Grindstone Ventures has launched a $27.7 million venture capital fund aimed at supporting high growth, technology driven businesses across Africa, with a particular focus on companies in South Africa.
The new fund will invest in startups from the Seed stage through Series A, targeting a part of the market where many promising businesses struggle to secure enough funding to move from early commercial success to the level of growth required by larger institutional investors.
Led by Thandiwe Maqetuka, the fund was established in partnership with Knife Capital and Thinkroom. It builds on the experience of Grindstone Ventures Fund I, which invested in seven companies and helped several of them secure additional seed and growth funding from investors in South Africa and abroad.
The new vehicle is seeking an initial close of about $8.3 million and plans to invest in between 15 and 20 companies. Most of its investments are expected to be in South Africa, although the fund will also consider selected opportunities in other African markets.
Bridging Africa’s funding gap
A major focus of the fund is what investors describe as Africa’s “missing middle”, referring to businesses that have already demonstrated demand for their products or services but have not yet reached the scale needed to attract larger institutional funds.
The transition from Seed funding to Series A remains one of the more difficult stages for African startups, according to Keet van Zyl, co founder of Knife Capital.
The challenge comes at a time when Africa’s technology investment market remains mixed. While some areas of startup financing have shown improvement, Seed stage investment has continued to face pressure, leaving many young companies searching for capital to finance their next phase of expansion.
Maqetuka said Grindstone Ventures wants to focus on companies caught between proving that their businesses can work commercially and achieving the scale needed to secure larger pools of capital.
She said the opportunity goes beyond simply putting more money into the market. The fund intends to identify promising businesses early, invest when capital is still difficult to secure and work closely with founders to help them build companies that can scale, attract institutional investors and eventually generate returns.
Funding backed by hands on support
Grindstone Ventures will provide funding from Seed through Series A, with the possibility of additional investment for companies that show strong performance and growth potential.
The fund plans to take meaningful minority positions in its portfolio companies while concentrating follow up funding on businesses that perform particularly well.
Its support will also extend beyond financial investment. Founders will have access to assistance with business strategy, governance, commercial expansion, market access, future fundraising and preparations for potential exits.
The partnership brings together experience in venture capital, entrepreneurship, business acceleration and the development of technology companies.
Grindstone’s wider ecosystem reviews more than 1,000 businesses annually, while about 50 companies take part in its accelerator programmes each year. That pipeline is expected to provide the new fund with access to businesses at different stages of development as it builds its portfolio.
A strong focus on exits
Unlike strategies that rely heavily on rising valuations during successive funding rounds, Grindstone Ventures is placing considerable emphasis on actual exits and the ability to return capital to investors.
Maqetuka said the fund has been deliberately structured around the realities of venture investing, with the strategy involving diversification at entry, allowing portfolio companies time to demonstrate their performance and then directing more capital towards the strongest businesses.
She stressed that higher valuations on paper do not necessarily translate into returns for investors, noting that exits are what ultimately return capital.
The approach builds on the experience of Grindstone Ventures Fund I, which invested in seven businesses, including Locstat, Welo and AgriLogiQ. Some of those companies later attracted additional equity investment from international investors, while the fund is also working towards an exit that is expected to return capital to its investors.
The strategy reflects a wider effort within Africa’s venture capital industry to show that startup investments can produce genuine liquidity for investors rather than depending mainly on new funding rounds and higher valuations to demonstrate portfolio growth.
Expanding access to venture capital
Grindstone Ventures also wants the new fund to contribute to a more inclusive startup investment environment.
At least half of the companies in its portfolio are expected to be black owned, while the fund will also seek greater gender balance through its investment in female founders and women in leadership positions.
Maqetuka said financial performance and a more inclusive investment ecosystem should not be treated as competing objectives.
Although South Africa will remain the fund’s main investment market, Grindstone Ventures will consider selected opportunities in other parts of Africa.
By concentrating on the Seed to Series A stage, the fund is targeting a critical point in the growth journey of African startups, when businesses often need significantly more capital but may still be too small or early stage for larger institutional investors.
With follow on funding, practical business support and a clear focus on exits, Grindstone Ventures hopes to help more companies cross that difficult funding gap while creating a portfolio capable of delivering meaningful returns to investors.
