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Ryan Marx 940560

Silvertree move to take majority stakes in startups nets mixed view from founders [Updated]

SA investment company Silvertree Internet Holdings is buying up companies left, right and centre — ahead of a planned listing in 2023 — relegating many of the founders to mere operators of the businesses they once founded. Not all are happy about it.

It comes as in July, Business Day reported that Silvertree, expects to grow annual revenues to more than $300-million by 2023 (up from $40-million at present) and will then consider going public.

Its portfolio includes 12 firms in which it has invested in since 2013. They include among others Pricecheck.co.za, CompareGuru.co.zaUcook.co.za and CarZar.co.za.

Last year CompareGuru co-founder Ryan Marx (pictured above) sold his 10% stake in the business back to Silvertree (which at the time of the sale had a 70% stake in the business) because he felt he had become an employee in the very business they had founded three years before.

Speaking to Ventureburn this week, Marx said he took the decision in September last year, because he felt he had no freedom to explore his own vision and that he felt like an employee in the company he helped found.

Silvertree Internet Holdings is buying up companies left, right and centre, relegating many of the founders to mere operators and not all are happy about it

Marx says he met Silvertree Internet Holdings managing director and co-founder Manuel Koser while working at online fashion retailer Zando, a Rocket Internet company which Koser once headed.

Shortly after this in 2014, Koser’s Silvertree, along with UK investors Kingsway Capital, helped seed the new company (known then as Click n Compare).

In August Koser told Ventureburn that Silvertree looks to take a stake of 30% to 90% in those companies it invests in, with the view of eventually increasing this to 100% (shareholders he adds, will still enjoy “minority rights”). He calls his investment company’s approach one of fostering “co-entrepreneurs”.

Read more: Is Silvertree’s co-entrepreneur model the answer to Silicon Valley?

However Marx this week said he was made to feel like an employee, rather than a “co-entrepreneur”.

He said a key disagreement was over the business model – with Marx wanting to focus more on generating revenue from the web platform itself, and Silvertree wanting to shift the focus to the brokerage linked to the startup, that provided clients with insurance quotes.

In August last year Marx — together with former CompareGuru employees Jax and Duane du Plessis — founded MoneyPanda, which essentially offers the same thing that CompareGuru does.

Ironically MoneyPanda, which is self-financed generates revenues via brokerage commissions on sales from car insurance as well as lead generation.

Concerned over majority stake plan

But it seems Marx is not alone in his concern that founders are being edged out.

Twenty-one year old Sakhile Maseko, who founded online watch retailer Aumax two years ago is also worried over Silvertree’s bid for majority ownership in the startup he founded three years ago.

He admits that the 40% stake that Silvertree took in his company earlier this year was “a huge” one, but says that he “didn’t have a lot of options”. “At that stage of my life I didn’t have a lot of experience,” he says.

However he points out that Silvertree has helped a lot, and is now assisting him to put accounting systems in place. “Me personally, I really find it a great learning experience,” he says.

The business, which employs 13 remote sales agents and has a R300 000 monthly revenue, is now close to breaking even. In addition, Maseko now takes a larger salary than he did before Silvertree invested in the business. He admits that previously his salary was “next to nothing”.

But he’s still concerned over one of the terms and conditions of the investment — that Silvertree would aim to own a majority stake within two years.

Auxmax would probably die without him, he admits, adding that it takes significant amount of passion and sweat equity to keep the business running.

“If they’re going to do it (take a majority stake) you might as well start a new business,” he says.

‘I’m absolutely an entrepreneur’

Then there’s Michael Muller, who runs online car sales platform CarZAR.

While he won’t reveal whether Silvertree has a majority stake in the business he founded with Brazilian Fernando Pinheiro and Koser (who he says helped identify the business opportunity) in 2016, he argues that he has “a lot of skin in the game”.

In May last year CarZAR announced that Silvertree and a Sweden-listed investment firm Vostok New Ventures had invested in the company. Only Vostok (which is a listed company) disclosed the size of its portion of the investment, which was $1.5-million.

So what is Muller, a manager or an entrepreneur?

He claims he’s “absolutely” an entrepreneur and in no way an employee at the company. He adds that he’s had to make sacrifices.

He points out that while he may work at a company that retails cars, he drives a modestly priced vehicle, a Honda Brio, and takes a salary that given his profession and experience (as a chartered accountant who previously worked for PWC and McKinsey & Co) is less than what he might be able to get elsewhere.

He questions whether the size stake one has in any firm is really of importance, adding “who is getting hurt?”

