In 2009, when the underlying technology of the blockchain industry, Bitcoin, was launched, it was first seen as an alternative digital currency. But 15 years later, the technology has gone on to become the cornerstone of innovation across the world particularly in parts of Africa, where the existence of a decentralized and immutable technology is solving problems affecting multitudes. However, the investors flushing the builders and innovators of this technology with cash on the continent are few, yet they are resilient.

In 2022, although funding to blockchain firms on the continent rose to an unprecedented funding volume of $474 million, with a chunk going to exchanges such as South Africa’s VALR and Nigeria’s Yellow Card, it represented a drop in the ocean compared to developed markets such as Europe which raised $5.7 billion that same year. Raising funding as an early-stage startup in emerging markets in a nascent industry like crypto has proven difficult for entrepreneurs and has garnered relatively less attention compared to more established industries such as the broader fintech industry or energy.

Crypto Valley Venture Capital (CV VC), a Swiss blockchain venture capital firm, is one of the few blockchain-dedicated firms that have made inroads into Africa’s blockchain industry with the launch of its $20 million Middle East Africa Fund (MEA) geared at supporting early-stage founders building blockchain-powered solutions across the continent. Since it began operations on the continent in 2016, it has made investments in 14 startups and eight startups across five African countries from its newly launched Africa Fund, where it invests in pre-seed to pre-Series A African startups using blockchain to solve large emerging market problems.

CV VC stands out for marrying the crypto world with the traditional corporate environment with the nascent crypto industry to garner support for its entrepreneurs.“It's essential when you're investing in an emerging market, in an emerging technology, that you're able to bring all of the different key players together so that there's an environment that's conducive to growth for these startups. So they can't just live in a crypto or web3 bubble outside of the regulatory environment, outside of the corporate environment.” said Brenton Naicker, Principal & head of growth at CV VC told NODO via a video call. The firm does this by writing a popular blockchain funding report in partnership with Standard Bank, arguably Africa’s largest bank. It has organized executive workshops and hackathons in partnership with the central banks of South Africa,, and Kenya; Polygon, Binance, and Cardano; aimed at helping its builders, operators, and investors grow their capacities. “So we've given the African ecosystem direct access to some of the brightest minds in the crypto and web3 space. And I'd say that's one of the things we are mostly excited about,” Naicker said.

Doubling as a crucial link between the more developed Swiss blockchain ecosystem and Africa’s burgeoning industry, the firm organizes workshops and webinars that transfer expertise and skills from Switzerland’s renowned Crypto Valley to local incubators, innovation hubs, and developer communities.

CV VC began investing in African startups through its global fund in 2016 but after its investment team on the ground started seeing adoption patterns, unique use cases, and the huge need for blockchain technology on the continent it decided to set up the African Middle East Fund. According to Chainalysis’s 2023 Global Crypto Adoption Index, Nigeria ranks second with the fastest-growing grassroots crypto adoption rate in the world, with South Africa, Kenya, and Tanzania ranking high on the index.

Banking on blockchain’s potentials

CV VC’s new dedicated fund’s thesis is shaped by its core investment focus which is on teams who are building the future, using blockchain technology as a catalyst to revolutionize how humanity works, lives, interacts, and transacts.

CV VC is interested in blockchain technology’s ability to solve pertinent problems that are peculiar to emerging markets, Naicker said. According to the venture capitalist, developed countries have less need for blockchain technology because government-provided infrastructure works, whereas, in Africa, the problems are massive and there are no solutions. "We have portfolio companies like House Africa, for instance, that have developed a digital land registry using blockchain technology to combat property fraud. However, it's worth noting that in markets like Japan or Europe, the existing land registry systems provided by the government work efficiently, rendering the need for such blockchain-based solutions unnecessary," he said.

“When we looked at the problems from an infrastructure and a needs perspective, there was this technology, blockchain, that solved almost all of these problems much better than the existing solutions that the market had at the time. So, the size, need, and problem set in Africa made it an ideal match for blockchain technology, addressing issues such as property fraud, digital identity, and facilitating remittances and micropayments."

