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South Africa and Finish partnership on ICT December 1, 2010

Contents

Treacle profile Investment philosophy What is a winning business model Management Valuation/Price Exit mechanisms Post investment role Questions

Treacle profile

60% BEE Fund Management Company Established in 2000 (Fund I R 250 million) Focused on ICT & Telecoms sectors Evaluated 760 investment proposals 7 investments Returns >35% IRR Raised Fund II in 2006 (R 463 million) Two ICT investments Relevant Investments: 2008 - Teraco Data Environments (carrier neutral colocation) (R81.5 million) 2001 - Source code Inc. (software developer) (R 8 million)

Investment philosophy

Key ingredients for successful investments: Business model (is it a toll bridge?) Quality of management team (understand sweet spot?) Price/Valuation (can we make a return?) Exit mechanism (what is the way out?)

What is a winning business model


Does the product or service solve a real problem/need?

Value Proposition

Does product fulfil a repetitive need? Will it commoditize over time?

Revenue model

How will the company make money? Is the product/service scalable?

How is the product going to reach market?

Channel to market

What medium will be used for after sales service? At what cost?

Pricing model

Is the product or service price sensitive? Will the customer be willing to pay for it? Is there some measure of protection against competition? (exclusivity, patent, trademark etc)

Management

Understanding of the market for their product Track record in industry Understanding of what they do best and why Governance discipline

Valuation/Price
Enhancements to pre-money valuation: Significant financial commitment by founders Past seed investment stage Demonstrable demand for product/service Dont ask for more cash than needed High margin products are better than low margin products Strong cash flows (focus on working capital management) Strong growth prospects What Venture Capital firms give in return: Higher relative value (or envy ratio); but With strong anti dilution provisions Early stage business expected to yield IRRs>35%

Exit Mechanisms

High value enhancing exits: Flotation on stock exchange (management lock-in) Trade sale Low value enhancing exits: Put option to company or management (generally restricted to one buyer) Sale to other financial investors (replacement capital transaction)

Post investment role


General business guidance on board Financial and structuring advice Access to business network Employment equity implementation Act as a sounding board

Questions

Thank You

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