He points to the 35 jobs that the company has helped create since 2016 and the value it has pumped into the economy. “That money would not be in the country if Silvertree had not been here,” he adds.

Pinheiro (who in May sold his stake back to Silvertree), worked formerly for Rocket Internet in Brazil before coming to South Africa where he served as CEO for one of their SA portfolio companies Easy Taxi, between 2014 and 2016.

When contacted by telephone by Ventureburn, Pinheiro — who has since moved back to São Paulo, Brazil — said he had sold his share in CarZAR to return to Brazil. He declined to divulge what percentage stake he had in the company at the time he exited.

‘Minority rights protected’

One founder in the portfolio who doesn’t appear concerned, is UCook co-founder David Torr — even though Silvertree has a 50% stake in his business. The startup sells prepacked meals to customers over the internet.

Silvertree invested R3-million initially in 2016 and then a further R5-million. At the time Silvertree invested, the startup was two years old and he and co-founder Chris Verster Cohen were still operating out of a garage in Newlands, Cape Town and making about R40 000 a month in revenue.

“They managed to buy a substantial amount of the business when the business was doing nothing,” he says, adding that revenue has since increased to R9-million a month – a position he says where the company is breaking even. The business employs 28 people at present.

He adds that Silvertree has “been great”. “They have been very operationally involved,” he says, adding that Silvertree co-founder Peter Allerstorfer spends time with him and Cohen twice a week.

Torr says in addition he has separate business interest with Koser. It could be why he’s smiling. Or, because he had Silvertree remove a clause from the contract he and Verster Cohen signed when the investor approached UCook to invest in the business.

He says Silvertree initially wanted to add a clause to the investment contact, stating that the investor aims to take a majority stake in those it invest in, within a short period of time.

UCook will likely need a further funding injection soon – as the startup aims to roll out new product lines as well as open a concept bricks-and-mortar store with fellow Silvertree portfolio company Faithful to Nature, at the end of next year.

Torr and Cohen also set up a management company to hold the UCook founders’ stake in the startup’s holding company, Supper Society. “Future rounds will be raised in this management company, so that our ownership won’t be diluted,” added Torr.

In addition, a minority right clause in the investment contract means that Silvertree would have to take over 80% of the management company’s shares in order to gain control of the company.

Torr is frank on Silvertree’s plan to consider listing in five years and the opportunity it will create for founders of companies in which Silvertree has invested. If it came to that, he says, he wouldn’t be against selling his share to Silvertree, but concedes that it would “have to be a very large offer”.

In September retail solutions company Smollan announced that it had invested in UCook. Smollan did not want to divulge the amount or stake it had taken in UCook but Torr subsequently told Ventureburn that the investment was into the management company.

‘Invested heavily’

In 2015 Silvertree teamed up with Kevin Tucker to buy back PriceCheck, the ecommerce site he started in 2006, from Naspers. A 2015 report by Fin24 quotes Tucker as saying that Silvertree has the majority stake in PriceCheck (some estimate it to be 70%).

At the time Tucker said he was “invested very heavily” in the business (over the last two weeks he did not respond to repeated requests for comment from Ventureburn).

Ventureburn also contacted the heads of Pet Heaven and Faithful-to-Nature, but they too did not respond to repeated requests for comment.

Pet Heaven founder Courtenay Farquharson lists on his LinkedIn that he exited the business in 2015 and appears to have since moved to Australia. Current CEO Schalk Kearney did not respond to request for comment on what his stake is in the business.

Robyn Smith, who is the Co-CEO of Faithful-to-nature.co.za with Silvertree’s Allerstorfer, also did not respond to repeated requests for comment. Smith founded the business in 2007 and in 2015 Silvertree invested a reported R10-million in the business. It’s unsure what stake Silvertree has in the business.

The jury is still out on whether Silvertree’s model is really one of working with co-entrepreneurs or whether the intention is to turn them into glorified employees working for one big company, namely Silvertree.

Who then is making all the money — Silvertree, or the entrepreneurs?

*Correction (9 November 2018): Ventureburn incorrectly stated that Ryan Marx founded CompareGuru together with Jax and Duane du Plessis, when in fact the latter were only employees in the business. Marx was the only founder.

Marx also subsequently clarified to Ventureburn that his stake in CompareGuru when he exited, was 10% (and not part of a 30% stake as Ventureburn initially had it). Silvertree’s stake was 70% and the remainder was held by Kingsway Capital, he said.

Ventureburn regrets these two errors.

Featured image: Former CompareGuru co-founder Ryan Marx