Clive Butkow, founder and chief executive officer of South African venture capital firm Kalon Venture Partners, is looking to invest into "world-changing" start-up companies.
A former Accenture chief operations officer, Butkow says Kalon Venture Partners invests in high- growth technology companies, with innovative business models.
Butkow founded the company in 2016. It quickly raised R100 million, and attracted a strong board, including Romeo Kumalo, ex-COO of Vodacom, Arnold Basserabie, ex-group chief executive of Fedsure Financial Services Group and Gil Oved, the ex-CEO of The Creative Counsel, among other board members.
Butkow points out that in recent years the government has identified small- and medium-sized entities (SMEs) as major contributors to economic growth.
"One of the main challenges to the economic growth of SMEs is access to equity finance. To assist these sectors in terms of equity finance, in 2009 the South African government implemented a tax incentive for investors in these enterprises through a Venture Capital Company (VCC) regime known as Section 12J."
According to Butkow, the attractive part about these funds is that they are 100% tax deductible if held for a period of five years or longer in a ratified S12J vehicle.
"We are a Section 12J company where investors receive 100% deduction of their investment from their taxable income. We have circa 250 investors who have invested circa R107 million in the fund.
"Therefore, if a taxpayer is an individual or a trust with a marginal tax rate of 45%, the taxpayer can invest R1 million and will be only paying R550 000 (that is R1 million minus tax of R450 000) for the investment since the full investment amount is tax deductible in the year of investment.
"In simple terms, it means your start-up investment comes at half the price. For companies that invest, the principle is the same but the calculation looks a bit different as a result of a 28% company's tax rate," he explains.
Highly scalable start-ups
Kalon is looking to invest in highly scalable digital technology companies with large addressable target markets both locally and abroad. "We invest in growth capital, which is once a start-up has some revenue and referenceable clients and is achieving double-digit growth rates month-on-month.
"We look for start-ups that are mature to the point where they have a killer product, a clear and sizable market, and a robust distribution channel. The start-up (then) has the opportunity to become a 'scale-up', which is a world-changing company that touches millions or even billions of lives."
To date, Kalon has made four investments, with a fifth deal about to be closed next week.
The last three investments involve an electronic funds transfer (EFT) payments platform, a loyalty platform and an artificial intelligence (AI) chatbot.
"I-Pay is the EFT payments platform where consumers can use EFT rather than a credit card when making purchases online or at the point of sale. These transactions are more cost-effective, have lower abandonment rates and more secure than credit cards, and also enable consumers who do not have a credit card to transact online.
"Our AI play, FinChatBot, develops chatbots to help financial service providers acquire and retain customers through AI-powered conversations. The company also enables companies to reduce the size of their call centres for certain transactions.
"On the loyalty side, (there's) SNAPnSAVE, a local cash back shopping app that gives shoppers money back on everyday items that they buy."
Shortage of mentors
Butkow believes the lack of the ability to execute the business model is the biggest reason start-ups fail to attract investment, even if they have brilliant ideas.
"Start-ups typically don't fail due to lack of product development but due to a lack of market and customer development. South Africa has a shortage of mentors and start-up founders who have already built a business. This shortage often holds start-ups back from scaling and building large businesses.
"Ideas are a dime a dozen and there are very few million-dollar entrepreneurs who can take an idea and build a sustainable profitable business. The biggest reason is that the start-up companies fail to demonstrate the execution skills required to grow and exit a billion rand/dollar business."