email to Tommy Davis and other industry leaders to form what is now the Lagos Angel Network. Kudos to Tommy Davis and others who did such an amazing job of building this up to form the African Business Owners Network (ABAN).

After a while, we noticed that it took a long time to invest in startups. At that time LAN was investing in companies twice a year. By the time we finished our due diligence six months after committing to the investment, the companies were likely dead.

So I said, “This is not sustainable. We need to start investing on a more frequent basis.” Michael and I took money from our 401K (retirement savings) to invest. It was a risky move because we weren’t supposed to touch money until we were 59.

We also got other people to start the Afropreneurs Angel Group, a group of angel investors who have invested on a more frequent basis. It is worth noting that the first investment we made from here was in hotbayIt is a startup that was recently closed down. We kept investing in more startups that mostly died, but fortunately, the few that survived, like Andela and Flutterwave, made up for the ones that died.

While we have been investing via African Entrepreneurs Angel Group, our longtime advisor Masha Wolf (American Veteran Investor), he suggested we set up a suitable venture capital fund. We were initially hesitant because we had not started to become a venture capitalist. In fact, if you asked me 4-5 years ago about the normal things that financial investors or investment bankers should know, I wouldn’t have known them.

But Wolfe persevered and we gave up. This motivated her to decide to come out of retirement to be a general partner of Fund 2, and to commit $500,000 of her own money to the fund. We ended up raising just over $1 million and investing in six companies — Printivo, RelianceHMO, Epump, YouVerify, Shyft Power Solutions, and Flutterwave (in pre-Series A).

Idris Bello, Michael Olugabimi and Masha Wolff
Idris Bello, Michael Olugabimi and Masha Wolff

DA: What is your approach to investing in startups?

IB: In the early investing stage, founders are critical, so we believe in supporting good founders. We believe good founders will always find a way. It’s not necessarily about the business model, because startups are often pivotal.

I remember telling Ein Abujee early on when I was investing in his first project that even if he didn’t return my money, he should take it as payment for his MBA. Fortunately, it has given us great returns on many of the investments we have made. I say this to indicate that the way I see it is that we invest in the ecosystem. So even if the company fails, the founders and employees can continue to work for other startups and move forward in building the African tech ecosystem.

We use our experience in the launch and early growth stages to closely support and assist new and early founders. We often help get and secure their initial clients from within our large portfolio (75+ African startups) or further within our large network of owners and limited partners (LPs) based in Africa. We provide meaningful introductions to regulators, partners, mentors, senior staff and experienced board directors.

Although we are sector-neutral, we focus on 6 thematic areas: trade, financial logistics, food security, health/welfare, and education. We believe that companies in these areas help in stimulating the general prosperity of the nation and the people in general.

Idris and Michael with Kabiru from Sudo

DA: Tell me about missed high-profile deals or mistakes made?

IB: naturally! These are the aspects of investing that people don’t say much about. I remember when we wanted to start our fund 2, we decided to sign up in Mauritius because we were told it was better. It turned out to be a bad decision due to the tedious registration and documentation process. Identity Verification (KYC) was unnecessarily complicated because they wanted to know “everything” about every person investing, and it became expensive and complicated very quickly. In hindsight, it was a bad decision. We ended up cutting our losses and registering in Delaware, USA.

Most of the mistakes we made were the result of wrong referee calls. Here’s another that probably cost me a few million. In 2013, I remember that I committed to investing $20,000 in Fora, which later became Andela. Unfortunately, on the same day, another person came to me with another idea. So I asked Iyin to return the check for $20,000. I split it in two and gave both start-ups $10,000 each. Today it is clear that I should not have retracted my initial investment.

When I look at these mistakes, it was easier to get past them because we used our personal money in the early days and weren’t crazy about exits. We did what we did because we believe that supporting businesses is the way to solve Africa’s problems. Today, when we see startups like Andela employ thousands of people in emerging markets, and impact lives globally, we feel completely satisfied. People come back, then the money comes back. That’s the goal!

Idris Bello with Jeremy Johnson in Andela
Idris Bello with Jeremy Johnson in Andela

DA: I remember earlier this year you talked online about a bad experience with one of the founders. How often does this happen, and can you share any experiences?

IB: That’s right, there are bad experiences and it’s important to share them. All that is being shared these days are success stories, which are only half of the picture.

Without mentioning any names, we had a situation where some founders disappeared after getting an investment of $5000 only to show up after 3 years of begging for forgiveness. Small money, but I think they have more urgent needs.

There is one company that recently shut down mainly because the CEO moved permanently to Canada without taking us with him, but he refused to give up leadership. They blame it on COVID but it wasn’t COVID.

Again, I would say that in this area, we have no issues with startups that don’t work, but most importantly the founder communicates well and operates with integrity.

da: What are your thoughts on exits?

IB: When it comes to early-stage investing, my belief is that the bird on hand is the only bird. The tides can change for any company, so the only thing that is certain is the money received on the basis of exit, not the expected return on the basis of valuation. Earlier this year, our Fund 2 exited Flutterwave and returned 3 times the total funds raised to our Limited Partners (LPs). Some people felt it was too early and we had to wait. But the way I look at it, it is necessary to return the money to backers of early stage funds to boost their confidence. For a 5-year fund, in just three years, we’ve made 3-fold returns. The result was that these representative partners were so affected that they pressured us to create a new fund and pledged more than $4 million in commitments to get it started.

It is also important to note here that we are not playing by the “rules”. Every now and then, we ask ourselves, “Who created the rules that you have to wait 5 years or that you have to return 10 times the investment?” For me, as long as my professional partners are happy and the startups are fine, I’m fine. Day One in the African investment space is still in the early stages, and we are all learning as we go forward. VC Investing in Africa is still nascent and we are all still thinking about it. There are no experts.

da: What trends are you seeing?

IB: For me, there are three things I am optimistic about moving forward. The first is the combination of Egyptian and Nigerian companies. These are two of the largest markets in Africa. I think there should be more cooperation, given that Egypt has a mature stock market and Nigeria has many outstanding startups. I think this kind of cooperation will achieve more Mergers and Acquisitions. It will help create a secondary market for investors to exit.

Another thing I’m excited about is investing outside of the Big Four – Nigeria, Kenya, South Africa and Egypt. We recently invested in a startup in Zambia and are doubling our investments in French speaking African countries. We like to stay ahead of the curve. Egypt is hot Now, but I remember a few years ago when I started investing in Egypt, I was telling people to do the same and it seemed like I was crazy.

Idris Bello with Yao Pediako from Yemaachi

Finally, since many people “jappa” (exit) from the continent in search of greener pastures in the West, it is expected that some of them will continue to start their own businesses. We focus our eyes on the diaspora market.

One of my biggest joys over the past few years has been the large number of African CEOs and experienced operators who have turned us into investors, either as angel investors or LP partners. These African investors then spend a lot of their time helping us with due diligence and supporting our portfolio companies. Again, this is all part of building the African tech ecosystem: revitalizing Africans to fund Africans to solve African problems.

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