To fund its deal flow pipeline, venture capital (VC) firm GroTech has returned to market to raise an additional R38 million.
The company, which raised R62 million in its first round of capital-raising, is looking to support South African technology start-ups.
Clive Butkow, CEO of GroTech, says digital technology investment opportunities in the market are inspiring. The company is finding enormous potential in technology innovations disrupting traditional industries such as banking, insurance, health and wellness,telecommunications, retail, media and entertainment.
Butkow says GroTech is investing in entrepreneurs who are looking for growth capital to scale their businesses.
He explains GroTech will deploy the capital raised to acquire minority stakes in high growth technology companies.
“The investment pipeline is healthy. Since the close of the first round of capital raising, which closed on 29 February 2016, GroTech has reviewed in excess of 170 business plans. To date, we have made one investment and are currently evaluating another three, one of which is at term sheet stage,” says Butkow.
With this deal flow pipeline, Butkow is confident the targeted investment return of more than 30% internal rate of return is attainable – a minimum return of five times money over a period of five to six years.
“We have developed a strong brand which is one of smart capital where the entire board gets involved with the potential investee and underlying companies. We are finding that top entrepreneurs are coming to GroTech for funding due to this high touch approach. This involves not only mentoring these entrepreneurs, but assisting with providing capital and opening new distribution channels and new markets.”
GroTech is a Section 12J VC company, which entitles investors to benefit from a 100% deduction from their taxable income of the amount invested. Its investors, who comprise individuals, trusts and companies, are eligible for a 41% tax break at the time of investment (28% for companies), which mitigates the investment risk and enhances the potential return.
Provided the investment is held for at least five years, there is no recoupment of the tax benefit when the investment is realised, the firm says.
According to the latest South African Venture Capital Association survey, the South African VC industry is experiencing significant growth with an encouraging rise in the number of new fund managers, an increase in deal flow and in profitable exits.
The South African VC industry now represents almost R2 billion in assets under management, with healthy confidence levels that are commensurate with reported rising deal activity, a notable exits record and a significant increase in VC fund managers and industry professionals. Source: IT Web