RaliCap, an early-stage venture capital firm focused on emerging markets fintech, has launched a $30 million fund. Last month, the firm, formerly known as Rally Cap Ventures, reached its first close of $20 million (its initial target) before increasing the fund size, signaling a strong LP appetite.
The two-year-old VC fund invests in B2B and API-first fintechs across Africa, Latin America and South Asia at pre-seed and seed stages. It expects to achieve a second close by the end of June.
RaliCap was first a collective before a fund, Hayden Simmons, the general partner who launched the firm in 2020, told TechCrunch in an interview.
As someone who is hands-on -- he boasts a decade of experience working for emerging market fintechs such as Migo, Novi and Juvo in business development and partnership roles -- Simmons said he saw a prospect in aggregating a community of "experts" (primarily operators and angels) to collaborate via Slack on deal sourcing, due diligence and founder support and invest in emerging market fintechs.
"This way, we thought we could outperform traditional venture models in driving value to founders and getting more people involved in the venture capital game," Simmons told TechCrunch on a call.
Two years on, this collective has nearly 240 individual LPs. They include executives and managers from fintechs such as Wave, Block, MercadoPago, Rappi, Flutterwave, Yoco, Visa, Plaid, Stripe and Coinbase -- and e-commerce platforms like Jumia and Shopify. About 40% are based in the U.S., while the rest are spread across Africa, Latin America and Southeast Asia, markets where they deployed more than $6 million last year.
But at some point, most collectives with this strategy or a similar one try to launch and run funds (Future Africa and AngelList are some examples), which is what rali_cap found itself doing soon enough.
"By the end of 2020, we recognized that was too passive of a strategy," Simmons remarked. "We had this super engaged community of all these fintech angels, but we decided that it made more sense to have our capital, as well to be able to fund the deals that we were also seeing."
We've also seen this play out with angel investors who have become prominent solo venture capitalists like Olumide Soyombo of Voltron Capital -- and globally, Elad Gil and Lachy Groom.
Last year, RaliCap raised $2 million, money it has since deployed. And as a fintech-focused firm, it ensured the limited partners for this new $30 million fund came from firms with an affinity toward fintech. They include Breyer Capital, Propel VC, Better Tomorrow Ventures, FT Partners, Bain Capital, Lateral Capital, a few family offices, HNIs and a multibillion-dollar crossover fund also known for investing in smaller funds.
RaliCap has backed 12 African startups, 13 Latin American startups and 7 Asian startups. They range from banking-as-a-service and card issuance players to open finance and SME digitization platforms, including Belvo, Mono, Minka, Stitch, Union54, Pomelo, Simetrik, Brick and Abhi. Meanwhile, some of RaliCap's LPs have taken part in follow-on early- and growth-stage rounds of these startups.
"Our whole thesis is that the unit economics of investing in early-stage B2C fintech in these markets don't make sense yet," said Simmons, on why rali_cap only invests in B2B fintech platforms.
"So it's still too hard to build B2C products from multiple markets in Africa that target a large enough total addressable market (TAM) due to the fragmented nature of the continent. The focus on APIs enables more efficient expansion within a market because they can grow the TAM, help B2C fintechs underwrite people at the last mile, stitch together multiple markets and enable cross-regional expansion," he added.
RaliCap is particular about startups in large markets across these regions -- Nigeria, Egypt and South Africa in Africa; Brazil and Mexico in Latin America; and Pakistan and Bangladesh in South Asia. "But we're always open for exceptions," said Simmons.
According to partner Kyane Kassiri, RaliCap invests between $200,000 and $500,000. He said the firm tends to lead pre-seed deals and participate in seed rounds. Kassiri, who had a brief stint at Berlin-based VC firm Target Global before joining the early-stage fund earlier this year, had worked closely with Simmons during the duo's time at Lateral Capital.
With experience at both ends of the spectrum -- being an angel investor with Suya Ventures to Target Global, which has more than $3 billion AUM -- Kassiri believes founders look for two particular groups of investors on their cap table. First is the multibillion-dollar AUM kind of VC, which can double down in every round and push you toward IPO. And second is operators-cum-investors that bring domain expertise and an expansive network to talent and resources -- which is RaliCap's sweet spot.
"Our goal is to help the founders by opening up LP buffers and a whole community of our LPs to bring value and not necessarily take active board positions," he said. "We're here as an enabler to help them go from zero to one. That's one way we position ourselves."
RaliCap runs its collective arm on Sydecar. It's a deal execution software for venture investors that raised $8.3 million from RaliCap and other backers last month. The platform's CEO Nick Talreja also wears another hat as RaliCap's legal advisor. Other strategic advisors of the fund include Adia Sowho, the CMO of MTN Nigeria; Rob Eloff, the general partner at Lateral Capital; and Sheel Mohnot, the general partner of Better Tomorrow Ventures.
“I’ve been truly amazed to see rali_cap evolve into the strong brand it’s become, rooted in its community of top global fintech operators," said Mohnot, whose firm backs RaliCap as an LP. "Their pan-emerging market coverage gives them a holistic perspective on industry trends."
RaliCap's new fund coincides with the introduction of similar funds launched by firms like Tofino Capital to attract founders at their earliest stages across emerging markets. But from a pure fintech-focused lens, rali_cap sort of stands out. Last year, fintech accounted for the most VC funding in these markets (about 60% in Africa, 39% in Latin America and 25% in Southeast Asia.)