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Interswitch to revive its Africa venture fund, CEO confirms

Pan-African fintech company Interswitch plans to fire up its corporate venture arm again—according to CEO Mitchell Elegbe—who spoke at TechCrunch Disrupt on Wednesday.

The Nigerian founder didn’t offer much new on the Lagos-based firm’s expected IPO, but he did reveal Interswitch will revive investments in African startups.

Founded by Elegbe in 2002, Interswitch pioneered the infrastructure to digitize Nigeria’s then predominantly cash-based economy. The company now provides much of the rails for Nigeria’s online banking system that serves Africa’s largest economy and population of 200 million people. Interswitch has expanded to offer personal and business payment products in 23 Africa countries.

The fintech firm achieved unicorn status in 2019 after a $200 million equity investment by Visa gave it a $1 billion valuation.

Reviving venture investing

Interswitch, which is well beyond startup phase, launched a $10 million venture arm in 2015 that has been dormant since 2016, after it acquired Vanso—a Nigerian fintech security company.

But Interswitch will soon be back in the business of making startup bets and acquisitions, according to Elegbe. “We’ve just certified a team and the plan is to begin to make those kinds of investments again.”

He offered a glimpse into the new fund’s focus. “This time around we want to make financial investments and also leverage the network that Interswitch has and put that at the disposal of these companies,” Elegbe told TechCrunch.

“We’ll be very selective in the companies we invest in. They should be companies that Interswitch clearly as an entity can add value to. They should be companies that help accelerate growth by the virtue of what we do and the customers that we have,” he said.

Recent venture events in African tech have likely pressed Interswitch to get back in the investing arena. As an ecosystem, VC on the continent has increased (roughly) by a factor of four over last five years, to around $2 billion in 2019. But most of that has come from single-entity investment funds, while corporate venture funding (and tech M&A activity) has remained light. That’s shifted over the last several months and the entire uptick has occurred in African fintech around entities that could be viewed as Interswitch competitors.

In July, Dubai’s Network International acquired Kenya -based payment mobile payment processing company DPO for $288 million. Shortly after the acquisition, DPO’s CEO Eran Feinstein said the company would pursue more African acquisitions on its own. In June, another mobile-money payment processor, MFS Africa, acquired digital finance company Beyonic. And in August, South Africa’s Standard Bank—Africa’s largest by assets and lending—acquired a stake in fintech security firm TradeSafe.

Since the rise of Safaricom’s dominant M-Pesa mobile money product in Kenya, fintech in Africa has become infinitely larger and more competitive. The sector has hundreds of startups and now receives nearly 50% of all VC investment on the continent.

The opportunity investors and founders are chasing is bringing Africa’s large unbanked population and underbanked consumers and SMEs online. Roughly 66% of Sub-Saharan Africa’s 1 billion people don’t have a bank account, according to World Bank data, and mobile-based finance platforms have presented the best use-cases to shift that across the region.

Interswitch has established itself as a leader in the Africa’s digital finance race. But it’s hard to envision how it can maintain or extend that role without an active venture arm that invests in and acquires innovative, young fintech startups.

No news on IPO

Elegbe had less to offer on Interswitch’s long-anticipated IPO. Asked if the company still planned to list publicly, he offered up a non-answer answer. “At this point in time we’re focused on growing the business and creating value for our customers and that is the our primary focus.”

When pressed “yes or no” on whether an IPO was still a possibility Elegbe confirmed it was. “We have private equity investors and at some point in the life of the business they want exits.” he said. “When it is time for them to exit there are various options on the table and an IPO is an option.”

There’s been talk of an Interswitch IPO for years. In 2016, Elegbe told TechCrunch a dual-listing on the Lagos and London Stock Exchanges was possible. Then word came through other Interswitch channels that it was delayed due to recession and currency volatility in Nigeria in 2017. In November 2019, a source with knowledge of the situation told TechCrunch on background, “an IPO is still very much in the cards; likely sometime in the first half of 2020.” Then came the Covid-19 crisis and the accompanying global economic slump, which may have delayed Interswitch’s IPO plans yet again.

If and when the company goes public, it would be a major event for Nigerian and African fintech. No VC backed fintech firm on the continent has listed globally. Exits for Interswitch’s investors would likely attract to Nigeria and broader Africa more VC from major funds—many of whom remain on the fence about startup opportunities on the continent.

