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Venture capital funding for technology sector

19 August 2009 News

Mark Shuttleworth’s venture capital company, Here Be Dragons (HBD), is looking to make at least one more investment of between R10 million and R25 million in local, early stage businesses this year. Technology is one of the sectors in which it is likely that this investment could be made.

“Although the focus is on all companies with innovative products with the potential to expand internationally, experience has shown that technology remains a sector in which scalable companies have a high potential to expand fast,” explains HBD CEO, Julia Fourie. It is for this reason that technology remains one of the top three sectors in which the US is channelling venture capital funding. International examples of technology companies that started from venture capital include Google, Microsoft and eBay.

As venture capital is a high-risk, high-return industry it is important that the companies in which HBD invests have the ability to grow at a higher than average rate. Locally, HBD has had great success in the technology sector, with companies including OrderTalk, a sophisticated online ordering solutions company for the food service industry, and EDH which pioneered 3D radar tracking services.

“OrderTalk has a unique product offering in a specific niche of the quick-service restaurant market,” points out Fourie. “HBD believes that OrderTalk has the potential to grow enormously in scale, with the growing number of restaurant outlet chains and growing convenience of online ordering.” Together with HBD, OrderTalk has expanded into the US market, successfully establishing an American base.

Local software development company EDH has led the way in 3D radar tracking devices, including those used to measure the speed of tennis serves at Wimbledon, as well as similar applications for cricket, golf and military. EDH has grown tremendously and has also increased its international footprint as a result of the help of HBD.

“If we can partner with quality companies through tough times, there should be substantial rewards to be reaped in later years. As HBD takes a three- to five-year outlook on the business potential of an investment, we not only focus on this year’s problems but also next year’s opportunities. HBD believes that although tough economic times can make or break young companies, such times present interesting opportunities to invest in companies with sound and tested businesses,” says Fourie.

Fourie strongly believes that there are many talented South African businesses with the potential to make it on a global stage but fail due to lack of guidance, funding and expert knowledge. “These companies often try to grow too quickly or to go the road alone,” she says. “Success takes courage, and in partnering with our investment companies, we offer not only capital but expert advice and mentorship too.

“Key to successful partnership is finding the right fit between HBD and the investment company, as sharing the same goals and ideals maximises the chance of success. It is important that applicants do their homework, assessing the goals and philosophies of the investment partner against their own. Applicants should have a solid understanding of their business needs, and must be able to present a sound business plan taking into account the relevant economic outlook.”

The new investments will form part of HBD’s existing Fund2, and will be the last investments for this particular fund. “The nature of venture capital is to invest in early stage businesses, assisting them to grow and become more profitable, with a view to selling the investment to another partner within a three to five year period,” points out Fourie. Funds generated by the sale of investments can then in turn be utilised to invest in new companies, and so the cycle continues.

Companies wishing to apply to HBD for venture capital funding will first need to meet the specific investment criteria before undergoing the process of due diligence. Most importantly, investments will only be made in local businesses with tried and tested products. The company must have been generating revenue for the past six months, and show potential to expand exponentially.

For more information contact Julia Fourie, +27 (0)21 970 1004, www.hbd.com





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