South African financial services firm Investec has been making some rather smart moves in the US rooftop solar market.
In just two years, it succeeded in becoming the pre-eminent funding source for that industry by arranging $880 million in debt financing for developers and financiers last year.
That amounts to more than half the $1.5 billion bank debt raised by the sector last year, according to Bloomberg New Energy Finance.
Investec has capitalised on the finance gap ignored by American financial institutions that typically shun the grubby, non-traditional business of financing rooftop solar deals underpinned by thousands of small contracts with consumers.
Despite debt being tied to healthy individual credit scores, traditional financiers have preferred to back large solar farms because those contracts generally involve investment-grade utilities.
It does seem that the commitment to back emerging tech-driven ventures and the willingness to experiment with hybrid commercial models demonstrated by the folk at Investec isn’t standard across Africa’s investment community. This needs to be addressed if promising tech startups on the continent are to get the resources and support they need to significantly improve the lives of the average African.
A dangerous mix of counter-productive attitudes held by the continent’s investment fraternity is leading to an unhealthy fixation on traditional big ticket investment plays within the tech space.
African investors either favour deals that appear too big to fail, or business opportunities that are led by precedent. Ignorance, a fear of the unknown, greed, an unwillingness to delay gratification and even laziness all contribute to sustaining a deeply-ingrained disinterest in funding early-stage tech start-ups.
Two venture capital interests – Velocity Capital in the Netherlands and Quona Capital (manager of Accion Frontier Inclusion Fund) in the US – have led a Series-A investment round in the South African mobile payments startup Yoco.
The round closed successfully last week, and it’s telling that Yoco had to cross the oceans to find suitable partners to support their bid to build on the success of enabling 6 500 South African merchants to accept card payments totalling over R1bn a year. It certainly appears that Quona and Velocity Capital have snapped up a peach from right under the noses of Africa’s institutional investment community.
Given Yoco’s ambitions to grow nationally, regionally and internationally, their decision to go with foreign, fintech-focused venture capitalists with solid track records was partly strategic. Yoco co-founder and chief executive, Katlego Maphai, said as much when asked to share his firm’s criteria for courting investment. I do think that in an ideal world Maphai and his partners needn’t have travelled so far to land suitable investors.
Dominique Collett, who is a senior investment executive at Rand Merchant Insurance Holdings, was a co-founder of the South African mobile money start-up Tyme.
Tyme’s mission was to provide affordable, commercially viable financial solutions for the unbanked. In February 2015, the startup was acquired by the Commercial Bank of Australia (CBA) for a rumoured $40 million. The deal arose after Collett and her co-founders had pitched their business to big-name venture capitalist and institutional investment interests in Africa, but were not taken seriously.
Significant time and effort have been spent overhauling the firm’s technology and cementing key strategic relationships in South Africa, China, Vietnam, Indonesia and India. It’s unfortunate that it took all that for South African billionaire Patrice Motsepe’s African Rainbow Capital to finally see value in acquiring a 10 percent stake in the company – in a deal that CBA probably only found necessary in order to enlist black shareholders and thus improve its commercial prospects in South Africa.
Better late than never, I suppose.