Zedcrest Capital, an African venture capital firm that invests in debt and equity capital markets and has recently made inroads into venture investments, has today announced the launched of a $10 million fund for pre-Series A stage startups in Africa.
The “Knight Fund” is a type of emergency fund. It will provide last-ditch follow-on capital access to local funding needed to help startups consolidate on existing operations, grow, and expand. According to Zedcrest Capital, “the Knight Fund was inspired by the current slowdown in startup funding for African founders as global investors retreat to focus on their core markets.”
With the Knight Fund, Zedcrest Capital will be able to back startups that are having difficulty raising a Series A round or prefer to raise a bridge round before going to market for a venture round. Ventures at Zedcrest is a very early-stage fund that targets pre-seed and seed companies. This fund has made investments in over 20 African startups, including TalentQL, Indicina, Simpu, Julaya, and Thndr.
Adedayo Amzat, the founder and CEO of Zedcrest Capital in a statement explained, “We’re still investing in seed from our first fund but we also going to slow down because the biggest opportunity right now will be in this pre-Series A. So now, we are dedicating $10 million to this category of slightly more mature businesses going through a rough patch because the market is very tight.”
According to the CEO, the negative impact on venture funding will accelerate in the second half of this year as global investors return to pre-COVID investment deployment levels, taking months to close deals and focusing on backing startups with strong unit economics. “Most investors are not currently writing checks. And for those who write, they’re going back to 2018, when due diligence takes months. So, if a startup has a short runway, you need someone who can give you money and won’t take five months to decide,” Amzat added.
It also makes sense for local funds, such as Zedcrest Capital, to create such a fund because there is a much higher probability of getting into good deals that were otherwise overpriced last year. Most startups are raising in flat or down rounds because their pre-seed and seed valuations do not match current market conditions (some of these deals commanded $10-30 million valuations last year).
Zedcrest Capital has made three pre-Series A investments, ranging between $200k and $500k since its launch a few months ago.