African technology revolution creates investment opportunities

At a recent European investment conference on private equity and venture capital in Africa, we were frankly surprised by how little many people knew about the technology revolution on the continent. There was a distinct attitude that African technology is an oxymoron.

Attracting global attention

The evidence suggests otherwise. There are 45 collaborative technology hubs in Africa that are training and connecting tech entrepreneurs and encouraging open innovation. Some of the results are already attracting global attention, like Kenya's M-Pesa mobile phone-based money-transfer service. MXit is the largest social network in Africa and cloud orchestration software venture Nimbula has been backed by Sequoia Capital and Accel Partners.

We invest in high-growth knowledge or tech-enabled African ventures that are scalable and post-revenue. Mark Shuttleworth's HBD Venture Capital Fund, which we manage, has already made some very successful and high-profile exits.

The exits include CSense Systems, a rapid process troubleshooting and improvement software company that was sold to General Electric Intelligent Platforms in April 2011 for an undisclosed sum. In June, 2011, Visa acquired mobile financial services provider Fundamo for USD110m and paid-search marketing company Clicks2Customers was sold to a South African strategic investor.

We think it's particularly significant that we exited to two Fortune 500 companies. That's the strongest testament we can think of to the quality of tech innovation coming out of Africa.

Investor returns

As for investor returns, Africa has extremely favourable capital demand and supply dynamics, which means that we can analyse and negotiate investments from a position of strength. The IFC, one of the most active players in frontier markets with a 25 percent exposure in sub-Saharan Africa, generated an annualised return of 22.2 percent on its private equity investments over the past 10 years. By comparison, the Cambridge US Private Equity index generated returns of 11.4 percent and its Emerging Markets index generated 12.1 percent.

Knife Capital is working on its next exit and is on track with its objective of realising annualised returns in excess of leading frontier market investors.

In recognition of this track record, Acquisition International (AI) magazine recently named Knife Capital South Africa's Venture Capitalist Of The Year. Kathryn Turner, chief co-ordinator of the AI M&A Awards, said the winners had defeated the odds in times of global uncertainty. She added that while it is hard to predict M&A deal values and volumes, "I'd place my bets on a proven, award winning deal team".

"Knife Capital is an experienced independent fund manager in the early-stage investment space," said South African investment manager Liston Meintjes. "That gives them first-mover advantage and access to quality deal flow. They're making an impact in the local entrepreneurial ecosystem with innovative funding models and an exit-centric investment focus that is executed with a hands-on approach."