Focus on Africa

On global product expansion, Interswitch plans to maintain an African focus for now, Elegbe explained. “There are enough opportunities for Interswitch on the continent. We’d like to be in as many African countries as possible…and position Interswitch as the (financial) gateway to the continent,” he said.

Elegbe explained the company would continue to work through alliances with major financial services firms to open up global financial access for its African client base. In August 2019, Interswitch launched a partnership that allows its Verve cardholders to make payments on Discover’s global network.

CEO Mitchell Elegbe concluded his Disrupt session with some perspective on balancing the stigmas and possibilities of doing business in Nigeria. Over recent years the country has shifted to become an unofficial hub for big tech expansion, VC investment, and startup formation in Africa. But Nigeria continues to have a difficult operating environment with regard to infrastructure and is often associated with political corruption and instability in its Northeast region due to the Boko Haram insurgency.

“Nigeria has a very large population and a very large market. We have lots of challenges that need to be solved, but it makes sense to me that lots of money is finding its way to Nigeria because the opportunity is there,” he said.

Elegbe’s advice to tech investors considering the country, “Don’t take a short-termist view. There are good people on the ground doing fantastic work—honest people who want to make impact. You need to  seek those people out.”

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Here are four areas the $311 billion CPPIB investment fund thinks will be impacted by COVID-19

The Canadian Pension Plan Investment Board, an asset manager controlling around $311 billion in assets for the Canada’s pensioners and retirees, has identified four key industries that are set to experience massive changes as a result of the global economic response to the COVID-19 pandemic.

The firm expects the massive changes in e-commerce, healthcare, logistics, and urban infrastructure to remain in place for an extended period of time and is urging investors to rethink their approaches to each as a result.

“It really ties into the mandate that we have in thematic investing,” said Leon Pedersen, the head of Thematic Investments at CPPIB.

There was a realization at the firm that structural changes were happening and that there was value for the fund manager in ensuring that the changes were being addressed across its broad investment portfolio. “We have a long term mandate and we have a long term investment horizon so we can afford to think long term in our investment outlook,” Pedersen said.

The Thematic Investments group within CPPIB will make mid-cap, small-cap and private investments in companies that reflect the firm’s long term theses, according to Pedersen. So not only does this survey indicate where the firm sees certain industries going, but it’s also a sign of where CPPIB might commit some investment capital.

The research, culled from international surveys with over 3,500 respondents as well as intensive conversations with the firm’s investment professionals and portfolio companies, indicates that there’s likely a new baseline in e-commerce usage that will continue to drive growth among companies that offer blended retail offerings and that offices are likely never going to return to full-time occupancy by every corporate employee.

Already CPPIB has made investments in companies like Fabric, a warehouse management and automation company.

The e-commerce wave has crested, but the tide may turn

Amid the good news for e-commerce companies is a word of warning for companies in the online grocery space. While usage surged to 31 percent of U.S. households, up from 13 percent in August, consumers gave the service poor marks and many grocers are actually losing money on online orders. The move online also favored bigger omni-channel vendors like Amazon and Walmart, the study found.

The CPPIB also found that there may be opportunities for brick and mortar vendors in the aftermath of the epidemic. As younger consumers return to shopping center they’re going to find fewer retailers available, since bankruptcies are coming in both the US and Europe. That could open the door for new brands to emerge. Meanwhile, in China, more consumers are moving offline with malls growing and customers returning to shopping centers.

Some of the biggest winners will actually be online entertainment and cashless payments — since fewer stores are accepting cash and music and video streaming represent low-risk, easier options than live events or movie theaters.

LOS ANGELES, CA – MAY 30: General views of tourists and shoppers returning to the Hollywood & Highland shopping mall for the first weekend of in-store retail business being open since COVID-19 closures began in mid-March on May 30, 2020 in Los Angeles, California. (Photo by AaronP/Bauer-Griffin/GC Images)

Healthcare goes digital and privacy matters more than ever

Consumers in the West, already reluctant to hand over personal information, have become even more sensitive to government handling of their information despite the public health benefits of tracking and tracing, according to the CPPIB. In Germany and the U.S. half of consumers said they had concerns about sharing their data with government or corporations, compared with less than 20 percent of Chinese survey respondents.

