There is about R1 billion waiting to be invested in young IT companies through venture capital and other investment vehicles. However, investors are becoming more selective about where they place their money, says Claudia Koch, CEO of Ethos Technology Fund.
Koch says the amount of money waiting to be invested is equal to the amount spent by the funds over the past three to five years - the heyday of the IT bubble.
"The challenge for the fund managers is to attract the quality entrepreneurs who have strong evidence that they are able to produce revenue and profits within three to six months," Koch says.
Ethos is one of the largest private equity groups in SA and started the Ethos Technology Fund about a year ago. The fund has about R235 million under management and is hoping to raise another R15 million before closing it to new investors.
Koch says the requirements for looking at new investments are that the company must be in the young stage; must be commercially viable; must be a PTY Limited; and be able to differentiate itself in terms of revenue or the service it offers.
"The fund managers also have the challenge of differentiating themselves sufficiently to attract the quality entrepreneurs. At Ethos we have recruited people who understand the industry and can substantially contribute to an investment`s strategy and profitability," she says.
Ethos announced its first investment in February with INGO Information Solutions and is due to make an announcement about its second investment in the coming months.
Koch says SA remains a strong contender on the international IT services arena as it is able to offer skilled staff at fairly cheap rates, while sharing cultural and language similarities with the primary US and European markets.
"Countries such as India, which are particularly strong on the intellectual capital front, do have issues surrounding the geophysical and cultural levels. SA is at least as competitive on these issues as well as on the cost levels," Koch says.
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