South African early-stage VC firm 4Di Capital remains extremely bullish on the African tech startup space after so many years of operations, with co-founding general partner Justin Stanford saying the recent market correction had its positives, and that funding would return.
4Di Capital is an early-stage technology venture capital fund manager based in Cape Town, South Africa, which specialises in the Southern and Eastern Africa region. Led by a team of entrepreneurs with personal experience of building companies, 4Di is one of the most established and regarded brands in the local venture capital market, having been formed in 2009.
Stanford was interviewed as part of episode 15 of Disrupt Africa’s “The month in VC” podcast series, released in partnership with Atlantica Ventures and Goodwell Investments. Originally from Somerset West in the Western Cape, he dropped out of school early having been bitten by the tech entrepreneurship bug.
“I was so determined to be an online entrepreneur, so I went to Cape Town on my own when I was about 18 because I was pretty excited by what I was seeing happening overseas. Around that time it was the original dot-com boom, and then bust,” he said. “I sort of felt that was a wave that I’d like to catch, because technology and business and those sorts of things were something that really interested me.”
He found himself in the proverbial garage, building products in the cybersecurity space, and after a few years of struggle and persistence found something that worked, eventually building a pan-African business.
“I was sort of was done with that by my early twenties, that company had grown substantially, and I realised that I had sort of lost interest, because I liked creating and growing things from new, but running established businesses that were more like a miniature corporate wasn’t really my strength,” Stanford said.
Having realised that the startup phase was what really excited him, Stanford nonetheless knew that South Africa did not at that point really have anything resembling a “startup ecosystem”.
“My own journey as an entrepreneur had been a completely lonely one. There wasn’t really anything in the way of the typical support that you can find these days, and all the bodies of knowledge online,” he said.
He started mentoring young founders, and doing some angel investing, realising what great talent and opportunities was out there.
“We were able to go to Silicon Valley and other parts of the US with some of these companies, and see how things worked there, which was quite illuminating and pretty exciting, because much of the DNA that you could see in a place like San Francisco you could also see existed under the surface in a place like Cape Town,” Stanford said.
Alongside Vinny Lingham, he founded the Silicon Cape Initiative, in a bid to build a startup ecosystem in Cape Town, and also co-founded what became 4Di Capital in 2009. After two years of experimentation, it raised its first angel fund in 2011. Its first venture fund was launched in 2016, and a second one in 2019, anchored by the SA SME Fund.
The firm has invested in the likes of Snapt, LifeQ, Sensor Networks, Aerobotics, Lumkani, Zoona, InvestSure and Tagmarshal in South Africa, and also moved into East Africa with investments in Kenyan companies Wasoko and Flare.
“A lot has evolved since those very early days. Back then the ecosystem was largely empty and we did a lot of investing completely alone. There weren’t really many other players around,” Stanford said.
“We became known as the entrepreneurial guys, the early-stage guys that would write early-stage checks, and bring all their experience.”
Eventually, 4Di reached a level of maturity where it could go “slightly later-stage. He said it tends to be relatively vertical agnostic.
“We believe that the market here is more wide and shallow, than it is narrow and deep. So it’s not like you’ll find five or six opportunities to look at in every conceivable vertical. It’s more you have to look relatively broadly just to find feasible, fundamentally sound opportunities that you believe in, with great founder teams. So we all look pretty much across the board at anything,” Stanford said.
That said, 4Di does tend to prefer B2B or B2B2C rather than direct-to-consumer models, with Stanford namechecking Wasoko as one of its flagship investments. 4Di, which typically lists amongst its LPs family offices, corporates, and institutions like the SA SME Fund, is planning on raising a third venture fund soon. There may be challenges with this, given the global “funding winter”, but Stanford says going into the market for capital is easier now compared to a year or so ago.
“There are a lot of signs that the market is starting to open up again. We’re not expecting it to be easy, and we’re not putting pressure on ourselves to get immediate results. We are quite aware that there might still be a warming-up period to come, so we’re allowing ourselves plenty of time,” he said.
In general, macro-economic condition aside, he says he remains extremely bullish about the African tech space – “perhaps more than ever”.
“I feel that the big correction that we’ve seen in the market in the last year or two has been a very healthy thing – there was just too much money flooding indiscriminately into the African market around 2020 and 2021, and it really created many distortions in the market and misdirected all kinds of resources and people, and so on,” said Stanford.
“So, yes, there’s been a bit of a tough clear-out that has been uncomfortable for many, but I think it’s typical market cycles. Generally these clear-outs do restore things onto a healthier, more sound path. We’ll get through it, and the dust will settle, and great companies and great funders will continue to do what they do best, which is to build something of value.”
He said he believes that the talent that exists in Africa is still largely under-recognised and undervalued.
“So for investors there’s still a big opportunity to invest in great opportunities at decent prices and with decent terms, in a market that’s not saturated,” he said.
“It’s still got a way to go, it’s still young, and it’s still early. There’s still tremendous growth to come.”