However, even as people are more reluctant to share personal information with governments or corporations, they’re becoming more willing to share personal information over technology platforms. One-third of the patients who used tele-medical services in the U.S. during the pandemic did so for the first time. And roughly twenty percent of the nation had a telemedicine consultation over the course of the year, according to CPPIB data.

Technologies that improve the experience are likely to do well, because of the people who did try telemedicine, satisfaction levels in the service went down.

DENVER, CO – MARCH 12: Healthcare workers from the Colorado Department of Public Health and Environment check in with people waiting to be tested for COVID-19 at the state’s first drive-up testing center on March 12, 2020 in Denver, Colorado. The testing center is free and available to anyone who has a note from a doctor confirming they meet the criteria to be tested for the virus. (Photo by Michael Ciaglo/Getty Images)

Cities and infrastructure will change

“From mass transit to public gatherings, few areas of urban life will be left unmarked by COVID-19,” write the CPPIB report authors.

Remote work will accelerate dramatically changing the complexion of downtown environments as the breadth of amenities on offer will spread to suburban communities where residents flock.  According to CPPIB’s data roughly half of workers in China, the UK and the US worked from home during the pandemic, up from 5 percent or less in 2019. In Canada, four-in-ten Canadian were telecommuting.

To that end, the CPPIB sees opportunities for companies enabling remote work (including security, collaboration and productivity technologies) and automating business practices. On the flip side, for those workers who remain wedded to the office by necessity or natural inclination, there’s going to need to be cleaning and sanitation services and someone’s going to have to provide some COVID-19 specific tools.

With personal space at a premium, public transit and ride hailing is expected to take a hit as well, according to the CPPIB report.

New York City, NY is shown in the above Maxar satellite image. Image Credit: Maxar

Supply chains become the ties that bind in a distributed, virtual world

As more aspects of daily life become socially distanced and digital, supply chains will assume an even more central position in the economy.

“Amid rising labor costs and heightened geopolitical risk, companies today are focused on resilience,” write the CPPIB authors.

Companies are reassessing their reliance on Chinese manufacturing since political pressure is coming from more regions on Chinese suppliers thanks to the internment of the Uighur population in Xinjiang and the crackdown on Hong Kong’s democratic and open society. According to CPPIB, India, Southeast Asia, and regional players like Mexico and Poland are best positioned to benefit from this supply chain diversification. Supply chain management software providers, and robotics and automation services stand to benefit.

“Confined to their homes for months and subjected to a rapid reordering of their perceived health risks and economic prospects, consumers are emerging from a shared trauma that will change their priorities and concerns for years to come,” the CPPIB study’s authors write.

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Sberbank Overtakes Gazprom, Regains Leadership in Market Capitalization

The market capitalization of Sberbank of the Russian Federation during the bidding on Thursday reached 4.663 trillion rubles, as a result of which the bank regained its first place in Russia in terms of capitalization, lost at the end of last week, when Gazprom squeezed it out of the leading position which on July 2 amounted to 4.625 trillion rubles, Interfax reported.

According to experts, the change in the leader in the ranking by market capitalization occurred due to the fact that Sberbank stocks accelerated growth at the Moscow Exchange bidding amid improving conditions on world capital markets; securities of the bank rise in price by 1.5-2%, while the growth of quotations of shares of the gas company is only 0.8% compared to the closure on June 30.

Earlier, on June 26, Gazprom managed to get ahead of Sberbank in terms of market capitalization on the news of the approval of dividends for the last year at the shareholders meeting. At the first in absentia annual meeting of the corporation, Gazprom shareholders approved the payment of dividends for 2019 in the amount of 15.24 rubles per share, the company said. The total amount of dividends will amount to 360.784 billion rubles, including the state will receive 138.445 billion rubles directly to the package of the Federal Property Management Agency (38.373%), and the holders of the controlling state-owned shareholder Rosneftegaz JSC and Rosgazification JSC will receive another 42.784 billion rubles. According to the results of 2018, Gazprom’s dividend payments reached their peak at 16.61 rubles per share.

The list of shareholders for dividends will be compiled according to the register as of July 16. The recommended completion date for the payment of dividends to nominee holders and professional participants is July 30, and to other shareholders on August 20.

Gazprom spokesman Sergei Kupriyanov commented on the meeting’s results to reporters: “The dividends were approved by the shareholders to the extent that the company’s board proposed and supported the board of directors. It is important that the proposal to pay such large dividends was made against the backdrop of the difficult situation in the energy markets.”

