Five Ethiopian investment firms have come together to establish the Madeg Partnership, which aims to source investment opportunities on behalf of a Japanese venture capital (VC) firm.
The partners—Icon Solutions, Araya Venture Lab, Melela Partners, Pragma Capital, and Neftalem Consulting—are currently scouting for viable local companies and constructing a due diligence process that utilizes their collective expertise to pinpoint scalable local investments.
“We believed there was value in pooling our collective experience to assist investors in identifying investment opportunities and viable companies in Ethiopia, with a foundational understanding of the overall risks of the Ethiopian market, which we all comprehend well,” Amity Weiss, Managing Partner at Melela Partners, told Shega.
The team made contact with the potential investor, whose identity will be disclosed next week, at last year’s Enkopa Summit. “This investor, interested in Ethiopia, faced challenges in identifying suitable investment opportunities independently. We saw an opportunity to bridge this gap and facilitate a connection,” added Amity.
Madeg, which is providing the service pro bono, has formulated assessment criteria aligned with the investor’s philosophy and risk tolerance. Utilizing these criteria, they have sourced, and vetted, potential investees through a rigorous four-round due diligence process. This process evaluates team and founder dynamics, potential sales alignment with customer needs, on-site visits with users and vendors, competitive analysis, and financial assessments.
In addition to financial support, Neftalem Fikre Hailemeskel, founder of Neftalem Consulting, highlights the opportunity for knowledge transfer and expertise from a more developed startup ecosystem.
In their initial round, Madeg identified 29 companies spanning sectors such as agribusiness, transportation, retail, jobtech, e-commerce, fintech, insurtech, and healthtech. “These companies were identified leveraging our network and engaging with various stakeholders—a mechanism inaccessible to a foreign investor,” shared Amity.
Neftalem emphasizes that Madeg is carefully vetting startups, in which they strongly believe. “We are essentially endorsing these startups as ones we would invest in ourselves. Hence, the level of due diligence is extensive.”
From site visits to expert evaluations and customer interviews, Madeg is going the extra mile to ensure they select the right companies. Currently, in the third round, the number of firms has been reduced from 29 to 15. A pitch competition scheduled for next Thursday, April 18, 2024, aims to select 8–10 companies. Madeg is sharing the names of the startups it listed next week.
A fourth-round will lead to the final selection of 4 to 6 startups, which, if successful in convincing the investor, will secure investment. Madeg clarifies that the ultimate decision on investment lies with the investor.
“While investment cannot be guaranteed, the startups have an opportunity to raise funding starting at $150,000 each,” stated Amity. However, Madeg’s involvement concludes at the fourth stage, with negotiations regarding investment and equity left to the startups and investors.
Regarding Madeg’s future, the team will base its continuation on the outcome of this round. “We are currently being contacted by local and foreign investors who are interested in what we are doing,” stated Amity. If the partners deem the outcomes successful, they envision conducting similar activities twice a year.
“Private investors, if impressed not just by the present but also by the trend over three to five years, will bring their capital and network,” Neftalem told Shega.
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