New R400m fund targets tech, black-owned start-ups
Section 12J venture capital company (VCC) Kingson Capital is targeting a R400 million fund to invest in high-growth tech and black-owned start-up companies in SA.
"Although we see a substantial rise in South African start-ups, it is unfortunate that when it comes to them sustaining that start-up momentum, many fall by the wayside due to lack of support," says Gavin Reardon, founder of Kingson.
He notes that ongoing business support is critical to ensuring long-term business sustainability, which is why Kingson has launched a brand-new high-growth tech and black-owned SME fund.
The fund pairs investment with business support through its investment structure. This allows investors to score B-BBEE points under both enterprise and supplier development scorecards, while acting as a minority shareholder in the black-owned business in which it has invested, the VCC says.
Founded in 2015, the Kingson team consists of founder, Reardon, his two partners and back-office staff who assist in managing its portfolio companies.
"We also have an advisory board and investment committees, made up of experienced businesspeople and industry experts," says Reardon.
He notes that the fund benefits both investors and the businesses Kingson invests in. "Investors get risk-adjusted returns, the benefit of Section12J, and in our fund two, the investees get access to capital and the benefit of being venture capital-backed, including mentorship and access to our networks and broad business experience."
Fund two will look to invest in anything from 30 to 50 tech start-ups and black SMEs, depending on the size of each investment required and the requirements of investors.
"We invest in start-ups across the fintech, insurtech and healthtech space and principally look for data-driven, market-oriented businesses," says Reardon. "We look for entrepreneurs who have big dreams and ambitions, who want to change the world, and are not content with the status quo.
"Most often these people are resilient and adaptable to business needs. While we invest across all stages, we preferably look for serial entrepreneurs who have started and run businesses before, even if they weren't successful. We prefer co-founders, as two people bring different skills and strengths and the weight is not on one person's shoulders when the going gets tough - as it often does in the start-up world."
Kingson says pairing investment with business support facilitates meaningful economic transformation, driving stable and sustainable black-owned business.
Where SMEs look to enter a corporate enterprise and supplier development programme, they should not only seek funding, but this holistic approach, Kingson says.
By investing in the SME or black-owned business as an equity shareholder, it notes, the fund aligns to its long-term success, growth and profitability.
The fund manager acts as a shareholder representative and plays an active role in strategy and business development, as well as providing financial management and a key governance oversight role.
These are all essential factors in the transfer of skills to executives and senior management that ensure long-term success and sustainability, the VCC says.
"The socio-economic and financial benefits of the fund are exponential, giving the SME growth potential towards sustainable profitability that can cement job creation and youth employment," says Reardon.
"On-the-job upskilling of executive management and industry-specific transformation become integral parts of the process, allowing the investor sustainable supply chain opportunities, as well as a solid return on their capital. All of this positively contributes towards the emergence of black industrialists, aligning with the Industrial Policy Action Plan and National Development Plan."
Kingson Capital's investment approach is to invest in businesses that are unique and scalable, and entrepreneurs that are building a better tomorrow today.
"By pairing SMEs whose product offering has the potential to change the current landscape and existing business models with investors intent on cultivating measurable socio-economic growth, key players from both sides will see progressively larger returns that have long-term impact," Reardon says.
"In our fund one, we invested in 10 companies including Finfind, a matching platform for lenders and businesses seeking funding; Spazapp, an online ordering system for the informal marketplace; and Healthcloud, a data aggregator in the healthtech space."