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A dialog with Ketso Gordhan, CEO of the SA SME Fund, concerning the R1 billion VC Fund of Funds (VC FoF) which just lately had its first shut of R600 million.
This week, the SA SME Fund formally introduced that it had secured the primary shut of its R1 billion (~$51 million) Enterprise Capital Fund of Funds (VC FoF) at R600 million (~$30 million) in opposition to an preliminary goal of R500 million (~$25 million).
Via the raised capital, the SA SME Fund intends to deploy the capital in enterprise capital corporations which can be backing revolutionary startups constructing options which tackle South Africa’s most urgent issues.
TechCabal had a sit down with Ketso Gordhan, CEO of the SA SME Fund, to study extra concerning the rationale behind elevating the fund, the affect of such a fund within the nation’s enterprise capital business and innovation typically, in addition to the following steps in deploying the raised capital.
TechCabal: Please inform us a bit extra concerning the SA SME Fund and the current closing of the R600 million fund.
Ketso Gordhan: The SA SME Fund was established about 5 years in the past as an initiative of a bunch of CEOs from the personal sector. Initially, 50 corporations contributed R900 million, the Public Funding Company (PIC) utilizing the Unemployment Insurance coverage Fund (UIF), and Compensation Fund (CF) cash, contributed R500 million, which means we had a fund of R1.4 billion.
With that fund, we did personal fairness, enterprise capital, and debt investments in SMEs through intermediaries. Based mostly on that have, we realised that the 2 issues we wished to proceed doing have been debt and enterprise capital. So final yr, we raised a comparatively small R300 million debt Fund, with the Gauteng authorities offering us with R100 million of first-loss capital, the Industrial Growth Company added R100 million and we added R100 million, and we added R100 million. The fund primarily went to township companies within the Gauteng district as debt to SMEs.
During the last two years, we’ve been making an attempt to lift one other fund centered completely on enterprise capital. We have been lastly capable of obtain our first shut of it a number of weeks in the past, at R600 million. We hope that by the tip of the yr, we might have closed your complete R1 billion we got down to elevate, if no more.
The explanation we determined to lift this fund is that we realised the worth and energy of enterprise capital in driving innovation, financial progress, and discovering options to a few of our nation’s urgent issues. Additionally, we realised that there’s a scarcity of capital in VC and wished to assist plug that hole. With this new fund and the final one I discussed, we at the moment are the biggest institutional investor within the VC sector.
TC: What function do you assume the fund will play in making capital obtainable particularly the truth that we’re at the moment in a VC downturn?
KG: All cash we can elevate by this fund can be allotted to no less than 10 or 11 VC funds. We consider that’s going to considerably, and in a optimistic means, affect the VC panorama in South Africa as a result of these funds having extra belongings underneath administration by our contributions means they will put this into revolutionary startups. As an business, enterprise capital in South Africa has been doubling in measurement during the last three to 4 years and I feel we’re going to repeat that pattern one or two extra occasions.
Much more institutional capital is more likely to come into VC and we’re additionally very proud that we have been the primary to persuade a pension fund to allocate capital to a VC fund. The Consolidated Retirement Fund contributed R250 million of the R600 million that we introduced and we’re very pleased with that as a result of it’s a wanted growth within the progress of VC in South Africa.
We expect no less than yet another fund, if no more, to partake within the subsequent elevate of fundraising. It can take one other yr or two or three for this pattern to mature however ultimately, we’ll see bigger quantities of capital flowing from establishments into VC and we’re proud to have contributed to kick beginning this pattern.
TC: How vital are private and non-private sector partnerships in rising the VC business in South Africa?
In most nations the place enterprise capital has taken off, the federal government has performed a number one function in offering both first-loss capital or cheaper capital, and in addition incentivising different buyers into VC. In South Africa, sadly, we haven’t actually seen the federal government play that function. However the SA SSME fund has successfully stuffed that hole. Final time round, we allotted cash to 9 enterprise capital funds, 5 of them have been first time fund managers, so 5 of them had by no means run a enterprise capital fund earlier than.
This time, sadly, we’ll nonetheless do some first time fund managers, however loads fewer, in all probability about two or three, as a result of this time, we’ve pension fund cash, and we have to be much more cautious with how we make investments pension fund cash. However nonetheless, we might have contributed to help first time fund managers coming into the VC area during the last three to 4 years. So I feel these are crucial varieties of partnerships the place authorities, company and fund or fund managers like ourselves, give a possibility to first time fund managers to return into the VC business.
TC: When it comes to the deployment of capital, the place will the funding be allotted?
KG: We don’t do any sector-specific VC funds. Many of the funds we allocate cash to are generalist funds, however I can say that we’ll undoubtedly be doing biotech. It’s because it’s an vital space of analysis in South Africa. We at the moment have put cash into one such fund, which is South Africa’s solely biotech fund, and we plan to proceed to put money into that area.
We’ll proceed to put money into {hardware} and we’ve already allotted capital to Savant which invests in African {hardware} and deep know-how corporations which can be underpinned by science and engineering improvements. After which final time, we did one thing which we contemplate actually revolutionary. We created the primary ever College Know-how Fund in Africa, the place we assist the schools like UCT (College of Cape City), College of Western Cape, Wits College, and Stellenbosch College to commercialise their IP.
We’re going to be overlaying just about all of the areas during which know-how is starting to be utilised and there are startups which have options to vital issues, as a result of the final word intention of VC is to assist construct companies which can resolve issues and consequently, enhance individuals’s lives.
TC: Now that the primary shut has been achieved, what’s the following step?
KG: We’re undoubtedly not sitting nonetheless. With the R600 million, we’ve already been to our Funding Committee, have approval in precept to allocate cash to 5 enterprise capital funds, and throughout the subsequent two or three months, these VCs could have entry to cash to begin doing offers. I can’t provide the names as a result of we nonetheless don’t have the ultimate approval and haven’t signed agreements with them however sure, we could have 5 enterprise capital funds utilizing our cash throughout the subsequent few months.
Our second focus is to lift more cash and we’re in conversations with different pension funds and establishments. I’m optimistic that we’ll shut the fund by the tip of the yr at both R1 billion or barely above R1 billion. We’ll then have extra capital within the second half of the yr to begin allocating to possibly one other three or 4 VC funds, which we hope to do by the tip of the yr. So by the tip of this yr, fairly a little bit of that cash can be hitting the bottom and doing offers.
TC: Relative to tech hubs on the continent, VC in South Africa has been struggling to maintain up over the previous few years. With these current developments, the place would you say the nation’s VC business is headed?
KG: Like I mentioned earlier, I feel VC goes to double in measurement when it comes to rands invested in South Africa, yearly for the following two or three years. I count on that subsequent yr can be a yr the place we in all probability make investments over R2 billion into offers. That will be the primary time we exceed the R2 billion mark in a single yr and I count on that to occur subsequent yr, which implies the next yr, we ought to be at about two and a half to R3 billion going into VC offers. So I feel we’re rising extremely quick. It won’t proceed eternally, however no less than for the following two to a few years, I see us doubling the dimensions of investments annually.
One other growth I feel will go a good distance in fostering innovation in South Africa is commercialising the IP that comes out of universities and science faculties. The VC business will go a good distance in facilitating this and I’m comfortable that by our little contribution because the SA SME Fund, we’re successfully creating an implosion of changing what’s IP sitting on a shelf into actual companies.
*Interview has been edited for readability and size.
