22 March 2012 | By: Marc Hasenfuss of the Financial Mail | Source: www.fm.co.za
Knife Capital will pitch at growth equity opportunities in the broader technology space.
The fund managers behind SA internet billionaire Mark Shuttleworth's successful Here Be Dragons (HBD) Fund2 and the vibrant venture capital initiative AngelHub will be aiming for well-heeled third-party investors with the launch of Knife Capital.
While executive directors Eben van Heerden and Keet van Zyl, formerly working under the guise of Powered by VC, have their roots in venture capital, Knife Capital will pitch at growth equity opportunities in the broader technology space.
But that does not entirely rule out grabbing early-stage opportunities. Knife Capital has managed to coax on board highly regarded venture capitalists Andrea Bohmert (ex-Hasso Plattner Ventures Africa) and Brett Commaille (ex- Remgro's InVenfin).
Van Zyl says: "I reckon it's the best team in the market that we could muster. It's basically Mark Shuttleworth's team, but broadened with the skills of Andrea and Brett."
Official performance figures on the HBD Fund2 are not open for public scrutiny, but it's obvious substantial profits were taken on exiting investments in financial services technology company Fundamo (sold to Visa) and C- Sense (sold to General Electric) and the exit of the next major investment is also on the cards.
Van Zyl notes the proceeds from the well documented HBD Fund2 exits already exceed the full fund value and that the fund is on track to achieve an impressive overall internal rate of return (IRR).
He believes Knife Capital, which will be looking to raise around $50m (or R400m) before year-end, can replicate the success of HBD Fund2. "We are looking to generate IRRs of 30% over the fund life, which will be five to seven years."
Van Zyl says Knife Capital is flexible about raising funds. "We may look at raising a smaller tranche of funding -- maybe R100m - R150m -- which will allow us to close off a fund and build a track record before testing the investment market again."
The "entry ticket" will cost between R20m and R30m, which means that pension funds and institutions, as well as "super angel" funders offshore, will be the initial targets.
But there is a chance that ordinary investors can also clamber aboard at a later stage.
Van Zyl says some thought has been given to listing Knife Capital or a Knife Capital fund on the JSE. The fact that it will be targeting investment in unlisted technology companies could make the venture appealing as a listed entity, especially considering the impressive track record built up at the HBD Fund2.
"We are not opposed to a listing, which might even include looking at the AIM in London. We think of it as a 'Plan B'."
A listing could be an advantage in attracting asset management funds, bringing Knife Capital into an institutional mandate which favours investment in listed entities rather than unlisted ventures.
On the investment process, Van Zyl says Knife Capital will take noncontrolling stakes (20%-45%) in unlisted companies based in Southern Africa. "We are looking at investments of between R10m and R50m, which will get us significant minority stakes where we hold some sway at board level."
The emphasis will be on companies with established revenue lines, positive cash flow and market traction.
He says Knife Capital has already conducted due diligences on a number of potential deals. "This way we have something to show potential investors around our strategy."
Van Zyl hints that deal flow won't be a problem for Knife Capital. "I get five funding requests in my inbox every day. But these are not always the best opportunities. The best deals come from our referral networks."
"And the best part is that we can still get deals in SA at a good price, unlike in the US, where there may be numerous venture capital investment firms chasing the same deal."