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Fitch Maintains Forecast for World GDP Decline of 4.6% in 2020

The international rating agency Fitch has maintained an estimate of the fall in world GDP this year at 4.6%, according to a report by Global Economic Outlook (GEO).

At the same time, the forecast for the Chinese economy was improved to a growth of 1.2% from the expected 0.7% in May, Interfax informs.

In 2021, agency analysts predict an increase in global GDP of 4.9%.

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Mishustin Says Unemployment in Russia Up by 3.5 Times

Image source: RT

The number of officially registered unemployed in the Russian Federation since April 1 has increased by 3.5 times, but there is no need to talk about the explosive increase in unemployment, said Russian Prime Minister Mikhail Mishustin, Interfax reports.

“Our first priority is the fight against unemployment,” he said at a meeting on the situation on the labor market.

According to him, “since April 1, the number of people who were officially registered as unemployed by the employment service has grown more than 3.5 times, but judging by the data of the Ministry of Labor, they managed to avoid a sharp, explosive increase in unemployment.”

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NYSE seeks SEC approval for more direct listings

The New York Stock Exchange filed an amendment today with the Securities and Exchange Commission to allow for more direct listings.

Direct listings offer a more streamlined method for companies to go public and raise capital than traditional IPOs — which entail a lengthy roadshow process and involvement of underwriters to determine valuations and share-prices.

Traditionally, direct listings to raise capital have been available to companies only for follow on raises, after they’d completed the conventional initial public offering process.

The NYSE allowed tech companies Slack and Spotify to list directly in 2018 and 2019 and Silicon Valley insiders, such as VC Bill Gurley, have encouraged companies to pursue the method.

AirBNB — which this month revived talks of going public in 2020 — has said it would consider a direct listing rather than a traditional IPO.

The NYSE filed a proposal with the SEC in December to allow for more direct listings, but that was declined without public comment.

The amendment offered today provides more details on how the direct listing process — with a capital raise — would work, according to the NYSE’s Vice Chairman, John Tuttle.

“What we did, versus the early versions of the filing, is to [offer] a very granular, mechanical breakdown of how we would execute this type of transaction,” he told TechCrunch on a call.

Most of that surrounds how new shares are numbered, valued and priced in a direct listing. Traditional IPOs rely on underwriters —  that also charge hefty fees — to determine opening share-price, and that can swing widely once the stock actually goes to market.

The NYSE touts direct listings as a less costly way to go public and one that could lead to a less volatile price discovery process.

On when the NYSE’s proposed direct listing proposal could be approved or (denied), “The timeline is up to the SEC. Their first deadline for any action is this Saturday,” said Tuttle.

Updates to the listing process are just some of the changes that could come to New York Stock Exchange. The 228 year old, Wall Street based organization continued trading virtually through the COVID-19 outbreak, using digital platforms.

The pandemic could lead to the NYSE becoming less of a work from office entity and more a remote, work from home company in the future, Tuttle told TechCrunch in April.

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Brazil’s BizCapital raises $12 million for its online lending service

BizCapital, an online lender based in Brazil, has raised $12 million from a clutch of investors including the German development finance institution, the corporate venture capital fund of MercadoLibre and existing investors Quona Capital, Monashees, Chromo INvest and 42K Investments.

“This latest round reinforces investors’ confidence in BizCapital’s ability to innovate in the Latin American credit market amid challenging circumstances caused by Covid-19,” said Francisco Ferreira, the company’s chief executive, in a statement. “We have seen four times as many business credit inquiries on our site year over year, and we are ready to serve them.” 

Founded in 2016, the company pitches itself as a fast and reliable way to access financing for working capital. It already has more than 5,000 customers across 1,200 cities in Brazil, according to a statement.

The company said it would use the money to develop new products for Brazilian small and medium-sized businesses and will expand into new distribution channels.

“With this new round of capital, we will continue to widen our product lineup, helping entrepreneurs during the entire lifecycle of their companies,” said Ferreira, in a statement. “There’s never been a more important time for innovation.” 

In a reflection of their American counterparts, Brazil’s venture capital firms had slowed down the pace of their investments, but now it seems like a slew of new deals are coming to market.

The investment reflects the longterm confidence that investors have in the increasingly central position e-commerce and technology-enabled services will have in the future of the Latin American economy.

