South African businesses funded by venture capital (VC) are competing on the world’s stage, billing in dollars and earning investors market leading returns, while simultaneously granting access to offshore exposure. The question is: can they offer investors global returns?
There is a mistaken belief that African start-ups cannot compete, given the resources that those businesses have at their disposal. My reply is that African businesses compete out of necessity - the mother of invention.
When it comes to finding commercial and innovative solutions to local challenges with global relevance, South African entrepreneurs, and their African neighbours, are paving the way.
In Africa, there is a shortage of affordable, appropriate and unrestricted capital which means only a few of the very best businesses and entrepreneurs tend to be funded. As a result, most businesses we assess place great emphasis on being financially viable from an early stage. This arises out of a scarcity of funding and the founders’ need to self-fund or bootstrap for as long as possible.
As an investor, I’m pleased to see the priorities and focus of founders in achieving a commercially successful business from the get-go.
On top of being commercially viable, there is the question of global scalability. When HAVAÍC looks at a tech business, we ask the question, “What does this business have that a billion- dollar, US-headquartered VC-funded business does not have? Why would a multinational company contract with a start-up from the bottom tip of Africa?”
Once again, necessity becomes the mother of invention.
Last year HAVAÍC invested in a world-first, on-demand private security aggregation platform developed in Johannesburg that provides solutions to both domestic and international clients. The necessity arises from the fact that crime in South Africa is far more prevalent in our environment than it is in the US. Thus, South Africans, and in particular the founders we have backed, have innovated, experimented and succeeded in the global SecurityTech environment.
Intuitively, the most innovative solutions in private and corporate security should result from places most impacted by high incidences of crime.
In a time of subdued domestic investment returns, VC as an investment class can fulfil the demand of investors and their financial advisers who want to diversify and internationalise their portfolios, earning above-market returns.
South African investors have traditionally invested in the JSE and local property - both of which have been quite flat in recent years and geographically susceptible to political uncertainty and currency volatility.
While VC as an asset class is a higher risk alternative investment, it offers investors the opportunity to diversify their portfolio and gain access to high yielding investments.
It offers investors an asset class that not only has the potential to outperform the local investment market, but potentially international markets as well.
By investing in local start-ups who compete on the world stage, VC investors can achieve the goal of having offshore exposure while ensuring global returns.