Capital Tofino, a venture capital firm targeting early-stage startups in emerging markets, has launched its $10 million fund. He announces the first close of this fund at $5 million and hopes to achieve a final close in nine months.
“The main thesis of the fund is to target large markets with hundreds of millions of people who have minimal access to risk capital.. So that doesn’t include China, India, Brazil, those kinds of big markets with a lot of venture capital,” general partner Pence told TechCrunch in an interview..
“What was talking here is like Bangladesh, Egypt, Nigeria, Pakistan, Philippines, Mexico, it’s our game – it’s that kind of adventure fundamentally less than $5 per capita, and that’s what has generated a lot of interest in this next group of large markets.
Hruby said Tofino Capital concentrates on startups in the B2B segments, particularly on fintech, logistics and marketplaces.
The founding partners have some history together, having worked for 15 years with various US corporations and family offices involved in frontier market investing, such as the Whitaker Group and the Atlantic Council.
In 2018, Pence and Hruby ventured into public relations when they founded InsiderPR, a company that Hruby says works with “invisible entrepreneurs rarely covered in the global media.” InsiderPR is one of the well-known PR firms in African technology and has worked for over 100 startups including SWVL, Flutterwave and Foodology.
But their work in African tech goes beyond co-founding a PR firm. Hruby, for example, co-wrote a book with former TechCrunch contributor Jake Bright in 2015 on the continent’s potential to become a global power. She even worked in an advisory role for AOL’s Steve Case on African startup investments at one point.
The culmination of these experiences and to be involved in technology in emerging markets early enough gave partners all the firepower and access to become angel investors down the line.
” We have been exposed and somehow at the forefront of African technology for many years and we have made angel investments. And this angel investment has are the result of InsiderPR, which gave startups access to very early-stage opportunities,” Hruby said..
They made their first angel investment in Seamless HR in 2018 and have backed 11 other projects since, including Sabi, Mecho Autotech and Eksab. Late 2021, they started to fiddle with the idea of creating a venture capital fund. Tofino Capital, the result, kicks things up a notch for partners who become institutional shareholders for the first time. They have not yet drawn checks from this fund.
Pence said Tofino Capital plans to invest between $50,000 and $500,000 in early stage companies, mostly in the pre-seed and seed stages.. And unlike the traditional thesis where venture capital firms bet on a startup in their portfolio to return the fund, Tofino Capital plans to take a different approach, where it “enters early and exits enough early too.
“We think Africa’s next phase of growth will not be the Flutterwave and Andela kind of $1-42 billion. It will be about growing these mid-market businesses of $200-500 million profiles,” Pence noted.
That’s not all, however. For a company very focused on the early stage, Pence mentioned that Tofino Capital is also interested in “particularly late” startups, in other words, the pre-IPO types.
It’s a pretty bold strategy and, according to Pence, investing at both ends of the spectrum is the best risk-hedging approach to investing in emerging markets. But as a small fund with checks under $1 million, how does the company intend to talk softly to Series C and later companies about parting with some equity? Some mobilize external funding.
“So it’s super unique; this is called the dumbbell strategy here. well Most likely do about 30-40 pre-seed and seed deals and then less than five late-stage investments,” the founding partner said..
“Now getting into those late rounds with a smaller check size will be tough, but we think we will be able to do this because we bring differentiated capital. It’s not only on dollars; our background is in government relations, public relations and entering new markets. So here’s the game. We’ve developed some of these relationships with early-stage companies and we’re hoping it will come to fruition..”
The fund’s sponsors include U.S. and European family offices, WS Investment Company, Wilson Sonsini law firm Goodrich & Rosati’s investment fund, and executives from a cross-section of U.S. startups.
As market opportunities in Africa and surrounding frontier markets continue to open up, small to mid-sized funds with $10-50 million in capital to deploy will grow in number as investors hope to quickly support the next round of billion-dollar companies. Africa-focused companies that have launched such funds in the past year include Uncovered Fund, LoftyInc Capital, Savannah Fund and Ventures Platform.