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Businesses Must Reclaim Prudent Accounting Principles

Executive Summary

Prudent accounting balances the forces that drive a business to be efficient and resilient by helping a company stay asset light and forcing it to write off dud projects as their losses become apparent, even in otherwise good times. Such a company is thus less likely to throw good money after bad, lowering waste in the company and in the economy. And, when bad times hit, the company is less prone to be carrying unwanted costs, a huge relief for everyone, including the taxpayer. Likewise, when a prudent company raises debt, it does so despite the downward bias in its accounts — so that debt is safer in that it sits on a more conservative cushion. This makes the company and its creditor less likely to fail when a crisis hits. And finally, by being prudent in good times, the company has recognized losses earlier, and attenuated the scale of its dividend and bonus payouts. This means there’s more of buffer in retained capital to weather it through a crisis.

Image Source/Getty Images

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Beyond its human toll, Covid-19 has wrought upon us a daunting economic toll. In a matter of just two weeks in mid-March 2020, entire industries and sectors were brought to an abrupt halt. In the UK, for instance, car manufacturing fell from more than 70,000 cars in April 2019 to just 197 cars in April 2020; for further contrast, the UK made more than 120,000 units during February 2020.

Further Reading

To survive a crisis like this, a business must be both efficient and resilient. Prudent accounting — the common-sense accounting concept that there should be a higher threshold to recognizing anticipated gains relative to recognizing anticipated losses — had for generations helped businesses balance these two pulls. In turn, businesses were better prepared for an unpredictable blow. Then, at about the turn of the 21st century, accounting rulemakers did away with prudence. We are living the consequence today: The economy is teeming with crappy balance-sheets that necessitate gargantuan bailouts when crises hit.

Now, concerned about anemic bank lending to industrial companies, regulators have further curtailed prudence. The Fed recently eased a key accounting restriction that encouraged more responsible lending and ensured that banks had a robust cushion against crisis-induced losses. In the UK, the central bank is so alarmed by weak lending to corporations that it is urging financial institutions not to book big charges on potentially souring loans. These practices constitute the opposite of prudence.

A financial crisis like our current one was not unimaginable. It has only been slightly more than a decade since the world last experienced a sudden shock to global industrial solvency, and the idea that such a shock could come from disease was made very real by the near-miss Ebola and Zika outbreaks of 2014 and 2016. So the real question is how do we avoid finding ourselves here again when we face the next major economic shock? One answer is to bring “prudence” back to corporate accounting.

How Prudence Balances Resiliency and Efficiency

Resilience is the ability to withstand and recover from negative shocks. Resilience is slack — the capacity to absorb failure and continue onward. You are not resilient if you’ve continued to hold on to that loss-making division instead of shutting it down. You are also not resilient if you have underused debt in growing your business, because it likely means you have not diversified to a level where you can now afford a few failures.

Efficiency simply means greater output and lesser waste for a given quantity of input. Efficient organizations are asset light and more leveraged, relative to peers — features that seemingly make them less resilient. They appear to have fewer reserves to draw on when the rains fail. But being asset light really means you are carrying less excess baggage when you need to move quickly; it does not mean that you have shed yourself of the essential baggage. Companies, like would-be dieters, often get this wrong in their quest to being lean. Similarly, being more leveraged than your peers means you can do more with less capital, which can be hugely advantageous when capital is scarce, as during a crisis. The key is to assume only as much leverage as you need to operate at efficient scale and scope, and not to assume leverage to pay out dividends or bonuses, as several banks did before the last financial crisis.

Prudent accounting balances the forces that drive a business to be efficient and resilient by helping a company stay asset light and forcing it to write off dud projects as their losses become apparent, even in otherwise good times. Such a company is thus less likely to throw good money after bad, lowering waste in the company and in the economy. And, when bad times hit, the company is less prone to be carrying unwanted costs, a huge relief for everyone, including the taxpayer.

Likewise, when a prudent company raises debt, it does so despite the downward bias in its accounts — so that debt is safer, in that it sits on a more conservative cushion. This makes the company and its creditor less likely to fail when a crisis hits.

And finally, by being prudent in good times, the company has recognized losses earlier, and attenuated the scale of its dividend and bonus payouts. This means there’s more of buffer in retained capital to weather it through a crisis.

