Beyond Numbers: Clearing the Path to Prosperity Whilst Fundraising

AVCA’s Q3 2023 Private Capital Activity in Africa report revealed that, despite encountering significant challenges in fundraising and a decrease in the average fund size continent-wide, two large funds accounted for half of the total capital raised in Q1 2023. Among these funds was the Convergence Partners Digital Infrastructure Fund, attracting a notable $296 million.

In this interview, Yolande Tabo and Idan Segal have joined us to delve deeper into the fund’s success, how the team overcame challenges, and what words of advice they would give to fund managers struggling to raise capital in this challenging climate.

Convergence Partners is an impact investment management firm focused on the telecommunications, media and technology sector in Africa. To set the stage, tell us about the focus of the firm in a few sentences.

Convergence Partners is a leading Private Equity investment manager focused on the digital infrastructure and technology sector in sub-Saharan Africa. We are focused on long-term investments in data centres, fibre networks, wireless and towers, edge, artificial intelligence (AI), Internet of Thing (IoT), cloud and fintech across the Continent.

How does Convergence Partners differentiate itself in the competitive landscape, and what elements of its strategy proved instrumental in attracting substantial investment in Q1 2023?

We have been involved in the sector since the opening up of markets as a consequence of liberalisation and have been involved in investing in independent ICT infrastructure from the inception of this market. We have 20-year solid track record of successful investments in the tech sector, delivering superior financial returns coupled with meaningful social impact. Our specialist focus gives us the edge, we are able to project where technology trends are heading and identify investment opportunities mapping to those trends. Further, we have built a multi-disciplinary team, core of which has been together for more than 20 years.

We have mentioned the Convergence Partners Digital Infrastructure Fund. Could each of you highlight a key contribution or role that you played in ensuring the success of the fund in raising a significant $296 million in Q1 2023 amidst the challenging fundraising landscape in Africa?

YT: Building and maintaining relationships with potential and existing LPs over an extended period of time, not just in the raise period; understanding and addressing LP needs;

IS: Recognising the massive burden that a fund raise places on the organisation and balancing the need for focus in the key individuals leading the raise, as well as collaborating with other team members and being able to leverage them as needed

YT/IS: Perseverance and grit!

What are the 3 most important factors that led to the Convergence Partners Digital Infrastructure Fund success in contributing for half of the total capital raised? Please include any innovative approaches or unique aspects of the fund?

The success of the raise was down to the combination of 2 key factors:

• Increasing appetite of investors into what was previously a very niche, under-the-radar sector, during which period Convergence Partners was honing its team and investment model, and helping to shape the broader independent infrastructure market via several landmark transactions that changed the business and funding models in the space; and
• Skill set and experience of the team of investing in this sector over the long term, with a demonstrable track record of generating returns, realising exits through the cycle, strong risk management, governance and investor interface, and creating measurable positive developmental impact.

In terms of the fund itself, it is thematically very similar to its predecessor fund and has market standard terms. An important change was the longer duration of the life of the fund — CPDIF has an initial life of 12 years to reflect the additional time that is necessary to nurture, grow and exit infrastructure business in our chosen sector and geography, especially in relation to greenfields and brownfields venture. CPDIF also offered investors the opportunity to direct vital investment into a high-growth but underdeveloped market geography via a critical sector at a crucial time. It enables them to deploy funds at the commencement of an identified new growth curve in the technology sector as a result of digital transformation and the fourth industrial revolution.

What specific obstacles did the Convergence Partners team encounter, and how were these challenges navigated to achieve such a noteworthy capital raise?

A fully virtual fundraise was a challenge in terms of establishing new relationships and keeping momentum. We were pleasantly surprised by the ability to keep momentum and deal with issues as they arose, notwithstanding the inability to meet at all in the lead-up to first close.

For fund managers currently grappling with the difficulties of raising capital in the current economic climate, what advice would you offer based on your experiences?

In a crowded and currently risk averse fundraising market, it is critical to:

• KYC! — know your client — that means understanding the landscape of investors in the market, their specific objectives and mandates so you spend time talking to people that will find your offering compelling
• Have a product/sound strategy that is differentiated and messaged clearly;
• Track record in your chosen sector — showing some level of experience in executing on your investment strategy
• Perseverance and focus

In terms of the broader private capital landscape in Africa, what trends or developments do you foresee shaping the industry?

We have seen some of the big names in Emerging Market private equity being acquired by global firms and we see this consolidation trend continue to play out at the mid-market segment as LPs seek to decrease the number of GP relationships and GPs seek to diversify strategy and product set.

The African landscape is facing a particularly challenging macroeconomic and geopolitical period which will likely impair returns across the PE industry. History has shown that the best managers thrive is such periods, where capital is more scare and attractive opportunities are available, leading to attractive long-term returns and boosting ability to raise further pools of capital.

Read the Q3 2023 Private Capital Activity in Africa report >>