In the midst of the global investment winter, Microtraction announces a $15 million fund

For most of 2022, founders around the world have had one question: Where are the investors and why aren’t they pouring funds into our brilliant startups? Some investors have blamed the winter funding on the economic downturn, others have blamed the overvaluation of startups, and most have blamed nothing: they’re simply taking time to observe before acting . However, investment in Africa is boldly challenging this trend. Among those currently betting on Africa is Microtraction, an early-stage African venture capital firm, which just announced a $15 million first close of a community fund called Microtraction Community Limited.

Microtraction was founded in 2017 by Yele Badamosi and Kwamena Afful. The duo identified a gap in the pre-seed funding stage of African startups and directly plugged it by building one of Africa’s most successful early-stage venture capital firms. In its 5 years of operation, Microtraction has invested 2 funds in 36 companies, including Cowrywise, Helicarrier, Bitsika, 54gene and Lemonade Finance, in Nigeria, Ghana, Kenya and Rwanda. Its portfolio companies have raised more than $100 million in back-end funding and have a combined valuation of more than $760 million.

Microtraction started with the goal of being “the most accessible and preferred source of pre-seed funding for African tech entrepreneurs”. To achieve this, they employed a three-pronged strategy that will govern the deployment of their latest $15 million fund. The three parts of their strategy are an open application format, defined investment criteria and process, and a collaborative relationship that helps founders grow.

The open application format

Since the beginning of Microtraction, they have kept the applications open to everyone. Any startup founder in Africa can access a form on the Microtraction website where they can submit a funding request. Microtraction only invests in a small fraction of its applicants. In its first year of operations, the venture capital firm invested in 8 startups from a pool of 500 applications, achieving an acceptance rate of 1.6%, reflecting the 1.5- 2% from YCobinator and 1-2% from Techstars. Microtraction is now in its fifth year and more startups are submitting applications, but there are also more funds to deploy, especially with the last $15 million waiting to be disbursed. Experts have limited the chances of Microtraction’s yes to a 2% application, especially as the VC is taking more steps to align with global best practices.

The investment criteria and process defined

When Microtraction launched, it didn’t specify the size of its fund, but its standard deals were clear to founders: 7.5% stock exchange for $15,000. Those were his early days. As the market tightened and more companies ventured into earlier investments, Microtraction increased its deal to $25,000 for 7% equity in 2020. This remained until May 2022, when the company venture capital stipulated $100,000 with 7% equity as the minimum amount to invest. in startups. This fee is similar to YC’s $150,000 for a 7% stake, which now brings Microtraction into true competitive status with YC, despite their many operational differences. Microtraction’s latest fund, Microtraction Community Limited, follows this $100,000 stipulation.

Portfolio startups can also receive a $350,000 “top-up” fund, as long as Microtraction does not exceed 25% of the startup’s next official fundraising round. What this means for the startups is that Microtraction’s $350,000 is on the table for their next round if they can land other investors and bring the total raised up to a minimum of $1.4 million.

Microtraction expects to make a minimum of 60 early stage investments through its community fund, of which 20 qualified startups will get the top-up fund. According to the company’s statement, the community fund has already invested in 20 startups.

Collaborative relationship with the founders

With startup CEOs as founding partners of Microtraction, it’s no surprise that the VC is innovating its operations so it can double down on its relationship with founders. The pan-African venture capital firm is building a strong and rich community for its African founders to thrive, and they’re leveraging Web3 to drive that innovation. In a TechCrunch Interview, the partners expressed that Microtraction has evolved from the venture capital firm that wrote the first checks and provided access to the first customers to one that provides an environment of champions for its founders, enabling them to scale at global levels.

Web3’s innovation will come in Microtraction’s development of a community vehicle, similar to a decentralized autonomous organization (DAO), that the community fund will leverage to create an engaging experience for founders and community partners. Social tokens will be used to incentivize and gamify the member experience that will enrich the community with value and support. At launch, The DAO will be invite-only and will include exclusives such as access to events, investment opportunities and industry deep dives.

Building on Microtraction’s track record, many African startups have hailed the VC firm as a surefire way to get into global accelerator programs. More than 73% of its portfolio companies from its first fund entered global accelerators such as YCombinator and Google for Startups, with all but one receiving follow-on funding. 37% of these startups were also co-founded by women. This recently announced community fund is designed to reflect that trajectory.

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