South African venture capital firm Grindstone Ventures has launched a R500 million fund aimed at backing high-growth, technology-enabled businesses across Africa, providing fresh capital for startups navigating one of the continent’s most difficult funding stages.
The new fund will invest in companies from Seed through Series A, with Grindstone targeting businesses that have already demonstrated early commercial potential but require additional capital to reach the scale needed to attract larger institutional investors.
R150 million targeted for first close
Grindstone Ventures is targeting an initial R150 million first close, with plans to ultimately build a concentrated portfolio of between 15 and 20 companies.
While the investment mandate extends across Africa, the majority of the portfolio is expected to come from South Africa, alongside selected investments elsewhere on the continent.
The fund is led by Grindstone Ventures managing partner Thandiwe Maqetuka and has been established in partnership with South African investment firm Knife Capital and entrepreneurship development company Thinkroom.
Tackling Africa’s startup ‘missing middle’
At the centre of the investment strategy is what Grindstone describes as Africa’s “missing middle” — the funding gap facing startups that have moved beyond proving their business model but have not yet reached the scale required to secure larger institutional investment.
Maqetuka says some of Africa’s promising businesses are being caught between these two stages.
Rather than simply providing larger cheques, Grindstone intends to identify promising companies earlier, take meaningful minority positions and work alongside founders as they attempt to scale.
The fund will also have the capacity to provide follow-on investment to stronger-performing companies.
More than just startup capital
Grindstone’s approach will extend beyond financial investment.
Portfolio businesses are expected to receive support across strategy, governance, commercial growth, market access, capital strategy and exit readiness, drawing on expertise and networks within the wider Grindstone, Knife Capital and Thinkroom ecosystem.
This hands-on approach could prove particularly important for African founders trying to make the transition from promising startup to institutionally investable business.
Building on Grindstone’s first fund
The R500 million vehicle follows Grindstone Ventures Fund I, which invested in seven portfolio companies.
Those investments included South African businesses Locstat, Welo and AgriLogiQ, with several portfolio companies subsequently attracting additional equity investment from international investors.
Grindstone has also said it is finalising an exit from its first fund that is expected to return capital to investors.
The experience appears to have helped shape the strategy behind the new vehicle, particularly its focus on businesses sitting between early-stage validation and larger growth rounds.
Fund puts exits firmly on the agenda
While startup funding conversations frequently focus on valuations and fundraising rounds, Grindstone is placing considerable emphasis on eventually generating liquidity for investors.
The strategy involves initially spreading investments across its portfolio before directing additional capital towards businesses demonstrating stronger performance.
“Paper valuations don’t return capital to investors, exits do,” Maqetuka said when explaining the firm’s investment philosophy.
The approach reflects a broader challenge facing Africa’s venture capital ecosystem: building technology companies that can not only attract successive funding rounds but ultimately deliver sustainable returns to investors.
Focus on more inclusive African entrepreneurship
The fund also has an inclusion mandate.
Grindstone is targeting at least 50% black-owned businesses across its portfolio, while also seeking stronger representation of female founders and women in leadership.
The fund itself is described as female-led and black-empowered, adding another dimension to efforts to broaden participation within South Africa and Africa’s venture capital industry.
