When the Verod Capital was founded in 2008, its aspirations were continental, yet it had to start somewhere. Its first foothold, as an innovative private equity firm seeking to establish its credentials in raising investible funds, was in Nigeria’s commercial capital, Lagos.
It was a most inauspicious time when the world was in the grips of the global financial meltdown.
At the time, all but one of the private equity companies operating in Nigeria were foreign players with headquarters based in Johannesburg, London, or Dubai, with only a local presence in Nigeria.
15 years after Verod Capital founded by Danladi Verheijen and Eric Idiahi set up shop in Nigeria, it appears to have indeed come of age, seeing huge opportunities in companies that are replacing imports with domestic production in Nigeria.
“What Danladi and Eric have built at Verod is impressive. They have an incredible track record of investing in companies across multiple sectors and creating significant value,” Wiebe Boer, President of Calvin College, Michigan says in a chat with BusinessDay.
He added, “Their move to also include impact investing as part of their portfolio focus was a big part of making that type of investing widely accepted in the West African Venture Capital and Private Equity communities.”
From agricultural products to manufacturing, findings showed Verod is bullish towards companies tapping into Nigeria’s import substitution drive by producing goods locally that were hitherto imported abroad.
“There are massive needs and opportunities for import substitution. We look for entrepreneurs who are skilled, who can scale businesses, and who have the requisite levels of corporate governance in place to make us comfortable enough to back their businesses with growth capital,” Verheijen, managing partner and co-founder of Verod says in an interview with How We Made It In Africa.
What separates Verod Capital from other private equity firms in Africa is their hands-on approach to helping businesses succeed
Verheijen, a graduate of Stanford University as well as an MBA holder from Harvard Business School, took a 70 percent pay cut from McKinsey & Company in Chicago, where he was working as a strategic consultant across multiple industries, to join Ocean and Oil Holdings in Nigeria, which opened his eyes to the investment opportunities in Africa.
Around the same time, Idiahi, a graduate of the University of Houston, Texas, and also an MBA holder from Said Business School, University of Oxford, was feeling a burning desire to return to Nigeria.
“I felt I could create the biggest impact in Nigeria. I moved back and started working for a firm called Financial Derivatives where I was doing investment banking and financial advisory,” recalls Idiahi.
He became a mentee of Bismarck Rewane, Financial Derivatives’ founder, who showed him the ropes of the investment landscape in Nigeria.
This was a dream opportunity for Idiahi who spent his childhood years being fascinated by success stories in the investment world like Warren Buffett. Those stories helped to spark a desire in Idiahi to be part of the investment banking world.
A serendipitous encounter in Lagos brought the two entrepreneurs together.
“I came across Eric while at Citibank and we were both working on the same deal representing our institutions. Eric was on the sale side and I was on the buy side of that deal. The deal did not close but we became great friends; we spoke a lot about our dreams and aspirations to invest in Nigeria and in Africa and to set up a world-class investment institution run by Nigerians and Africans, finding the best opportunities on the continent, delivering great returns and also having a significant amount of impact in everything that we do,” says Verheijen.
And that is exactly what they did.
It took them two years of getting to know each other before they actually set up Verod Capital. But they did not begin in the private equity space. The simple dream was to build an investment firm, locally-run and locally-based to provide the best return on investment for their clients as well as make an impact.
“We didn’t have a track record then and in 2008, the whole world had just crashed. It was challenging to get people to trust us with their money but we were very persistent and sincere with what we wanted to do for businesses,” says Idiahi.
Most private equity firms raise money through a pool of investors where they put the money into a fund. But without a clear track record of success in the business, Verheijen and Idiahi knew they would be unable to raise a fund.
To mitigate against this, for the first couple of years, the two entrepreneurs raised money on a deal-by-deal basis.
The most important thing was finding great companies and finding investors who would trust them with their capital to invest in those companies and help them grow.
“The first deal that put us on the map was a company called GZI, an aluminum can manufacturing company. They provided aluminum cans to the brewers and bottlers in the region, such as Nigerian Breweries, Guinness and Coca-Cola,” says Verheijen.
This was a new factory set up by four Israeli entrepreneurs in Nigeria. Before GZI, cans were basically manufactured out of Nigeria with the only two manufacturing plants in Africa located in Johannesburg and Cairo.
“We pushed the investment and put some growth capital into the business and we invested with the entrepreneurs and supported them to build what is today the second-largest can manufacturing entity across Africa. The factory has manufacturing operations in Nigeria and also South Africa. Its major competition is Nampak. This was a runaway success story. The investors who invested with us made over 10 times their money,” avers Verheijen.
This investment also spoke to the company’s values of not just focusing on returns, but having an impact in the local communities as well.
According to Idiahi, the deal saved Nigerians tens of millions of dollars in foreign exchange and created hundreds of jobs directly and thousands of jobs indirectly in the supply chain. It also allowed multinationals, like Coca-Cola and Heineken, to order for cans and have them delivered in 10 days instead of the 20-week lead time that previously existed when they ordered from Europe.
“It was a very transformative investment and we love that play of import substitution because we think Africa needs to produce more and Africa cannot survive on just exporting natural resources to the West and importing finished goods. We need to manufacture more locally and add value more locally, create jobs and keep more of the wealth here,” says Verheijen.
With the success of GZI and other investments, Verheijen and Idiahi were now ready to raise a private equity fund. They had the track record on paper and they put together a good team and they felt investors would not be taking a blind punt on them.
“We had several deals – some were great and a few provided learning experiences, which we could speak frankly about to our investors. As such, when we tried to raise our first institutional fund in 2014, we raised it relatively quickly. That fund was a $115 million fund. In 2019, we raised a successor $200 million fund,” says Verheijen.
Raising a fund in the private equity world differs from firm to firm. Verod Capital has a largely foreign investor base spanning the United States, Europe and also Africa. Their strategy since inception is to invest in businesses driven by the Nigerian consumer growth story as well as exploring consumer opportunities in Ghana.
They are involved in everything from providing strategic and operational support, to recruiting executives and providing access to industry experts or specialists who can help companies enhance their operations, access new markets and grow significantly.
“We don’t do oil and gas or real estate but focus on things that are driven by services. Right now, we have over $320 million under management, which is across two funds so there is so much we can invest in and as a result, we tend to limit what we invest in because of capacity,” says Idiahi.
Typically, Verod invests in well-established businesses that fall within the $10 million to $40 million range, that they can use their expertise to help achieve economies of scale.
The money is also raised from a large pool of development and finance institutions across the world like FMO, the Dutch Development Bank, and CDC, the United Kingdom’s development finance group.
“We also approach a lot of big investment companies across the world like Morgan Stanley and we present to them and say this is what we want to do, this is our business plan and we approach them for money in that sense and then they give us a commitment for a pool of funds and we deploy that capital into companies in Nigeria,” says Idiahi.
Perhaps what separates Verod Capital from other private equity firms in Africa is their hands-on approach to helping businesses succeed.
Idiahi and Verheijen are involved in everything from commercial contract negotiations to even providing a pool of resources to find the best human capital for their organizations.
“We don’t like to call the companies we invest in ‘portfolio companies’, because that implies that we own the companies. We like to see ourselves more as partners,” says Verheijen.