Following the success of the first technology venture capital fund Archway 1, which recorded outstanding returns for its investors, a second fund, Archway 2 has been launched.
In addition to the three partners who initiated Archway 1 - Dimension Data, Gensec NSA Equity Fund and Standard Corporate and Merchant Bank (SCMB) - the Industrial Development Corporation (IDC) is adding its weight to the new venture. The IDC will be a significant partner in Archway 2 as part of its broader initiative to act as a catalyst in the development of technology in South Africa and its participation will add another dimension to the business alliances of Archway.
The partners` initial capital commitments at the first closing total R145 million.
Archway Venture Partner`s general manager, Leonard Bruhns, said that Archway 1 was formed in March 1998 as a partnership between Dimension Data, Gensec and SCMB as investor participants with the express purpose of investing in high growth technology companies and it has achieved excellent returns for its investors.
"In spite of the information technology markets being under great pressure, Archway 1 earned an exceptional compound annual growth rate in excess of 70% since inception," Mr Bruhns said.
Asked why the investors believe that it is an appropriate time to launch a new fund, Mr Bruhns said: "We believe that the current market environment presents exciting investment opportunities for Archway 2. There has been a slump in world bourses, notably the technology sectors, which presents investment opportunities at attractive pricing levels.
"Another factor is that the JSE has put in place more stringent listings and track record requirements which will mean that entrepreneurs and growth technology companies will need to look for other sources of capital and will benefit from having access to established players like Archway to raise capital."
The success and reputation of Archway 1 and the contribution that Archway made to the investee companies are likely to draw entrepreneurs and fledgling IT companies to Archway 2.
Mr Bruhns explained that the annual return of 70% achieved by Archway 1 is an outstanding performance given that venture capital is a high risk asset class.
As South Africa`s first venture capital company, which focused on the technology sector, Archway has developed synergistic partnerships (involving both capital and expertise) with emerging technology companies.
The fund is now closed having concluded 15 investments, most of which have proved to be a great success. Mr Bruhns said: "Perhaps our most visible success has been Prism Holdings which is now listed on the main board of the JSE Securities Exchange and has a market capitalisation in excess of R800-million. Other high-profile companies in which Archway has invested are Global Technology, ITWeb, Jumpoint, McCarthy On-Line and Tradek.com."
According to Mr Bruhns, Archway`s philosophy is to successfully marry `the big idea and innovative muscle` and at the same time maintain a hands-on, operational approach to the companies in which it invests. Archway takes a minority equity stake in the company, but preserves the independence of small to medium-sized companies
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