Dr Reuel Khoza has teamed up with Hlayisani Growth Fund (HGF) to fund technology start-ups that are struggling to raise money. HGF has a R350m investment set aside for small businesses with potential for high growth.
SA is estimated to have about 1.5-million businesses, the majority of which are considered small to medium enterprises (SMEs). These businesses often struggle to to find and attract capital to grow their operations, a necessity for high-growth techn businesses that often need to swallow huge amounts to become profitable.
While small tech firms have access to more than $100bn (R1.5-trillion) in funding in the US each year, Africa is estimated to have received just $2.5bn in 2020.
The largest local capital raise in 2020 was for fintech platform Jumo, which received $55m from investors.
HGF is joining the likes of Naspers, Futuregrowth and Rand Merchant Capital, which are looking to plug these funding gaps while making a return for investors.
In an interview with Business Day, Khoza, chair of the Public Investment Corporation (PIC), said “R350m will never be enough” to address the funding gap for tech start-ups, but it does serve as a start for them. He said the fund is looking to raise more money so as to invest in even more businesses, adding, “I’d love to have R1bn to invest.”
Of the funds raised by HGF so far, R200m has been invested in seven businesses that it said “are expanding globally and operating on six continents”.
Dr Eugene van Rensburg, a partner at HGF, said it has invested in education technology player, Snapplify; transport app, GoMetro; communications platform, Wyzetalk; educator, Leap; cloud services provider, Opennetworks; market research firm, Sudonum; and internet services provider, Ikeja.
These are the type of businesses the fund is looking to grow, with HGF positioning itself as a strategic partner for tech start-ups.
“We invest in high-growth, high-impact SMEs that have a deep domestic marketplace and global appeal. We participate in late-stage venture capital. We’ve got entrepreneurs [in SA] with products, services and customer bases with such fast growth their revenue can’t can fund it,” Van Rensburg said.
Large funders
A number of funds have been set up in recent years to help entrepreneurs that are struggling to raise money through traditional channels. Recently, Naspers — a top 10, global technology investor — launched a R1.4bn venture capital arm, Foundry, in its own attempt to plug local funding gaps, focusing on established tech start-ups that are already generating revenues.
Foundry’s largest investment so far has been R100m in agritech business Aerobotics, which uses drones to help manage fruit farms. It also invested R30m in online home-cleaning services business, SweepSouth, and spent another R25m on Food Supply Network, a business-to-business online marketplace that integrates food ordering systems across the food services industry.
Another large player, asset manager, Futuregrowth — which has about R194bn under management — said in 2020 that it had set aside R280m to invest in tech businesses through its Development Equity Fund. The companies it has invested in include LifeCheq, a digital private wealth management business; Yoco, a point-of-sale and payments provider; Retail Capital, an alternative lender; and Cash Connect, a cash management and payment solutions provider.
Like Naspers, Futuregrowth has also invested in SweepSouth, but has not disclosed how much the fund invested. In February, Futuregrowth participated in a funding round for hearX, a local medical start-up that has conducted more than a million hearing tests and screenings worldwide.
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