Getting Back to Prudence

Prudence is both a regulatory principle and a managerial state of mind. To bring back prudence into accounting thus requires two layers of action. First, the U.S. Securities & Exchange Commission (and its equivalents worldwide) should mandate that any new accounting standards — and indeed any accounting standards issued since about 2000 — meet the prudence test. Put differently those standards should require objective evidence before companies can book gains (or avoid losses) on the basis of expected future profits.

Second, boards and auditors should exercise greater skepticism when approving CEO and CFO judgments on highly discretionary items such as capitalizing intangibles and avoiding goodwill charge-offs. In anticipating such pushback, senior management will then impose their own higher standards in making these decisions, resulting in higher quality balance-sheets.

Prudence in accounting practice has been around since at least the 1400s, and by the late 19th century and the advent of modern capitalism, it was already a well-developed and widely regarded principle. We foolishly abandoned this history quite recently, but two major financial crises and trillions in bailouts later, we must reclaim it.

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Call for EU state aid rules to flex for startups

European startups are calling for more flexibility in EU state aid rules to allow national governments to provide liquidity for the region’s fledgling digital businesses during the COVID-19 crisis.

In a joint letter addressed to Commission EVP Margrethe Vestager, more than a dozen startup associations from across the bloc have called for rules to be adapted to ensure digital businesses are not blocked from receiving any emergency state aid.

In March the Commission applied an update to EU state aid rules clarifying how Member States can provide support to homegrown businesses during the coronavirus emergency.

However the startup association representatives co-signing the latter — which include reps from Coadec in the UK, France Digitale, Germany’s Bundesverband Deutsche Startups, Startup Poland and several others  are concerned the framework is being too narrowly drawn where digital upstarts are concerned.

They point out that startups may be intentionally operating at a loss as a calculated bet on gaining scale down the line, making the current rules a poor fit.

Startups across Europe report that the Temporary Framework for State Aid is not yet giving enough flexibility to Member States to support startup ecosystems,” they write. “The definition of an ‘undertaking in difficulty’ is intended to apply to loss-making businesses. Such a definition will often be enough to deny support being given to such a business. However many startups are loss-making by design in their first years, as they are taking a calculated bet on exponential growth and associated job growth that will emerge in the following years.

“Only taking the current cash flow into account belittles the economic potential of these startups and prevents them from receiving much-needed support. In doing so it can undermine the post COVID-19 recovery, as it is today’s loss making startups which will be the driver for economic and job growth in the future.”

The letter goes on to call for startups to “receive the support that other economic actors are also receiving”.

“Startups provide a key opportunity for our economies and societies to recover as we come out of COVID,” they suggest, adding: “They will play a central part in re-growing our economy and crucially in doing so on a more carbon-neutral footing.”

We reached out to the Commission for a request for comment but at the time of writing it had not responded.

While it might a bit of a contradiction for VC-backed tech businesses which may choose to operate at a loss during ‘normal’ times to be calling for liquidity help now, Benedikt Blomeyer, EU policy director at Allied for Startups — one of a number of startup associations signing the letter — told us the argument is simply that Europe’s startups should be able to expect the same kind of support that is being extended to other types of businesses.

A number of EU Member States have laid out major support programs for startups to date — such as France’s $4.3BN liquidity support plan, announced in March; and a match fund revealed last month in the UK (which remains an EU member until the end of this year).

But the contention appears to be that liquidity isn’t flowing to all the European startups that need it, nor arriving in a timely enough way.

“For startups, loss-making doesn’t mean that it is necessarily a failing business,” Blomeyer told TechCrunch. “The bigger picture is that we are looking at startup ecosystems as key providers of jobs and economic growth coming out of the crisis. Some startups will fail, just like other businesses. But the question is whether startups should be able to access the same kind of support that other companies can to help them survive this crisis. We believe they should.”

Commenting on the issue in a statement, Paolo Palmigiano, head of competition, EU & trade for law firm Taylor Wessing, agreed the EU state aid rules may struggle to accommodate Internet businesses.

“The criteria introduced by the Commission in the Framework that a company must be viable as of 31 Dec 2019 makes sense in the old brick and mortar world. A company which would have gone in any case bankrupt, even without the current crisis, should not receive aid. The criteria start to be more complex and causes difficulties for tech companies which might not be profitable at the time although they could be in the future,” he said.

