Several countries in Africa are already benefitting from being early adopters of this strategy, and global investors are missing out on innovation-driven opportunities in Africa because of a lack of information and lingering stereotypes about the continent, according to Cape Town-based Knife Capital.
“At a recent European investment conference on private equity and venture capital in Africa, we were frankly surprised by how little many people knew about the technology revolution on the continent,” says Knife Capital co-founder Keet van Zyl. “There was a distinct attitude that African technology is an oxymoron.”
Globally recognised technology advances
The evidence, says van Zyl, suggests otherwise. “There are 45 collaborative technology hubs in Africa that are training and connecting tech entrepreneurs and encouraging open innovation. Some of the results are already attracting global attention, likeKenya’s M-Pesa mobile-phone based money transfer service. MXit is the largest social network in Africa and cloud orchestration software venture Nimbula has been backed by Sequoia Capital and Accel Partners.”
Knife Capital CEO Eben van Heerden adds: “We invest in high-growth knowledge or tech-enabled African ventures that are scalable and post-revenue. Mark Shuttleworth’s HBD Venture Capital Fund, which we manage, has already made some very successful and high-profile exits.”
The exits include CSense Systems, a rapid process troubleshooting and improvement software company that was sold to General Electric Intelligent Platforms in April 2011 for an undisclosed sum. In June 2011, Visa acquired mobile financial services provider Fundamo for US$110m and paid-search marketing company Clicks2Customers was sold to a South African strategic investor.
“We think it’s particularly significant that we exited to two Fortune 500 companies,” says Van Heerden. “That’s the strongest testament we can think of to the quality of tech innovation coming out ofAfrica.”
Great investor returns reported
As for investor returns, says Van Heerden, “ Africa has extremely favourable capital demand and supply dynamics, which means we can analyse and negotiate investments from a position of strength. The IFC, one of the most active players in frontier markets with a 25% exposure in sub-Saharan Africa, generated an annualised return of 22.2% on its private equity investments over the past ten years. By comparison the Cambridge US Private Equity index generated returns of 11.4% and its Emerging Markets index generated 12.1%.
Van Heerden says Knife Capital is working on its next exit, and is “on track with our objective of realising annualised returns in excess of leading frontier market investors.”