SA's economy may have been ravaged by the pandemic and years of sluggish growth, but small to medium-sized start-ups are still springing up, especially in the technology and fintech sectors.
South African venture capital group Empowerment Capital Investment Partners - founded in 2015 by Anton Baumann and Mark Fitzjohn - said its investment companies Andzani Ventures, Imvelo Ventures and Thuthuka Nathi Ventures approved and placed R162m into 13 local start-ups between July 2019 and this month, with a further R32.5m "approved for placement in the coming weeks" in three new companies.
Baumann and Fitzjohn said that by June R300m will have been made available for start-ups since the middle of 2019, and they are confident they can raise up to R2bn in funding for start-ups in the next 24 months.
Empowerment Capital Investment Partners acts as an intermediary, helping smaller start-ups to secure funding from large corporate investors.
Baumann, a Germany-born lawyer who moved to SA 15 years ago, said the venture capital group is a "patient" investor in a broad variety of start-ups, from those in agribusiness to the fast-moving consumer goods industry, but the tech and fintech sectors are "where most of the investment activity was over the last year".
Baumann said its fintech-focused Imvelo Ventures enjoyed the bulk of its activity in 2020. Fintech refers to technology that automates financial services or brings functions online so customers can transact using computers or smartphones.
The pandemic has accelerated the move online around the world, including in SA. Even before the pandemic, the fast-growing fintech sector in SA had disrupted the financial services industry and influenced the offerings of traditional banks.
"We never started with the idea of funding tech start-ups. It has developed into that and that is where most of the activity was last year," said Baumann.
"We aim to support South African talent that solves real-life problems with long-term, patient growth capital, market access and business management support. We like innovative (or disruptive) ideas and it so happens that most of these are in the tech space."
South Africa-born Fitzjohn, who has a banking background including a five-year stint at RMB, said Empowerment Capital is a general investor looking for "high-growth opportunities". "The environment does favour technology companies just because technology companies have the ability to scale up," he said.
"There has been a rampant increase in the creation of [online] marketplaces. That is the big trend we have seen over the last year. I think the timing is right with Covid.
"We have invested in at least two companies that focus on on-demand shopping and one of our investees grew his revenue almost six times in the period from when Covid lockdown began from month to month. It did reduce with lockdown decreasing but there has definitely been a trend to online marketplaces."
The tech and fintech sectors are wh e re most investment activity was over the last year Anton
— Baumann Empowerment Capital Investment Partners
Fitzjohn said there is a "second aspect" to the tech sector - that "the expense of purchasing goods online can be cheaper than going to the store".
"If you are buying online, generally you often find better prices. In online marketplaces it's so competitive that companies are reducing delivery charges or are close to removing delivery charges. The cost of the delivery, in my opinion, is going to be borne by the companies selling online in the near future".
"That is an international trend, where if you get to that point, the market just takes off and that is what we've seen in SA."
Empowerment Capital, which is 55% black-owned, has helped provide funding for Zulzi On Demand, a delivery platform that enables customers to purchase anything in their area and have it delivered within one hour.
Other investments include Bizzamm, a digital legal platform supplying blockchain-encrypted legal templates and documents, which "removes the stress and complexity of legal processes"; MoneyWorks, an online platform that enablescorporations to create an "early payment programme for the SMMEs in their supply chains"; and Ice Media, which offers low-cost internet access to poorer communities.
Fitzjohn said that increasingly, tech start-ups are emerging in townships.
"We participated in and sponsored a cohort of 30 township entrepreneurs recently. Most of these opportunities were tech businesses. The whole market is moving towards having a technology-centric approach."
Irnest Kaplan, MD of Kaplan Equity Analysts, said the tech sector, particularly fintech, is an "exciting area" and "there is certainly a lot of activity globally in it".
"There is a shift from cash to electronic payments, which has been in motion for a long time. Then you've got the whole impact of Covid, which fuels that a bit more because people don't want to transact in cash if they can help it," said Kaplan.
"The macro issues are strongly in support of these fintech transitions. It's a good space."
He said this has to be tempered with the fact that the infrastructure and all the electronic systems are not really that widely available in the informal sector.
The informal sector, he said, is "where the opportunity lies" for fintech to gain traction.
