As announced yesterday by fintech player Yoco, Futuregrowth Asset Management has taken part in the second round of investor fund raising for this innovative, fast growing enterprise as their first institutional investor in South Africa.
Officially launched in 2015, Yoco enables SMEs to accept card payments and provides card readers to over 25 000 South African merchants, most of which never accepted cards before. Currently Yoco processes R3.5bn a year in card sales.
As Futuregrowth typically invests in more mature companies, its investment in Yoco may come as a surprise to some.
However, it’s not the first time the asset manager has added its weight to the venture capital space this past year. In fact the investment was so successful they are already working on an exit strategy that yields an impressive return for clients.
“While a large number of the companies in the Futuregrowth Equity Development Fund (DEF) are mature companies, giving it a solid backbone of stable returns, it’s time that new, alpha-creating investments are added to further enhance performance,” says Amrish Narrandes, a private equity analyst at Futuregrowth.
Furthermore, investing in early stage companies is a perfect fit with Futuregrowth’s vision of being a force for good in the markets and the environment in which they operate. “Venture capital is critical for the development of the South African economy,” Narrandes says.
However, the Fund’s mandate only allows for up to 10% of the R2.5 billion portfolio to be invested in early stage companies, thereby limiting its exposure and thus the risk that is associated with these investments.
“We are also extremely conservative in how we define ‘early’. The investments we consider early stage are those much later in the businesses’ early stage of development, when the investment is considerably de-risked. This effectively means we will only consider investments in the growth and later stages of their development.”
The risk profile of an early stage company varies greatly, depending on the stage of development the business is in. These four stages are: 1) Concept stage; 2) Start-up stage; 3) Growth stage; and 4) Later stage. Each of these phases will attract a different type of investor.
“It goes without saying that investing in early stage companies is a lot riskier than investing in mature businesses. However, given the greatly diversified portfolio of the DEF (it holds over 40 investments), and with the correct bet size in these early stage companies, there is no better platform to make such investments,” says Narrandes. “In finding the next Google or Facebook, not only will the DEF returns be enhanced but its impact on the ailing South African economic growth rate will also prove to be truly developmental.”