“The state aid rules were created in the 60s at a time when the single market did not exist and Europe had a lot of old-style industries (like steel). We need to see how the Commission react but I can see them struggling – how do you distinguish a loss making tech company which in any case would have gone bankrupt from a loss making company that will become profitable in the short term?”

Asked how it believes the Commission should replace the current viability criteria and assess which startups merit help and which don’t, Allied for Startups’ Blomeyer called for a blanket exemption for startups founded over the last half decade or more.

“There could be a clear exemption from the UID test for companies that have been set up in the last 5-7 years,” he suggested. “We need to underline that this is an unprecedented crisis that requires extraordinary measures. So while in normal times a regular process of assessing whether/how to assess startups might have worked, now the ecosystems that built them are melting away before our eyes because of the barriers. The basic conundrum is that it is unclear whether a loss-making startup is indeed not a viable business. This needs resolving.”

In what now feels like an earlier age late last year — as European Commission president Ursula von der Leyen was taking up her five-year mandate — tech-driven change was identified as one of her key policy priorities, with digitization and a green deal taking center stage, alongside a push for European tech sovereignty and support for homegrown startups to scale up.

So if Europe’s startups are feeling overlooked now, in the middle of an unprecedented economic shock, that hardly reflects well on the Commission’s claimed high tech policy goals.

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Novastar Ventures becomes $200M African VC fund after $108M raise

African startups have another $100 million in VC to pitch for after Novastar Ventures’ latest raise.

The Nairobi and Lagos based investment group announced it has closed $108 million in new commitments to launch its Africa Fund II, which brings Novastar’s total capital to $200 million.

With the additional resources, the firm plans to make 12 to 14 investments across the continent, according to Managing Director Steve Beck. He spoke to TechCrunch on Novastar Ventures’ plans for the new fund.

A notable update to Novastar’s VC focus is geographic scope. The firm was originally co-founded in Kenya by Beck and British investor Andrew Carruthers and built its first portfolio largely around companies based in East Africa. Novastar Ventures made 15 investments with its first fund, including companies such as Uganda and Kenya focused energy startup SolarNow and agtech venture M-Farm.

“The second fund is basically the same strategy as the first, but…the biggest difference is that we opened up a second front in West Africa — more particularly to be in and around the entrepreneurial system in Lagos,” Beck told TechCrunch on a call.

Before closing its Africa Fund II, Novastar Ventures had already made several investments in West Africa, including leading a round in Nigerian on demand motorcycle transit startup in and backing Ghanaian health company, MPharma. Novastar opened an office Lagos in 2019.

On the types of startups Novastar will target with its new fund, the focus is more on mission than industry silos, according to co-founder Steve Beck. “We’re sector agnostic. I would describe us more as a segment fund than a sector fund,” he said.

“We really try to look for businesses called breakthrough businesses, [those] that are addressing the biggest problems in the largest markets.”

That has led Novastar Ventures to invest in digital companies in education, information access, agtech, mobility and off-grid energy.

“Essentially what we’re doing is looking for those businesses that are addressing the basic needs, basic goods and services across the true mass markets of the continent,” said Beck.

On whether the firm is a dedicated impact fund, Beck said, “The way we characterize ourselves is we’re a commercial venture fund with an impact screen.”

On investment amounts and types, Novastar Ventures is fairly flexible on ticket size, from seed to later stage.

“We’re gonna…have some portfolio companies where we put to work a million dollars or less or were going to have some where we put $8 or $9 million dollars in through capital rounds. That’s…the deployment strategy,” Beck said.

Novastar Ventures maintains a close relationship with its portfolio companies, according to its co-founder.

“We’re very active investors and always take a board seat to be close to the entrepreneurs. We often are the first institutional investor that they have.”

Image Credits: TechCrunch

Startups who want to pitch to the company can reach out to fund’s founders and directors via the website or LinkedIn, according to Beck. He added that Novastar Ventures is recruiting to add another member to its investor team in 2020.

The firm’s latest raise and $200 million capital amount creates another high value fund focused on African startups.

On the high end of estimates, the continent’s tech ecosystem reached $2 billion in VC to startups in 2019, compared to less than half a billion dollar five years ago.

Other large Africa focused VC shops include TLcom Capital — which closed a $71 million fund in February —  and Partech, which doubled its Africa fund to $143 million in 2019. The venture arms of major global companies have also become more active in Africa recently, including that of Goldman Sachs and Visa.

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