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Futuregrowth’s R600m fund targets disruptive start-ups

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Asset management firm Futuregrowth has announced its intention to launch its Futuregrowth High Growth Development Equity Fund (HGDEF), targeting investments in early-stage tech businesses that will have a strong developmental impact.

In a statement, the asset manager says the Futuregrowth HGDEF will form part of Futuregrowth’s suite of developmental investment funds, which cover a range of impact areas, such as infrastructure, social services, clean power, agriculture and regional development.

Futuregrowth is one of the leading developmental investors and South Africa’s eighth largest asset management firm, with over 50 fund products, a 25-year track record and staff complement of over 100.

The Futuregrowth HGDEF will sit alongside the Futuregrowth Development Equity Fund (DEF), which has a 16-year track record of investing in developmental unlisted equity.

“Through the DEF, we have been investing in early-stage equity transactions for over nine years,” says Amrish Narrandes, head of private equity and venture capital at Futuregrowth.

“We have been considering an early-stage equity fund for several years, watching the evolution of the South African market, considering South Africa’s strategic position for disruptive enterprises, and investing in several high-growth equity transactions,” says Andrew Canter, chief investment officer of Futuregrowth. “And we believe the time is right for a risk-seeking offering.”

According to Futuregrowth, the DEF currently has over R3.4 billion under management, of which R500 million relates to developmental early-stage investments.

This portion includes disruptive financial technology (fintech) companies such as Yoco, Retail Capital and Lifecheq, and, more recently, Ozow, it notes.

Additionally, the DEF has invested in companies engaged in various other subsectors, including health technology (hearX), agriculture technology (Inseco) and marketing technology (Mobiz).

The DEF recently sold one of its first early-stage investments, CashConnect, to Nasdaq-listed company Net1, generating a 33x multiple on invested capital and a 48% internal rate of return.

“Taken as a whole, our experience in early-stage investments indicates a sound investment return,” says Canter.

Born out of the DEF’s strong investment process and developmental focus, the Futuregrowth HGDEF will seek to invest in a range of investments, including early-stage or highly-scalable businesses that offer new services or products, niche markets, or disruptive technologies in growth markets, notes the asset manager.

Futuregrowth says it aims to support businesses driven by excellent teams in need of capital to help them grow.

The Futuregrowth HGDEF will seek investment opportunities from venture capital to early-stage private equity, as well as other special opportunities.

“The new Futuregrowth High Growth Development Equity Fund aims to support South African entrepreneurs who push the boundaries with innovative technologies that change how we live. We believe that by backing South African start-ups, we can play our part in job creation and in growing our economy,” says Narrandes.

Due to the early-stage nature of the businesses in which the Futuregrowth HGDEF will seek to invest, Futuregrowth places a significant amount of emphasis on the strength of the management team.

“We source innovative start-up businesses by backing South African entrepreneurs who are brave enough to take risks and disrupt industries. It is these entrepreneurial leaders who will be instrumental in unlocking South Africa’s economic growth potential, while delivering strong commercial returns and meaningful social and environmental change,” explains Narrandes.

The Futuregrowth HGDEF will be a closed-ended, limited life fund with a four- to five-year draw period and a five- to six-year payback period.

Futuregrowth is targeting R500 million to R600 million of committed capital, and its indicated fee will be 2% on committed capital plus a 20% incentive fee.

The fund will have a warm start, with an existing pipeline and team, says the company, adding there will be no asset transfers from the DEF.

Futuregrowth has kicked off the fundraising process and aims for a first close by the end of 2022.

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11 Aug
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