Alan Knott-Craig Jr on birthing World of Avatar, sealing the Mxit deal

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In the third and final extract from his book “Mobinomics”, South African entrepreneur Alan Knott-Craig Jr details how he took World of Avatar from concept to company. As was the case with some of his previous ventures, there were speedbumps along the way. At one point Knott-Craig had less than R2 000 to his name and kept the business afloat with emergency loans. Slowly though, things began to turn around, until he was ready to make another play for Mxit: Africa’s largest social network.

Things began to move at the speed of lightning.

Pete’s development team moved to Stellenbosch, bringing Mobicanvas, a tool for building cheap mobile websites, with them. Steve Briggs called in a panic and I stepped in to save Arc Telecoms, a voice and data service provider.

Tom London, a lanky, laid-back talk radio presenter, moved from Johannesburg to pursue his plans for an Internet-based radio station. Veeren Naidoo quit everything to chase his dream of an online bill-payment service called Triloq.

Johnny Graaff approached me to get involved in FSMS, an ad-supported web-and-mobile SMS service. Katy Digovich flew in from Gaborone and we agreed to launch Jujuz to sell mobile classified ads. Andrew Rudge and I bonded over many a coffee and we decided to try MobiFin, a platform for distributing financial information and other educational content on mobile devices.

Pete Matthaei, my co-founder and Chief Technical Officer, wasn’t enjoying being pulled in ten different directions. He wanted to chase his dreams of building a world-changing product. Which turned out to be BOOM!, an online music discovery service.

A close friend of mine, Nico van der Westhuizen, moved to Stellenbosch in April. He and I had both started our first businesses in 2003, sharing many of the trials and tribulations of a first-time entrepreneur.

Immediately upon settling in, he started persuading Kevin Harris and I to establish a passive investment holding company to help us diversify our assets and to learn new industries.

After much umming and ahhhing we agreed to give it a go. The fateful meeting was at Basic Bistro on Church St, so we decided to call the company Basic Business Investments (BBI.)

Through one of Sibella’s best friends I met Jimmy Hanekom, a typical disgruntled employee who felt he could do a better job than his boss, if only he had his own company. I backed him. Problem was that it was a property development company, and you can do squat without a balance sheet.

Nevertheless he cracked on, and that company become Foundation Capital. My shares were bought by a good friend, Johan Bosman, and BBI.

In the online media arena, I invested in a venture run by one of the most driven and determined mavericks I know. Branko Brkic, editor and publisher of the Daily Maverick, a journal of news and commentary that is helping to shape the way we see our noisy, disruptive democracy.

Before I knew it we had a group of rockstars – or avatars, as I would come to call them – and no way of going back.

Of course we had a couple of hiccups. I was introduced to a girl with big dreams of rolling out IPTV and completely disrupting the Pay-TV industry. Music to my ears. After giving her R500,000 in good faith, things rapidly started going pear-shaped. I decided to walk away when it was clear she couldn’t work with my guys, and worse, was insulting them.

Also, I made the rash decision to start an office-letting-cum-tech-incubator and signed a five-year lease for 500sqm of the most expensive office space in Stellenbosch.

Meanwhile, on the home front, Sibella and I began working together to make our marriage work. To my everlasting surprise and relief, we identified the problems, dealt with them, and realised we were still crazily in love.

Thank God, because that’s when the real business pressure began. Without a rock-solid relationship at home I would probably have crashed.

It all happened in August, 2010.

On the first of the month, I received an email from my banker, saying the bank had changed its mind regarding the pre-approved additional facility on my house, thereby removing R5-million of capital from my war chest. At that point, I had R1 600 remaining in my overdraft, and an overheads bill for WoA alone of R250,000, due on the 25th.

On August 12, I re-proposed to Sibella. She accepted, luckily for me.
On August 13, a Friday, we opened the first WoA office and had an official launch party.
On August 14 – my birthday – Sibella informed me she was pregnant again.
On August 15, I double-checked my bank balance. Yup, still R1 600 left.
On August 16, I finally plucked up the courage to email my dad and ask for an emergency loan. He mulled over it for a couple of days, and then said he would help me with 20% of the amount. And I had better pay it back in a hurry.

I borrowed money from friends. I found money I’d forgotten about in an overseas account. I scrambled like a chicken in the dust. And then one day, I went for a kiddie’s birthday party in Stellenbosch, and bumped into an angel. The best kind of angel: the kind that, with a little bit of persuasion, puts faith, trust, and money into your business dreams and ventures.

To my eternal disbelief and relief, I’d found a capital partner. On a handshake, I was saved.

I got lucky.

One day early January 2011, in Stellies, I was having a casual breakfast with one of my closest friends, Francois Swart. Francois, aka Frank, was CEO of a listed private equity company called Paladin, based in Stellenbosch.

Just like that, Frank asked whether I would consider bringing him onboard the WoA train. I was flabbergasted. Frank was always the top-rated clerk at articles, 7th in the Board exams, and a rockstar at Goldman Sachs in London. And here he was saying he was keen on the WoA story.

