TechInAfrica — Section 12J Venture Capital Fund, KNF Ventures, Knife Capital has reported that it is extending the fund for new investors’ participation and expand on the achievement and momentum made.
Access to equity finance is one of the main challenges to the growth of small and medium-sized enterprises (SMEs) in South Africa. To help higher-risk ventures in overcoming this challenge, the Section 12J venture capital company (VCC) regime was established where qualifying investors in approved Section 12J VCCs can deduct the full amount of their investment from taxable income in the tax year that the investment is made.
Having launched most of its R180-million, VCCs have the advantage of bringing together investors and concentrating investment expertise in favor of the small business sector. However, the Section 12J regime has had a few difficulties in delivering tangible results for SMEs so far.
Keet van Zyl, a partner at Knife Capital, expresses confidence in the regime with the extension of KNF Ventures. “While there are challenges facing the industry, those VCCs that refined their offerings and partnered with the right investors created viable sustainable business models.
“Based on the success of KNF Ventures so far, which is just about fully deployed and where our portfolio companies are growing in excess of 50% year-on-year, we are extending the Fund for further investment.”
Featuring the importance of looking beyond the 12J tax incentive, Van Zyl stated, “For us, it is about more than the tax break. Sure, it is a good incentive as investors start the investment process in a favorable Internal Rate of Return (IRR) position due to the immediate tax benefit.
“But our aim is to leverage Knowledge, Networks & Funding to accelerate the growth of South African innovation-driven SMEs and generate enhanced returns for entrepreneurial-minded investors.
“We have an amazing investor base of just over 100 private investors and institutions – including the SA SME Fund – that we are extremely proud of. So, there needs to be a mutual fit for investment philosophy and values.”
Far beyond the financial benefits, KNF also already created 54 jobs within its 12J portfolio and more will be added.
When investing by finding exciting SMEs, Knife Capital takes a holistic ‘Find-Make-Grow-Realise’ value-chain approach, making the investment with fair terms after thorough due diligence and actively growing the businesses to ultimately realize sustainability and/or exit goals.
New investors in KNF will have the option to take part in the further upside of the portfolio investments previously made, which currently comprises of the following high-growth businesses:
- Quicket – Cloud-based ticketing platform for any size event.
- DataProphet – AI/ Machine Learning for the autonomous manufacturing industry.
- SkillUp – E-Learning platform for tutoring and Code4Kids program.
- PharmaScout – IoT temperature monitoring solutions for the pharmaceutical industry.
- Pura – Carbonated beverage brand with low sugar and natural flavor innovation.
- Cradle Technologies – SaaS Warehouse Management Solutions for SMEs.
- Snapplify – EdTech company enabling digital learning through an educational content marketplace.
This year is turning out to be a bustling year for Knife Capital. Van Zyl said, “We are also launching KNF Ventures Fund 2 and working on ways to plug the Series-B funding gap that exists in South Africa where there are limited local investors that lead or participate in larger Series-B VC investment rounds and actively manage those portfolio investments on home soil.”
The Section 12J regime can continue to make a positive impact on innovation, job creation, and growth in South Africa with sustainable investment and stakeholder alignment.