By 2050, a quarter of the world’s people will be African, this population spurt alongside Africa’s young demography—Africa is the continent with the youngest population worldwide, with around 40 percent of the population aged 15 years and younger, compared to a global average of 25 percent. Besides, Africa’s smartphone ownership is projected to grow from 450 million in 2023 to 688 million by 2028.

“Another thing to consider is Africa’s demographics. This is another reason why we believe that adoption is going to increase exponentially. Africa has the youngest population in the world, who are digitally native and very savvy. The trend of smartphone penetration is so aggressive that in the coming years, almost everyone will have a smartphone in their hand. Therefore, the ability for them to access and use these services is also increasing exponentially,” he said.

Supporting African entrepreneurs

In CV VC’s investment selection process, founder’s fit ranks high. “What we look for there are quality founders that are solving an important problem,” Naicker said. CV VC organizes a ten-week accelerator in Switzerland for startups that have a working minimum viable product (MVP) and founders who possess a strong background and experience in that specific vertical, along with some traction.

Naicker noted that as important is the market size of the solution the startup is building. “Are you building in a market that is sufficiently big enough and expanding rapidly?” Another core of CV VC’s strategy is betting on founders and entrepreneurs who are using blockchain to solve emerging market problems. “So it's not necessarily that it's an African problem, it can start as you solving a problem in Africa, but that problem also needs to be relevant to other emerging markets to make sure that the commercial scale of your solution is big enough. So think markets like Latin America, Southeast Asia, and India, where we see a lot of common problems between Africa and those regions.”

Some of the standout investments CV VC has made on the continent include House Africa, a firm combating property fraud with the blockchain, Mazzuma, a blockchain and AI-powered mobile and cross-border payment ecosystem that has processed over $100 million and Revix (now called Altify), a South African gamified investment app.

CV VC navigates crypto regulation volatility on the continent by funding startups in multiple markets to mitigate risks in case of an unfriendly regulation in one market. “So when we invest in companies, we're looking for companies that from day one, they might not have to operate in all the markets from day one, but they've got to focus on multi-market strategies in the short term.” Most of the companies it invests in blockchain serve as the technology infrastructure, but they fall under some other established regulation framework. “For example, House Africa. There's no crypto element that needs to be regulated. It's a proptech startup that just uses blockchain.”, CV VC, according to Naicker, is proud of the recent progress Africa’s three biggest markets, Nigeria, Kenya, and South Africa have made policy-wise.

Although tech startups, especially early-stage ones, globally have been hit by a drop in funding and a tech downturn in 2023, caused by high interest rates and inflation which has seen global investors retreat their investments to safer vehicles, Naicker is optimistic that global interest rates will fall. The macro economy will become more healthy this year.

For global funds interested in the continent’s blockchain industry but do not have adequate context about the continent, Naicker advises them to bring on team members or local venture partners with knowledge of the African market to better evaluate investment opportunities. Naicker noted that in his experience a lot of early-stage startup funding comes from African VCs and founders who understand the context of the African market. Similarly, collaborating with funds whose portfolios align with their investment thesis would do a lot of good, Naicker said.

“So I think the first thing would be for global funds to bring on either full-time team members or venture partners that are embedded within the African space, so they have access to that deal flow and they've also got the knowledge on how to evaluate that deal flow and that will allow them to start deploying capital a lot earlier. So maybe at the seed stage, because even if they don't understand the business completely, those local partners do, and they can do the due diligence for them on the ground.”

For Naicker, African startups can better their fundraising chances by building solid relationships with investors and key experts before the fundraising process begins. “Build relationships, and run a proper, sophisticated fundraising process, it makes you look serious about your business and professional. Thirdly, build a strong advisor base around you,” he said. He also recommended building a product that can be turned into a viable business. “Don't fall into the engineer’s dilemma, that you need to build something perfect before you launch it. If we're a VC looking at a product, we want to see validation that people are willing to pay for your solution that solves a specific problem for them.”