Having deployed most of its R180-million Section 12J Venture Capital Fund, KNF Ventures, Knife Capital has announced that it is extending the fund for new investors to participate and build on the success and momentum created.
One of the main challenges to the growth of small and medium-sized enterprises (SMEs) in South Africa is access to equity finance. To assist higher-risk ventures in overcoming this challenge, the Section 12J venture capital company (VCC) regime was established where qualifying investors in approved Section 12J VCCs can deduct the full amount of their investment from taxable income in the tax year that the investment is made.
VCCs have the benefit of bringing together investors and concentrating investment expertise in favour of the small business sector. However, the Section 12J regime has had some challenges in delivering tangible results for SMEs to date.
Keet van Zyl, partner at Knife Capital, expresses confidence in the regime with the extension of KNF Ventures. “While there are challenges facing the industry, those VCCs that refined their offerings and partnered with the right investors created viable sustainable business models.
“Based on the success of KNF Ventures so far, which is just about fully deployed and where our portfolio companies are growing in excess of 50% year-on-year, we are extending the Fund for further investment.”
Van Zyl highlights the importance of looking beyond the 12J tax incentive: “For us it is about more than the tax break. Sure, it is a good incentive as investors start the investment process in a favourable Internal Rate of Return (IRR) position due to the immediate tax benefit.
“But our aim is to leverage Knowledge, Networks & Funding to accelerate the growth of South African innovation-driven SMEs and generate enhanced returns for entrepreneurial-minded investors.
“We have an amazing investor base of just over 100 private investors and institutions – including the SA SME Fund – that we are extremely proud of. So, there needs to be a mutual fit on investment philosophy and values.”
Over and above the financial benefits, KNF also already created 54 jobs within its 12J portfolio – and counting.
Knife Capital takes a holistic ‘Find-Make-Grow-Realise’ value-chain approach when investing by finding exciting SMEs, making the investment with fair terms after thorough due diligence and actively growing the businesses to ultimately realise sustainability and/or exit goals.
New investors in KNF will be able to participate in the further upside of the portfolio investments already made, which currently consists of the following high-growth businesses:
* Quicket – Cloud-based ticketing platform for any size event.
* DataProphet – AI/ Machine Learning for the autonomous manufacturing industry.
* SkillUp – E-Learning platform for tutoring and Code4Kids programme.
* PharmaScout – IoT temperature monitoring solutions for the pharmaceutical industry.
* Pura – Carbonated beverage brand with low sugar and natural flavour innovation.
* Cradle Technologies – SaaS Warehouse Management Solutions for SMEs.
* Snapplify – EdTech company enabling digital learning through an educational content marketplace.
2020 is shaping up to be a busy year for Knife Capital. “We are also launching KNF Ventures Fund 2 and working on ways to plug the Series-B funding gap that exists in South Africa where there are limited local investors that lead or participate in larger Series-B VC investment rounds and actively manage those portfolio investments on home soil,” van Zyl says.
With sustainable investment and stakeholder alignment, the Section 12J regime can continue to make a positive impact on innovation, job creation and growth in South Africa.