CV VC wants to invest $20 million in African crypto startups. Here is how

Ask An Investor episode featuring Brenton Naicker, principal and head of growth at Crypto Valley VC (CV VC)’s Africa operations.

According to data by ChainAnalysis, Sub-Saharan Africa has the smallest crypto economy of all regions, accounting for 2.3% of global transaction values between July 2022 and June 2023. In that period, the region received an estimated $117.1 billion in on-chain value. However, in terms of volume, countries like Kenya, Nigeria, South Africa, and Tanzania had some of the highest grassroots adoptions in the world and ranked in the top 20 Global Crypto Adoption Index. Figures show that transaction volume made up of retail-sized transfers in Africa is at 7%, against the global average of 5.5%.

Despite the fact that African blockchain startups raised $474 million in 2022 to build solutions for the increasing adoption of the technology—up 429% in a year—this is still a pittance relative to the rest of the world. This is a challenge that Crypto Valley VC (CV VC) is trying to solve through their $20 million Africa Fund. The fund invests in early-stage founders across the African continent who are solving some of the emerging markets’ largest problems using blockchain technology.

To understand the history of CV VC’s Africa involvement and to get a better understanding of its investment philosophy, TechCabal caught up with Brenton Naicker, principal and head of growth of the firm’s Africa operations. As part of the Ask An Investor series, Naicker speaks on the state of crypto innovation and funding in Africa, how to accelerate adoption as well as the unique opportunities that the continent holds for crypto innovators.

Please tell us about the work you do at CV VC

Brenton Naicker: I’ve been quite privileged to be in the Web3 space for about eight years now. I was part of the industry organisations that founded the South African National Blockchain Association and the Crypto Assets Association of South Africa. I also spent two years leading business development, growth and expansion at Binance where I launched the sub-Saharan African markets including Francophone Africa.

During that time, I became passionate about the ability of blockchain technology to solve real-world problems for everyday people. And that’s what sort of led me to join CV VC (Crypto Valley Venture Capital) where I have been for two years now. 

So we started back in 2015-2016 in Zug, Switzerland, also know as the Crypto Valley. CV VC was an ecosystem business focused on creating an environment for the startups to come together and learn from each other through workshops, webinars, and industry reports. As the ecosystem started growing because the technology became very popular, there was a lot of economic value that was created. Our founders realised very quickly that unless we were investing, we weren’t participating to the highest level.

So fast forward a couple of months and we set up our first global fund out of Switzerland which was sector-agnostic and investing in companies that used blockchain technology. As the world and the industry started maturing, a lot of stuff started happening outside of the ecosystem in Switzerland and so to remain at the heart of everything, we had to start expanding our footprint out of Switzerland. So we launched our hubs in Berlin and Lisbon.

Our presence in Africa started circa 2020. We were approached by the Swiss Economic Cooperation Organisation to recreate the same Crypto Valley model in Africa and they gave us some seed funding. With a lot of support from the Swiss government and embassies in Africa, we launched in mid-2021 to create a thriving Web3 ecosystem based out of Cape Town, South Africa, with a Pan-African focus. And that’s when I joined the team. 

It became clear very soon after that that the use cases that we were seeing in Africa, as well as the maturity of the startups, were unlike anything that the global team was used to. And off the back of that, we decided that the opportunity was so great in Africa that this ecosystem warranted having a fund of its own. So we raised a $20 million Africa Fund focusing on early-stage African Web3 startups. It is paired with an accelerator program running out of Switzerland. It’s a 10-week program whose content comprises 50% MBA-type content and 50% industry-specific content. We have used our relationships and our networks in the space to bring in some of the best technical talents to come and teach about aspects of building blockchain products.

In terms of our chequewriting,  we offer $135,000 investments for 7% on a convertible note. We also do direct investments in seed, pre-Series A, and Series A but it’s very unlikely that our first ticket will be in a Series A round but rather will most likely be a follow-up. And those ticket sizes are generally anywhere between $200,000 and $500,000. Although I stated we are sector-agnostic, we tend to focus on four verticals which are fintech (remittances, micro-payments as well as SME lending and credit), infrastructure, healthcare and the creative economy which includes NFTs, the metaverse, etc.

To date, we’ve made 14 African investments. Six of those were before we actually had the Africa Fund and eight of them are from the Africa Fund with six being via our accelerator, and two of them being direct investments.

What would you say is the state of Web3 innovation in Africa at the moment?

BN: In terms of the maturity and depth of the Web3 space in Africa, I think it’s almost a tale of a two-edged sword in the sense that the grassroots adoption of the technology is very significant. Although the total aggregate volumes are not the same as in US or European markets, if we look at it from a population penetration perspective, crypto as a technology is far more popular in most African countries than it is in most of the big developed markets. 

The problem we are seeing from the venture side is twofold at the moment. One is the macro environment challenges which have seen a massive slowdown in crypto and Web3-specific VCs deploying capital. The lack of availability of capital is a big hindrance to startups being able to go from zero to one, which is the core process to get them to mature. The second problem is that a lot of the capital in the space sits in those developed markets that I spoke about. Those investors don’t understand the African continent and because of that, they are very hesitant to invest in early-stage startups here. Additionally, because of bad actors in incidents like FTX, Voyager, and Celsius, even the traditional VCs, incubators and accelerators who were traditionally open to this technology have now become a little bit sheepish because of the sentiment and the perception around the industry at the moment. The other issue is also a need for more regulatory clarity on crypto which makes adoption by corporates a bit of an issue.

In terms of the challenges facing blockchain innovators and investors on the continent, which ones would you say are the most prominent?

BN: I think they are on two fronts. One is that certain soft skills aren’t quite as common as they are out in the developed markets. And I think this is just a function of entrepreneurship education. So in the developed markets, the resources, the knowledge, and the education are there. But in Africa, when it comes to sort of things like putting together a pitch deck, understanding unit economics, and financial and business models, there is still a long way to go.

And this is where the importance of programmes like incubators, accelerators, and open-source education are key. The second factor is the hype created by low interest rates which saw massive investment inflow that led to the overvaluation of some businesses which have now crumbled.  This has created an almost sour taste and a poor sentiment for foreign investors which led to capital drying up. And that’s really unfortunate because we don’t have a mature enough ecosystem yet in Africa to fund our innovators. 

On the other hand, what opportunities would you say are available in the Web3 space on the continent?

BN: The biggest opportunity is the resilience of African founders. While everybody else is shouting doom and gloom with the current situation, African founders have always had to do more with less. So this environment is not new to them. We’ve seen that they are still progressing with gaining traction and onboarding users, and they’re able to pivot and change their models quite effectively. So they’re able to face adversity much better than their global counterparts. 

But the biggest opportunity unique to Africa is the willingness to adopt new technologies which significantly improve lives. The perfect example is Africa skipping the whole fixed-line telco and going straight to mobile. And the reason is that people don’t have pre-existing functional legacy infrastructures to hold onto. The existing solution is so bad that people are welcoming to new technologies which is great news for innovators.

What else can you share about what CV VC is up to?

BN: We’ve got the next cohort for the accelerator coming up and it will kick off in March, and applications close at the end of November. And what’s great about that is we want that same sort of YCombinator benefit where you’ve got this global alumni network that you can lean on. The accelerator is a global cohort with a couple of the first weeks being based out of Switzerland. I think this is an unrivalled opportunity for African founders, specifically in the crypto space where they might feel sort of underserved. We also have a massive ecosystem hub that’s based out of Cape Town at the V&A Waterfront so if you’re looking to connect with like-minded people in the space, come through!

Interview has been edited for length and clarity.