The Abraaj Group has closed its second north Africa-focused fund, but the financial gap between early-stage investments and the $10 million-plus level is still wide open.
The Abraaj North Africa Fund II (ANAF II) closed at $375 million, and the average investment size will be between $10-30 million in “well managed, mid-market companies” in Algeria, Morocco, Egypt and Tunisia.
This latest private equity fund highlights what the sector's heavy-weight investors are looking at in the region, but also the dearth of funding available for companies seeking between $1-10 million throughout MENA.
Funding for seed and early-stage startups at the pre-$1 million ticket size are, although still few compared to the escalation in demand for funding over the last five to ten years, the dominant investment sizes. Only in the last few years have venture funds begun to seriously consider moving into the series B investment space.
Beirut-based VC firm Leap Ventures will close the second round for its expected $85 million fund at the end of the year, and will provide series B funding for startups looking for sums around $5 million.
The handful of growth-stage funders includes Egypt’s Sawari Ventures, which will target investments of $2-3 million but is still in negotiations to close its $50 million fund, Saudi Telecom Company’s $50 million fund STC Ventures and Wamda Capital’s $75 million growth fund.
However, the private equity firm’s ANAF II fund indicates which sectors investors expect future growth to come from, and the kinds of companies smaller startups should be aiming to emulate.
The ANAF II fund will look for minority and majority stakes in companies which have demonstrated “robust growth and the ability to become regional leaders in their field".
Moreover, it will focus on sectors likely to benefit from expanding middle classes. These could include education, consumer goods and services, healthcare, business services, materials and logistics, Abraaj said in a statement yesterday.
The fund has already made six investments: North Africa Hospital Holding Group’s three investments into Cairo Medical Center (Egypt), Cleopatra Hospital (Egypt) and Clinique La Soukra (Tunisia); K-12 private education group “Futures” which operates under CIRA (Egypt); industrials company ASSAD (Tunisia); leading cancer treatment and oncology center Centre de Traitement Al Kindy (Morocco).
Abraaj CEO Arif Naqvi said the fund, following the initial $133 million fund in 2008, was a vote of confidence in the possibilities of North African economies and companies.
“North Africa has the highest income level on the continent with a middle class that is expected to double its total consumption between 2014 and 2024, leading to the creation of further investment opportunities across diverse sectors,” he said in a statement.
The ANAF II fund is part of Abraaj’s wider Africa strategy. The $1.37 billion raises this year is largest pool of private capital targeted at Africa yet. They are joining a number of offshore private equity groups, including Carlyle, KKR and Helios Investment Partners which are betting on the continent’s growing middle classes.