South African venture capital exit to US technology giant

Graceful exits are often unreported, but one South African venture capital company has done it smoothly with seemingly positive effects for the local emerging markets environment in which it operates. PoweredbyVC, which manages the South African venture capital portfolio of HBD, has concluded the exit of its CSense Systems (Pty) Ltd to US based GE Intelligent Platforms.

CSense has been behind rapid process troubleshooting and process improvement software solutions that aim to enhance the performance of industrial processes by indentifying problems before they occur. The latest deal sees GE Intelligent Platforms having now acquired the technology assets of CSense, including the company’s analytic software products and engineering solutions.

Eben van Heerden, CEO of PoweredbyVC, says he is “very pleased with the outcome of the exit,” adding the multiples achieved were well in line with international benchmarks of transactions of this nature.”

So what ultimately gave CSense the edge for a high profile exit to GE? Van Heerden told Memeburn in an exclusive interview that the methodology of CSense was internationally focused from the start.

With the attainment of a portfolio of international clients an international buyer followed. Van Heerden says he would advise Memeburn readers in the startup space to focus their companies globally even if it results in a local exit. “The number of clients you gain by this approach alone merits a strategy that looks beyond local markets, regardless of the type of exit you ultimately conclude with”.

The exit of CSense systems is good for an emerging market like South Africa by adding to investor confidence and riding on some positive sentiment with the country’s recent accession to the BRICS block of emerging economies. PoweredByVC has gone so far as to say the latest announcement will go a long way to secure much needed investments in future local venture capital funds.

In van Heerden’s view, if the venture capital industry in South Africa is to attract meaningful investments, local fund managers need to continue to demonstrate the ability to grow investments in early stage companies to profitable exit.

“We provided equity funding in one round (typical ‘Series A’) as well as short-term working capital bridging finance where required for growth spurts here and there throughout the life of the investment,” added PoweredByVC’s Keet van Zyl. His comments, which appeared in a blog conversation with his Justin Stanford, also affirmed that they were the sole institutional equity provider, adding the company did however introduce different finance providers at the appropriate stages.

PoweredbyVC, a privately owned emerging market investment group founded by internet entrepreneur and cosmonaut Mark Shuttleworth, claims the exit demonstrates that local venture capital backed startups can attract the attention of international giants such as GE, a top 10 Fortune 500 company.

Derick Moolman, CEO of CSense says the “the open relationship between the management team and the investors ensured that the various stakeholder interests were aligned, without which, the exit process would have been much more complex.”

CSense received investment from HBD at an early stage to catalyze rapid international expansion and played an active investment management role until the latest announcement.

Van Heerden says the CSense exit provides a good lesson on maintaining relationships with all stakeholders. “From a VC perspective they maintained a close relationshop with us, benefitting from the knowledge and networks we have. CSense was clever; they did not take just the money that came from our involvement but leaned on us quite a bit in this regard,”

According to PoweredbyVC’s press release, the role between investor and startup took the form of a partnership and positively impacted on not only financial and governance related areas but also determining the strategic direction of the company.

In Keet Van Zyl’s online conversation with Justin Stanford the member of the PoweredbyVC team stated that while a local exit would have been easier, “ultimately a trade sale to an international strategic buyer was more desirable in this instance,”. He went on to say GE was “more in tune with global benchmarks for revenue and EBITDA multiples in the tech space”.