Anza is a holdings company for a number of different groups including an early-stage VC company, RIIS (Research Institute for Innovation & Sustainability), a consulting company, and the SA Innovation Summit which is an entrepreneurial ecosystem organization. Anza is playing a crucial role in the Space-Tech Innovation Challenge 2020 which is targeting downstream space-tech applications across agriculture, insurance, retail, sustainability and conservation. The challenge identified 15 space-tech companies, which will be pitching to investors including Anza, who are looking to invest angel and seed capital from the selected winners. In a recent interview with the CEO at Anza, Davis Cook offered more insight into Anza’s engagement.
What is Anza Capital bringing to the table in the space-tech challenge?
There are three main areas of support that Anza will be bringing to the space-tech challenge: the first is access to capital and networks through early-stage (VC) investment. Second is that RIIS, the consulting firm has been working closely with global and local groups in the space industry to build a vibrant cluster of downstream earth observation players; support startups to get market access to obtain the relevant EO data, technical expertise, and help support their business development efforts. The third area is the SA Innovation Summit, which for the last three years, has been able to build a platform for entrepreneurial support; including a training and incubation program, which also goes around a peer-to-peer entrepreneurial mentoring community and space development.
In a nutshell, the three areas will be financial capital, relation & social capital, and business development efforts.
You invest in female-founded / female-led companies. Will you be using the same criteria for the space-tech challenge winners?
Yes. Anza aims to invest in female-led startups. This pretty much is the mandate of the whole company. There are several of those groups in the space-tech challenge, and we will apply this criterion to determine whether we invest in the companies or not. I would, however, like to point out that while we decide not to invest in some startups because they might not have a strong gender balance in the company, we will refer them to other investors we know. So we are not going to prevent companies from getting support for investment, but we have a mandate to look at which addresses issues in gender, guided by our investment strategy.
How much do you invest in seed capital and how much equity share does Anza claim?
This depends on the nature of the business. The investments we have made up to date range from USD 15,000 to USD 250,000 for pre-series investments, which includes angel investments.
Investment in the downstream segment is growing, but we do not see the same for the upstream segment. Why do you think this is?
Upstream is just significantly more expensive. Before we even get to private investment, you need to have a lot of supporting infrastructure, and much of Africa has not really developed that supporting infrastructure. There are some ways to address this; South Africa has advanced Rand 4.47 Billion (USD 270 Million) for the development of a Space Infrastructure Hub, which will be geared towards the development of satellites and components on the African upstream segment, and there have been some developments, for example, the development in Nigeria as well, in the recent past. I think the biggest obstacle now is the ancillary infrastructure.
From a Venture Capital point of view, if I was thinking about investing in the Space sector, the barriers to entry in downstream are significantly lower than upstream. You can bring something to market inside of say, 6 – 12 months. It is largely software-driven so the skills are easy to find and upfront capital expenses are much lower. While if you want to build satellites, for example, the investment horizon is significantly longer, has a lot of additional expenditure and the risks are also much higher. If you construct a satellite and something is wrong with it, you can’t modify it, once it’s out, it is out. Whereas, if you are running essentially a software system, which is where most downstream applications are, the ability to modify and rectify the problem is much easier. I think there are a lot of reasons why the downstream segment is easier in regards to risk management.
If you also look at it from the economic development perspective, the cost of adequate space infrastructure is very high, and the returns are quite long term. Many of the fiscal budgets around the continent are not sufficient to cover the needed infrastructure, and so from this, the upstream segment doesn’t make a lot of sense for an investor at the moment. This is why we are seeing a much stronger role in the downstream segment.
What about component manufacturing companies, because there are quite a number which show promise in their value proposition, especially in South Africa?
From a component manufacturing point of view, there is definitely room for investment opportunities, potentially in South Africa. The Space infrastructure Hub has been looking at these kinds of opportunities. A number of these groups, for example, have a strong overlap in their service provision, so most of the optics you might find being used in satellites can be repurposed into drone technology. There is some overlap into the defence industry, and I think that South Africa has the infrastructure to achieve this given its long history in space. Once the Infrastructure hub is in place, then opportunities for upstream investments will increase significantly. For now, it is a small industry as we do not have all the traditional infrastructure required, which consequently makes production costs very high. Once the ISH is built, we will be able to move upwards in the value chain by leveraging on the labs and related infrastructure.
Njeri graduated with a bachelor’s degree in Finance, from the University of Nairobi and is a CFA Level II Candidate. Currently an analyst at Space in Africa, her experience spans across Project Finance, and the analysis of Venture Capital & Private Equity Ecosystems in sub-Sahara Africa, with a particular interest in Sustainable Sciences.