Clearly, I can talk a good game. Over the next few weeks we thrashed out a deal where he bought 20% of my shares and could wriggle his way out of the PSG Group without offending anyone.

This proved to be quite serendipitous because my personal finances were not looking hot. I was a classic case of “asset rich, cash poor.”

We sealed the deal in February, 2011, and by the end of March, Frank was in the fire. I’ll never forget when he asked whether I minded if he wore baggies to work. This was his first experience of working outside a corporate, ever. I said, please don’t ask anything like that again. He came to work in baggies. Suffice to say, I love Frank.

The businesses were ticking over, with a couple of rockets taking off, but I still felt there was something missing from the mix. I popped into an office just outside town. The office of Herman Heunis, founder and CEO of Mxit.

Hello, Herman. Me again. This was in April 2011, four months before we would take that walk along the Eerste River. After an hour of pleasantries, I casually suggested to Herman that I’d like to throw my hat into the ring, should Mxit be for sale. He laughed. Turns out I was serious.

He called me a couple of weeks later, and after a few more weeks of negotiation, we signed a formal Memorandum of Understanding on May 11, for World of Avatar to acquire between 90% and 100% of all the Mxit companies for R669 million. How did I get to the valuation?

Herman owned 60% of the group, and 40% of R669-million is R400-million. That sounds better than R390-million. Retail psychology 101.

Then started the most exciting and stressful four months of my life. We pulled together a rockstar team, conducted a full due diligence within four weeks, held two strategy sessions with all the big-hitters present, appointed RMB as our corporate advisors, and went on a two week roadshow to investors.

And failed.

Everyone loved the story. No-one loved the numbers. We eventually agreed on an extension. The big day arrived. I didn’t have the money. It probably didn’t help that Greece was going bankrupt, the USA government debt was downgraded, and global stock markets had their biggest fall since 2008.

That aside, our failure to raise the cash was an indictment of me. Potential investors didn’t believe I could make the magic happen.

I felt like a loser.

I woke up on August 19, with a sick feeling in my stomach. I sent Herman an SMS. “Keen for a coffee-walk at 9.30am?”

Well, some walks take you further than others.

I felt crushed, but I psyched myself into believing there would be other possibilities, other opportunities. I’d lost Mxit, but life would go on. I woke up that Monday feeling on top of the world for some inexplicable reason. Then my attorney, Jan Viviers, phoned. “Alan,” he said, “the deal might be alive.”

In a nutshell, his advice was to make a cash offer and see what happens. Since May, Naspers and Herman had lost patience and energy. They had emotionally disengaged, and World of Avatar was far and away their preferred and most likely buyer. So maybe, just maybe, they would accept a lower price.

But where to find the cash?

Long story short, I find enough to make an offer to purchase Mxit for R330-million. A discount of more than 50% on the original offer, but better than nothing!

At 4pm on September 1, I sign the letter in my attorney’s office. Ten days for the sellers to accept. Jan and I finish a quick Hansa, and I head home for some play-time with my girls.

Sibella and I dash off at 5.30pm for the launch of Livewell Suites, my buddy Jimmy Hanekom’s new venture. It’s a series of lifestyle and healthcare facilities for senior citizens. Very smart and stylish. I tell Jimmy that if things don’t go according to plan with WoA, I might have to move in.

Friday. A long day. No word from the sellers.

Weekend is lekker, just chilling with the girls.

Monday, no word from the sellers. I’m getting nervous.

Tuesday, I get an email from the sellers’ attorney, requesting an extension in order to consider the offer more carefully. Golf in the afternoon with Jan. He shakes his head. We can’t give an extension.

September 10 comes and goes. Now what? I tell the sellers we’re getting deal fatigue. The ball is in their court.

Four days later, they call to say a signed agreement is on its way. We have 24 hours to sign, or they go overseas to find a buyer.

At 4:55pm on Friday, September 16, we put pen to paper. Price: officially non-disclosable. But a whole lot less than the original R669-million. This deal was meant to be.

And now here I am again, on a Tuesday evening in Stellenbosch, walking in the rain, crossing Dorp Street, smiling to myself, doubling my pace across the courtyard, and slipping into the sanctuary of Gino’s, the biggest pizza-and-beer hangout for students in this student town.

Except, there are no students here tonight. Just us. We’ve booked the whole place out. We’re celebrating. Mavericks, coders, dreamers, wizards, whizz-kids, techies, accountants, avatars and me – an upstart restarting a startup.

We’re sitting at the long wooden banquet tables, talking, laughing, shouting over the hubbub of clinking glasses and the waft of hot dough rising in the pizza oven.

And somewhere above it all, silently, invisibly, the signals are shooting like stars, from handset to base station, across thousands of kilometres of cable, under the sea, onto a server on a distant shore, and all the way back again, over and over. People sending messages to each other. People communicating. People searching, reaching out, networking, connecting.

Welcome to Stellenbosch. Welcome to my world. Welcome to the New Republic of Mxit.

“Mobinomics” is written in collaboration with veteran journalist Gus Silber and printed by MacMillan publishers.

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