Grindstone Ventures has launched a $6.5 million (R100 million) fund dedicated to seed funding predominantly South African innovative technology start-ups that have completed or are part of its Grindstone Accelerator programme.
The initiative is a growth engineer for participating start-ups, and acts as an early due-diligence mechanism for the new fund.
The female-led African venture capital fund will focus on post-seed investments, where there is a major gap in the South African funding landscape. The fund will invest primarily in early-stage innovation-driven and/or technology companies that are female-led.
Grindstone Ventures says it will target SMEs that have a sustainable impact and are able to create meaningful jobs.
The firm says the fund’s launch is in line with president Cyril Ramaphosa’s vision to position South Africa as a start-up nation.
In October, Grindstone participated in a deep dive session with the president and the South African start-up industry, to determine a roadmap for the country’s vision of becoming a start-up nation.
Last month, representatives from the South African Start-up Act Steering Committee met with Ramaphosa to discuss issues such as creating a framework to support start-ups on innovation and new technologies to spur competitiveness in the sector.
Grindstone notes the fund will target between 30 and 50 early-stage companies that possess strong intellectual property, demonstrate high growth potential and have the ability to raise follow-on funding from credible funders in the ecosystem, or deliver sustainable cash yields over the long-term.
It notes the typical investment structure will be via a SAFE (simple agreement for future equity) to align speed of negotiation and execution with the investment stage.
Grindstone Ventures is led by Catherine Young, Andrea Bohmert, Rapelang Rabana and Grace Legodi, an all-female team with depth of experience across value chain funding, and a proven track record in scaling start-ups.
Venture capital firm Knife Capital is overseeing certain elements of the fund management.
Young, managing partner at Grindstone Ventures, says: “Our aim is to provide superior returns to investors and create sustainable yields over the long-term.
“While the tech ecosystem deal space across Africa has shown exceptional growth over recent years, there remains a gap in the market for post-seed, pre-Series A funding across the continent. Our vision is to fill this gap and prepare these businesses for larger funding rounds, exponential growth and to ultimately exit.
“Our secret sauce lies in our robust Grindstone Accelerator, which enables innovation-driven tech start-ups to access knowledge, networks, funding and markets. Typically, an accelerator follows a fund, but Grindstone Ventures is turning this model on its head. Grindstone Ventures was launched as a result of the excellent pipeline of businesses emerging from Grindstone Accelerator, which provide investors with a de-risked opportunity for returns.”
Young points out that the fund received its first investment from the SA SME Fund.
“We were very excited about the vote of confidence the SA SME Fund’s investment showed in our vision for the fund, and our team. The SA SME Fund is known for its ability to spot and act on viable, exciting investment opportunities, and as a first mover, we believe the confidence they have shown will pave the road for other investors,” says Young.
Ketso Gordhan, CEO of the SA SME Fund, says: “We chose to support this fund because we believe it will fill a vital gap in the post-seed market. As a fund, it is as innovative as the start-ups that it will fund. The team is deeply experienced, has a proven track record and we are excited about the opportunity and impact they will have on this market. Watch this space.”
Grindstone Accelerator is a structured entrepreneurship development programme that is jointly owned by Knife Capital and market access specialist Thinkroom Consulting.
It takes South African SMEs with proven traction through an intensive year-long review of their strategies and provides them with the necessary support to build a foundation for growth in becoming more investable, sustainable and exit-ready.
Some of SA’s best scale-up companies have been through Grindstone, it says. These include radar start-up iKubu (acquired by Garmin); augmented reality animation and gaming company SeaMonster (recently secured a $1 million investment from FirstRand’s Vumela Fund); online payment gateway Payfast (last year acquired by DPO Group); financial inclusion business Picsa; and on-demand grocery delivery service OneCart.
Knife Capital invested in ticketing solutions provider Quicket and warehouse management software company Granite via its SARS Section 12J venture capital company, KNF Ventures.
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