Following the articles bellow, I would like to through my vote and support behind venture firms in South Africa.. We really do need more of you. Can we really expect foreign investment of we are not prepared to invest ourselves..?
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THE venture capital market in the Western Cape is fraught with difficulty. Unfortunately venture capital in these parts has a bit of a legacy – courtesy some rather dodgy operators who, especially in the late nineties, got investors in a froth about an array of far fetched projects. Take a bow Prestige Ventures and several others.
Most failed dismally with the odd project surviving with scant prospects intact. The bottom line is that enthusiastic investors – keen to back new technologies, unique and groundbreaking services – lost a pile of cash.
To this day the skepticism from those hyped up days lingers, making it extremely difficult for entrepreneurs and venture capital funders to find the necessary financial support for new endeavours.
With job creation a key to continued economic growth in the region it is sad that new ventures risk being snuffed out for lack of funding and investor support.
Thankfully, there are some worthwhile efforts underway.
Cape Venture Partners (CVP), which has been operating for two years, is determined to rouse the Western Cape from its venture capital phobia.
CVP CEO Tony Mallam – previously involved in the consortium that acquired KFM - concedes there is a good deal of frustration in finding funding for local venture capital projects.
"We have found the venture cap stigma difficult in the market. Venture capital is perceived as very speculative thanks to a number of dodgy operators in the past. At CPV we try to make companies more respectable before approaching investors for funding. It's a lot easier to approach investors when a project has a track record and a customer base."
"At the moment we are really acting as intermediaries between entrepreneurs and inves-tors…basically we groom venture capital projects for introduction to investors."
"We find entrepreneurs, take them on after screening, fix what needs to be fixed, get the valuation of the business up and then introduce them to appropriate funders, be it VC funds, Business Partners, or in most cases private investors."
Mallam says CVP is different to other venture capital fund specialists. "We ask for small fees and prefer to rather take up a small (5% to 20%) strategic stake in the venture. We then act as advisors until the venture 'grows up'."
This is a different modus operandi to other venture capital specialists in the Cape, who take large fees for raising capital for a venture but do not necessarily invest in the venture themselves.
Mallam says that by investing in a fledgling project CVP ensures it is taking the same risks as any early stage investors.
"Our key difference, though, is that we charge very little in the way of fees, as the nature of our clients and their early stage of business generally means they cannot afford expensive consultants. Instead, we become partners to the business, and take success-based reward, usually a percentage of the business."
In this way, Mallam says CVP will build up a portfolio of investments that in time will have value. "As such we work 99% at risk. It's hair-raising to say the least, but over two years we have developed a good reputation in the market, mainly for our ability to find winners."
Mallam says CPV is an associate member of the South African Venture Capital Association (SAVCA). "We formed up just on two years ago, four partners from different backgrounds but with certain commonalities. These are all professionally qualified, all having corporate backgrounds, but then having been entrepreneurs ourselves more recently, with varying degrees of success."
He says CPV is essentially looking to assist technology entrepreneurs to make it through the obstacles of either starting up in business or coping with extreme growth. "We focus on early stage businesses, either at concept level, prototype or even some limited customers."
By CPV's definition, 'technology' can be either hardware, software, devices or even service businesses that are enabled by means of technology.
Mallam says CPV's primary source of funding at this stage is Angel investors (ie private individuals). "We intend to formalise this pool of investors, and create an Angel network, across the country. Angel investor networks are well established in Europe and the US, and there's no reason we should not have similar success here."
CPV has enjoyed a busy two years – receiving around 250m venture capital proposals. These proposals were whittled down to 30 viable opportunities in which CPV eventually invested in five. To date CPV has arranged R10 million for venture capital projects.
CPV's best know projects are Uninet (the Knysna-based 'wi-fi' network) and Rocket Seed (the developers of 'rich' e-mail for corporates) and Skyrover (a mobile hot spot specialist).
Skyrover is currently looking to raise R10m to fund its expansion into the UK market.
Mallam believes more projects could be coming CPV's way this year.
"Out initial success is now seeing us getting referrals from entities like Ethos (RMB's private equity arm), PSG, Business Partners and HBD (part of the MarkShuttleworth empire)."
Mallam reckons the SA entire capital market is potentially worth R1bn in terms of required funding "at ay one point in time". There's a great opportunity for us because the early stage part of funding local business is woefully under-serviced at the moment."
CPV also has ambitions to start its own venture capital fund this year. "We are adamant that we will start our own fund this year, and become the first true venture capital fund in SA."
http://www.cbn.co.za
