Venture capital (VC) could become the flavour of the month again, but investors stung by the recent global economic crisis and the lingering dot-com bubble hangover may mean the appetite for risk is lower.
Furthermore, venture capitalists say that, while the US may take the lead in investing in high-risk technology start-ups sooner, it will take time for this trend to trickle through to other markets such as Europe and SA.
Brett Commaille, Invenfin CEO, says there is money out there waiting to be invested, but the investors are still somewhat risk-sensitive.
Yola.com CEO Vinny Lingham says a number of key US Internet and IT companies are looking to list publicly within the next year. This will free up monies from the early stage investors to reinvest in new companies, he explains.
“A peculiarity of US law is that once a company moves beyond a certain size, then the more information they have to disclose publicly and so they may just as well list. News that Facebook generated $1 billion in profits recently really added impetus to this.”
Lingham says there is a raft of other US and international Internet businesses that are maturing and almost ready for their public debuts.
“Next year is going to be really exciting. But not all boats will rise equally with the tide. The local market will take time to catch up,” he notes.
According to a just released survey by the South African Venture Capital and Private Equity Association (Savca), IT companies represented 6%, or R5.6 billion, in private equity and venture capital portfolios. This is a drop of one percentage point from 2008. Telecommunications companies were little changed at 2% of the total.
“I am really surprised at how low the investments in telecommunications are,” Commaille says. “I think it is because the mobile space in particular has become so busy and so noisy that many investors are still a bit hesitant to commit themselves.”
Both Lingham and Commaille agree there is still a lot of hype out in the market trying to lure investors and it will take some time to get the two together. They also say that due to international interest rates being so low, higher-risk projects may start beginning to look attractive.
Savca executive director JP Fourie says local companies looking for VC investors also have to up their game in terms of developing their business cases.
“VC funding implies a certain amount of technological risk and innovation that makes the product or service unique, and many proposals are just variations. They also have to start developing more professional business plans,” he says.
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