54 Collective, the accelerator that rebranded into a VC firm in August 2024, will not increase its ticket size to make follow-on investments in early-stage African ventures.
Given that most early-stage VC firms cut bigger checks than accelerators, 54 Collective’s transition came with the expectation that its average ticket size would increase.
The firm has a $40 million fund and a $107 million for follow-on investment. It invests up to $250,000 in startups and provides non-dilutive capital up to $150,000, with a 5% annual interest.
“If we were to increase the size, we wouldn’t have the funds for follow-on,” Bongani Sithole, 54 Collective’s CEO, told Techcabal on Tuesday.
30% of 54 Collective’s fund is allocated for follow-on investments.
“Relatively we are quite competitive in terms of the ticket size that we are providing for the market,” Sithole added.
54 Collective believes early-stage African startups only require sufficient capital and support to address market pain points.
“I think they are still figuring out a deployment strategy, considering how small the dollar size is relative to the average debt round size,” one investment analyst who asked not to be named said. In 2023, the average investment deal across all stages was $2.4 million, per African Private Equity And Venture Capital Association.
54 Collective declined to provide specific return expectations for its non-dilutive capital because these investments started in June 2023 and haven’t been in place long enough to yield returns. It expects returns within three to five years and repayments from startups after they’ve grown past the seed stage. 54 Collective’s non-dilutive investments are designed to help entrepreneurs, not for profit. It is not giving away “free” money, as it could lead to less responsibility, Sithole told TechCabal. The capital is intended to be revolving to benefit future founders.
While cautious about its investments, 54 Collective isn’t “worried” about unrecoverable funds or defaults. “Default” means a startup can pay its loan obligations but chooses not to.
Since 2023, 54 Collective has deployed nearly $6 million to Kenyan entrepreneurs. It invested $1.3 million in Kenyan bus ticketing platform BuuPass, and an unknown amount in Powered by People (PBP), a B2B platform that connects ornament makers with buyers in North America. The firm has offices in Kenya, Nigeria, and South Africa, and plans to set up one in Egypt.
