Kalon In The News: Sunday Times

Kalon In The News: Sunday Times



The global tech boom that saw Amazon and Microsoft market valuations pass a trillion- and-a-half dollars in 2020 trickled down powerfully to start-ups – and SA was not left out of the action.

Although there were no multibillion-dollar initial public offerings (IPOs) – as with Airbnb, Doordash and Snowflake in the US, three of the 10 biggest IPOs ever for US tech
companies – investment poured into local start-ups.

In many cases, it was a case of investments from venture capital or investment funds that were already well established in technology, suggesting that the usual suspects had their eyes wide open for new opportunities during the pandemic.

The likes of Kalon, Havac and Rand Merchant Bank’s AlphaCode were among the most active investors in tech start-ups, significantly expanding their portfolios in 2020.

They were joined by Naspers Foundry, founded by the global player in late 2019 to support South African start-ups, with a $100m(R1.5bn)war chest.

In May 2020, Foundry swooped on one of the crown jewels of South African innovation, Cape Town agritech company Aerobotics, which uses drones, artificial intelligence and aerial-data analytics to provide tools for crop management.

Already regarded as a world leader in the field, the company had announced a R29m investment from local venture capital company Paper Plane Ventures in 2019. In May, Naspers Foundry injected a further R100m, making Aerobotics one of the big start-up winners of 2020.

Foundry followed up in November with a R45m investment in an online learning platform, The Student Hub, which provides access to vocational education to large numbers of students while reducing the cost of training.

This brought its total investments to about R200m since launch.

“We believe tech companies have the potential to be the cornerstone of SA’s economic growth and we want to play a role in unlocking that potential,” said Phuthi Mahanyele-Dabengwa, SA CEO of Naspers.

“Our investment in The Student Hub is an example of how digitalisation has the potential to address unequal access to education, create local opportunities, and enable increased participation towards a more inclusive economy,” said Mahanyele-Dabengwa.

These are common sentiments in local start-up investments, which are focused on meeting needs, as opposed to the typical Silicon Valley start-up, which tends to be about exploiting opportunity.

Fabian Whate, head of Naspers Foundry, concurred, saying it has supported “promising, best-in-class, early-stage tech businesses run by local entrepreneurs that have significant long-term potential and address societal needs”.

Naspers has also invested about Rl.9bn in existing online South African assets, including Takealot, Superbalist and OLX.

At the other end of the investment spectrum, the numbers may not be as spectacular, but the strategies are razor-sharp.

Kalon Venture Partners, a venture capital company set up under section 12(]) of the Income Tax Act, goesbeyond merely the tax incentive that encourages investing in small and medium enterprises through a 100% tax break. Rather, Kalon uses it to invest in startups with high growth potential and that meet local needs, straddling the investment strategies of Silicon Valley and Silicon Veld.

“We understand the problems digital technologies solve, and quickly recognise potential,” Kalon CEO Clive Butkow told Business Times last year.

Last week he said Kalon has “a very exciting pipeline of new investment opportunities, including education tech, and health tech”.

Its highlights of 2020 included online payments gateway Ozow hitting Rlbn in gross merchant value in one month for the first time, and artificial intelligence financial application Finchatbot raising R25m in a fundraising round geared towards European expansion.

Slightly further down the scale, cloud-based armed response start-up Aura raised R6m in a second round of funding from Havaic, a venture capital firm that specialises in early-stage, high-growth technology businesses.

This has enabled it to draw on 1,600 armed response vehicles operated by private security firms, and offer this aggregated, on-demand service to major clients like Uber, FirstRand and Momentum.

Rand Merchant Investments start-up incubator AlphaCode, a frontrunner in mentoring start-ups, has tended to focus on smaller investments in a larger number of early-stage businesses.

In 2019 it awarded “entrepreneurial packages” valued at R2m each to seven start-ups. In 2020, it awarded a further R450,000 to one of these, Oyi Medical Card – a savings card that can only be used for medical expenses and is supported by secure payments technology.

The business is symbolic of the motivation behind South African start-ups “Cardholders and their families can seek medical care with dignity,” said Oyi CEO Tami Ngalo.

“We are making health care accessible to everyone, with a social purpose to build healthy communities and sustainable wellness.”

It was also a typical example of how Covid-19 has prompted start-ups to become more agile.

“At the beginning of the pandemic, we were at 50%-60% human interaction when we would actively seek customers,” said Ngalo.

“Then Covid-19 struck and suddenly everyone was at home. We thought of a different way to approach people who were at home on their phones. We ramped up our spending on digital marketing and now we are 100% digital.”

AlphaCode runs an annual Incubate programme to identify, partner with and grow innovative financial services entrepreneurs. Successful applicants receive funding, guidance, accessto co-working spaceand opportunities to apply for further early-stage investment.

The programme has so far awarded R3Om in funding to 31 black-owned financial services businesses.

“Entrepreneurs have to overcome many challenges when they first start and it is crucial to know how to navigate these challenges for success,” said Andile Maseko, head of ecosystem development at Alpha-Code.

“Our mission is to help disruptive, earlystage businesses with pioneering ideas to make a meaningful impact in the financial services industry as we seek the next OUTsurance or Discovery.”

The coming year is expected to be as productive for tech start-up investment. In November, Stellenbosch-based Alphawave Group received a R100m investment from Kagiso Capital. Alphawave has previously invested in 12 businesses that are focused on “the internet of everything”, and intends to use the new funding to expand into advanced technologies to solve complex global issues.

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