Sabou Capital, a new SME fund founded by Surrayah Ahmed, co-founder of Aduna Capital, has launched to bridge investment gaps in Anglophone and Francophone Africa. The fund will invest between $350,000 and $500,000 in 25 late pre-seed to Series A companies in sectors such as agriculture, agroprocessing, renewable energy, climate, supply chain, logistics, and mobility.

The name Sabou is derived from "Sabo," a Hausa word meaning rebirth or renaissance, blended with a French tonation. This unique approach reflects the fund's focus on investing in businesses that use technology to improve operations, rather than being purely tech-driven. Ahmed explained that Sabou Capital is taking a different approach from traditional venture capital firms, targeting SMEs that are primed for scale but lack structured financial support.

The creation of Sabou Capital was motivated by differences in vision at Aduna Capital, which remains active as an angel investment group in Northern Nigeria. Ahmed noted that the team was well aligned on the "what" and the "why," but differed on the "how," leading to the creation of Sabou Capital with a broader focus on SMEs in secondary cities across Nigeria, Senegal, and Côte d'Ivoire.

Sabou Capital expects a modest 2-3x return on investment, closer to the 3-5x range typical of private equity, compared to the high-risk 10x expectations of venture capital. By targeting companies that fall outside the traditional VC model, Sabou Capital will compete with private equity firms such as Aruwa Capital, Afrinvest, and Catalyst Fund. Ahmed emphasized that Sabou Capital is a hybrid, looking at SMEs with growth potential, not necessarily VC-scale, but with unmet demand that can leverage funding and technical assistance to grow.

The fund's approach furthers an argument that most African startups don't fit the mold of the typical venture capital model. Ahmed noted that most companies on the continent are actually SMEs and do not fit into the definition of VC-backed companies. This highlights the need for alternative investment approaches that cater to the unique needs of African SMEs.

Sabou Capital is also adopting a gender-lens investment approach, prioritizing funding for women entrepreneurs. Ahmed cited statistics showing that for every dollar invested in a woman, the return is 2x, yet women face disproportionate barriers to funding. As someone who has struggled to access funding as an SME founder in Northern Nigeria, Ahmed understands these barriers firsthand.

To support its portfolio companies, Sabou Capital will offer technical assistance to ensure businesses have strong corporate governance, financial management, and operational systems in place before deploying funding. Ahmed emphasized that the fund provides support to make sure these businesses are investment-ready.

A critical part of Sabou's strategy is the addition of Christian Amouo, a private equity professional with deep expertise in Francophone markets, as a general partner. Amouo previously launched his fund in Cameroon, investing in four companies, three of which remain operational. This expertise will be instrumental in helping Sabou Capital navigate the complexities of Francophone markets.

While Nigeria remains a key market, Sabou Capital is diversifying risk by investing in Senegal and Côte d'Ivoire—economies with projected annual growth rates above 6% and currencies pegged to the Euro. Ahmed explained that as Nigeria grapples with high inflation, currency devaluation, and slower growth, the firm decided to leverage the expertise of the founding team to diversify its risk.

Sabou Capital has yet to begin formal fundraising but plans to launch a roadshow in July. With 20 startups already in its pipeline, the firm aims to shortlist two to three for its first round of investments. Ahmed stressed the fund's long-term vision to turn SMEs into large enterprises and exit to larger private equity firms or strategic buyers.

The launch of Sabou Capital marks an exciting development in the African startup ecosystem, providing a much-needed alternative to traditional venture capital models. As the fund begins its investment journey, it will be interesting to see how its unique approach impacts the growth and development of SMEs in Anglophone and Francophone Africa.