South African industrialist Johann Rupert has placed bridging finance in Fireflight, a technology start-up company, which could pave the way for a more significant investment from one of his companies.
Market speculation is that the final investment could be worth as much as R40 million, but neither the current Fireflight shareholders nor Rupert would confirm this, saying negotiations are still in the early stages.
Venfin, the Rupert family-controlled private equity firm that has an extensive portfolio of technology investments, will not take up this stake. Rather, it will be another of the Rupert-related investment firms that has a local and overseas presence, but the name has not been released so as not to breach foreign listing requirements.
Two-factor security
Situated in Stellenbosch, Fireflight has developed a mobile authentication system that is designed to replace traditional methods of password storage. This is a two-factor, one-time-password authentication solution for a number of applications, by generating secure passwords on mobile phones.
The “two-factor” relates to the standard security paradigm of “something you have, and something you know”, which in this case relates to the mobile phone and the personal identity number that the user enters when the Fireflight system is activated. The two have to work together in order to gain authentication.
Fireflight is based on a mathematical system that, when activated, generates a one-time password that is used by the backend server to authenticate the user's entry into the system. Once this is done, the password immediately expires. The system works offline and the backend server uses the same mathematical formula to authenticate the one-time password.
The system works offline and only uses the mobile phone as a handheld device as Fireflight feels that any transmission over the cellular network would open the system to security breaches.
International patents are pending on parts of this technology, as Fireflight cannot patent the entire concept because some of the technology is already in the public domain.
Fireflight claims its authentication system can be used on any mobile phone platform. It says the system can be used for a number of business applications, such as securing virtual private networks, wide area networks, local area networks and Web-based services.
International interest
Although the company was originally founded in 2005, it was only in June last year that it demonstrated the first working models and it attracted international interest. It is due to be launched in the US later this year.
Fireflight is currently owned by a number of shareholders, the largest being technology incubation firm 4D Innovations Group, followed by founder Malan Joubert and some of the employees.
Once the deal with Rupert's investment company is signed, the shareholding structure will change to accommodate this.
Justin Stanford, 4D Innovations Group CEO, says the investment opportunity was originally offered to Rupert-related private equity firm Venfin, which declined. However, Rupert decided to take a small stake, pending a larger investment through one of his newer private equity firms.
“The deal has been agreed to in principle and the mechanics are being worked out. It will also have to be subject to regulatory approvals.”
Stanford says the new funds, once secured, will be used to take Fireflight's products to the international market and help it employ more staff, which it expects to double over the next few months.
“What Fireflight has done is not new and they are not the first in doing it, but it is the way in which the whole concept is put together that makes it novel.”
Stanford says Sybase SA has already agreed to distribute the product in this county, which “shows the high level of confidence that has already been shown in it”.
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