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News > Private Equity > Deals

Futuregrowth becomes Yoco’s first SA institutional investor

Anna Lyudvig
Sept. 10, 2018, 12:38 p.m.
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Futuregrowth Asset Management has taken part in the second round of investor fund raising for Yoco, an innovative, fast growing enterprise in South Africa.

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Futuregrowth Asset Management has taken part in the second round of investor fund raising for Yoco, an innovative, fast growing enterprise in South Africa.

Officially launched in 2015, Yoco enables SMEs to accept card payments and provides card readers to over 25,000 South African merchants, most of which never accepted cards before. 

Currently Yoco processes R3.5bn a year in card sales.

Amrish Narrandes, Private Equity Analyst at Futuregrowth, said: “While a large number of the companies in the Futuregrowth Equity Development Fund (DEF) are mature companies, giving it a solid backbone of stable returns, it’s time that new, alpha-creating investments are added to further enhance performance.”

It’s not the first time the asset manager has added its weight to the venture capital (VC) space this past year. 

“We have made one other investment last year and are already busy with a partial exit,” Narrandes told Africa Global Funds.

“Since we’re an open ended fund, we typically follow the entrepreneurs lead. Depending on the investment, we will determine what makes sense for each portfolio company (a trade sale vs financial),” he added.

According to Narrandes, investing in early stage companies is a perfect fit with Futuregrowth’s vision of being a force for good in the markets and the environment in which they operate. 

“Venture capital is critical for the development of the South African economy,” Narrandes said.

However, the Fund’s mandate only allows for up to 10% of the R2.5bn portfolio to be invested in early stage companies, thereby limiting its exposure and thus the risk that is associated with these investments.

“From a fund construction perspective, the bulk of the funds’ assets (the other 90%) are in safer established portfolio companies/infrastructure assets,” Narrandes said.

“Adding a small amount of higher risk VC not only benefits the fund but also helps South African entrepreneurs raise capital. We strongly believe that contributing to building a strong venture capital ecosystem will benefit the country as a whole,” he added.

Narrandes  said that Futuregrowth is also extremely conservative in how they define ‘early’. 

“The investments we consider early stage are those much later in the businesses’ early stage of development, when the investment is considerably de-risked. This effectively means we will only consider investments in the growth and later stages of their development,” he explained.

The risk profile of an early stage company varies greatly, depending on the stage of development the business is in, according to Narrandes.

These four stages are: 1) Concept stage; 2) Start-up stage; 3) Growth stage; and 4) Later stage. 

Each of these phases will attract a different type of investor.

“It goes without saying that investing in early stage companies is a lot riskier than investing in mature businesses. However, given the greatly diversified portfolio of the DEF (it holds over 40 investments), and with the correct bet size in these early stage companies, there is no better platform to make such investments,” said Narrandes. 

“In finding the next Google or Facebook, not only will the DEF returns be enhanced but its impact on the ailing South African economic growth rate will also prove to be truly developmental,” he concluded.

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