Raising Capital: An Overview of South Africa’s Top VC Funds [and where the first Unicorn will come from in Africa]

Over the past 4 years since returning to South Africa, I’ve started 3 different businesses and each time I’ve come across the same challenge: raising capital investment.

Typically, the process of raising capital runs along the angel investor route of family and friends. I’ve been fortunate enough to raise a moderate amount of seed capital to the value of R1.5 million through my immediate network which has helped to “get out of the building” and establish minimum viable products (MVP’s) and so forth. However, when it comes to capital required to drive scale we often need to take that next step of approaching VC’s.

There are of course other vehicles for raising capital e.g. government funds, private equity funds, banks, accelerators, incubators and crowd funding platforms but in this post, I thought I would take a specific look at Venture Capitalist firms and only those which are looking to invest in early-stage, high-potential, high risk and high growth startups.

I reviewed the entire list of registered South African Venture Capital & Private Equity Association (SAVCA). I also looked at certain factors such as length of standing, key points of difference, number of exits, investment criteria and whether they have a twitter account or not (yes that’s right, let’s call this a reputational ‘cool’ factor’ and besides, what reputable VC firm in Silicon Valley is not on Twitter now anyway?).

So, after careful review, here is my preferred list of SA based VC funds.

Note: the top three are really the primary options if you’re a SA based, tech start-up.

1) Knife Capital 

Knife Capital is a growth equity fund manager with a specific focus on sustainable technology-enabled ventures. I view these guys as the Sequoia Capital of South Africa’s start-up ecosystem.

What makes them different is their established and integrated accelerator program Grindstone which accepts 10 start-ups each year into their accelerator program. Applications start in September annually.  They are also developing tools like Yuediligence to further help early stage startups with their due diligence related growth efforts and based on this insightful piece they also seem like grounded and just cool dudes in all round. 

Number of exits to date: 5 (but… based on their incredibly performance over the past 5 years this is likely to grow substantially)

Investment criteria: Click here

Twitter: @knifecap 

2) 4Di Capital

According to Justin Sanford (the managing partner), 4Di capital is looking too invest in ‘intellectual property businesses that leverage tech that can scale globally.’ What makes them different is the scale of the fund which now sits at R1.6 billion owing to a merged capital fund representing Convergence Partners alongside the Ruperts and the Oppenheimer’s.

Number of exits: 2

Investment Criteria: Demonstrable opportunity for substantial scaling and creating a defensible market position

Twitter: @4dicapital

 3) Intel Capital

Intel Capital has seen more exits than any other tech VC heavyweight: Greylock Partners, Ignition Partners, Sequoia Capital, Kleiner Perkins Caufield and Byers, or even Google Ventures, according to new data from financial research firm PrivCo.

What makes them different is the fact that they stage agnostic investors which makes them very appealing – on top of that they offer a ton of resources, including insights into business roadmaps, engineering methodologies, and access to their innovation labs.

Investment criteria: http://www.knifecap.com/about-us.php

Number of exits: 22

Twitter: @Intelcapital

 4) Hasso Plattner Ventures

Hasso Plattner launched their European based arm in Cape Town in 2008 and invest in seed or growth stage start-ups. After reviewingI made two observations which are relevant to South African based start-ups. Firstly, to qualify for seed stage investment you must have studied at their HP institute but one doesn’t exist here in SA and secondly, with regards to growth stage investments your start-up must have an annual turnover of R150 million… so based on that I was’t sure whether to include them on this list as these criteria feel quite exclusionary in the current SA ecosystem.

Investment criteria: For the full list click here.

However, they have seen 17 different exits and that is only second to Intel Capital.

Twitter: @HassoPlattner

5) eVA (eVentures Africa) Fund

Interestingly, the fund was launched around the same time as Knife Capital (2010). What makes this fund unique and perhaps they only reason why they on this list, is that they are focused on mobilising capital from the Netherlands and Europe with a view to investing in sub-saharan African based start-ups. Another contributing factor is the fact that their advisory board members are also a group of reputable heavy hitters.

Investment criteria: Click here

Number of exits: 0 to date (but the board has exited their own companies like booking.com)

Twitter: @evafund

[Where the first Unicorn will come from in Africa?]

When venture funder Aileen Lee coined the term “unicorn” in late 2013 to describe the $1 billion startup, it was a fitting description—there were only 39 in existence. Now we may need a new term to describe the phenomenon. In little over a year, the number of unicorns has jumped to 80. It is inevitable that at some point Africa will give birth to its first unicorn – and seemingly it is all based on the start-up ecosystem itself.

Sparklabs Global Ventures recently released this report on the worlds best start-up ecosystems. In the report, they evaluate the ecosystems by working with the following factors:

  • Funding Ecosystem & Exits
  • Engineering Talent
  • Active Mentoring
  • Technical Infrastructure
  • Startup Culture
  • Legal & Policy Infrastructure
  • Economic Foundation
  • Government Policies & Programs.

When one applies these same factors to countries across Africa it doesn’t take much digging to realise that South Africa is hands down the most likely country to build Africa’s first unicorn.

Let’s just take the first factor: Funding Ecosystems and Exits.

In terms of funding, the African Venture Capital and Private Equity Association (AVCA) report here that South Africa leads the way in terms of funding funding related share in the continent. Then with regards to exits, South Africa has double the number of exits than any other country:

  • South Africa continues to lead in exits, with 42% of all activity between 2011 and 2014. The West Africa region was the second-most popular region for exits during that period (26%), while East Africa’s exit activity was 14%, increasing from 9% during 2007 to 2010 as the market matures.

Further arguments for South Africa can be made based on the aforementioned factors too.

So where do you think the first African unicorn will come from?

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