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While South Africa slipped into a recession in the first quarter of this year, Stellenbosch investor and entrepreneur Frans Meyer says the opportunities for innovative companies locally and abroad are “still huge”. Meyer is the group executive chairman of local tech company Alphawave.
Meyer, together with Gronum Smith started EMSS in 1994. One of their company’s now supplies the receivers that are used on South Africa’s Square Kilometre Array (SKA) project. In May the parent company EMSS Group changed its name to Alphawave in May.
‘The specific opportunities for innovative companies, providing products and services locally, abroad, still huge’
Meyer responded to various emailed questions from Ventureburn on Alphwave and investing in electronic and software startups.
Ventureburn: Why the name change from the EMSS Group to Alphawave?
Frans Meyer: EMSS was founded (in 1994) as an Antennas Engineering, or more generally as an electromagnetic engineering company. We built three companies in software and hardware based on our focus on electromagnetics. One of the companies, EMSS-SA, was acquired by a US firm, Altair.
In 2014 the group decided our software and electronic skills and technology can be applied to broader markets. The name change came after a re-branding exercise to re-focus from the niche field of electromagnetic engineering to the much broader field and application space of software and electronics.
VB: Were new shareholders brought onboard?
FM: No new shareholders came onboard, but we did consolidate the shareholding of the different entities we established over the past 20 years.
VB: How big is the company now in terms of revenue and number of employees?
FM: The group revenue is more than R150-million and we have just over 165 people in the group now of which over 100 are engineers and scientists. This excludes the revenue and people from the company that was acquired by Altair.
VB: Alphawave has invested in five companies, all based in Technopark, near Stellenbosch. What is the idea with these investments?
FM: When we decided to change gear and become a software and electronics group we decided to do so organically (through internal projects), as well as through acquisitions. Our acquisitions and investments are relatively small.
We provide seed funding to new ventures and work with them as shareholders to increase the chances of success for their businesses.
We also provide acceleration funding. This is where we buy into companies that already generate revenue and have one or two promising products. In this case, our involvement is for cashflow relief to help these companies to focus on more valuable services or invest at an accelerated speed in their products.
We do become involved with the business decisions and try to create value for the Alphawave group as well as the partners we invest in. An innovative company with strong engineering or software skills can quickly become much more valuable if cash-flow problems are relieved, and a longer view on business decisions is taken.
The bigger goal with the investments in our own products as well as in startups and acceleration partners is to build a strong software and electronics group, with various business lines that could increase our cash generation over the next few years.
We don’t specifically want to say that we are becoming an Internet of Things or an Internet of Everything company. However, we have no doubt that the market for applications that need for software, electronics or the combination of the two, will grow in the decade to come.
In the group our skills range from sensors and electronic design engineering, connectivity, cloud as well as web and mobile application software. It is the full range.
VB: What is the size of the companies you have invested in?
FM: The companies we have invested in range from two-man startups to 10 to 15 or more engineers and scientists. They are all owner-run firms. Engineers or computer scientists, or a combination of them who started these companies.
VB: What amount has Alphawave invested at present?
FM: We’ve now invested R60-million in total. All this money is from cash generated by Alphawave businesses (the old EMSS businesses) topped up with cash from the main shareholders.
Our biggest investments are, however, investments in internal projects. By far the largest is in Honeybee, the mobile solution for sales reps. The company is growing at a very fast pace. A very successful investment indeed, and our first real success outside of electromagnetic engineering.
VB: What does Alphawave look for when investing?
FM: We are in software and electronics. We will focus on these technologies. The application of these technologies and the markets they serve can be across the board.
We’ve got business experience in servicing large multinational firms, establishing international sales channels, as well as in servicing small local businesses.
Our engineering businesses were built on the philosophy of solving difficult problems, that matter to clients, really well. When we invest, we’re looking for something similar in the product or company. Or at least the potential for that.
VB: What equity stake does Alphawave seek to take?
FM: For the external investments we’ve taken stakes from 15% up to 75%. When we take a stake of 15%, we will almost certainly take an option for further investment. Ideally we want the owners and drivers of the businesses to keep a significant cut in the business. But we also want a significant enough cut to make it worth our while spending time on building the business.
VB: What kind of support or acceleration or mentoring do you offer startups?
FM: We don’t provide formal mentoring. However, we do become involved in the businesses themselves. Trying to think with the people how to build their businesses. But each business or investment is different. So we cannot apply a formula or recipe.
We just try to use our business savvy, and some cash relief, to see if we can make the specific challenge at hand work. We’ve seen now over and over.
It will almost always take much longer (and more money and effort) than the entrepreneur thinks it will. But that doesn’t mean you shouldn’t give it a go. It only means that support from an established group like ours could make the difference.
VB: How many investments are you looking to make in let’s say — the next five years?
FM: We’re probably at capacity now in terms of investments. The main reason is that when a company or product starts getting traction (like Honeybee did) it just makes sense to keep on investing. This is the ideal situation to have. A new venture gets traction, but it does need further cash. Some of our other ventures are also getting traction and will need more cash and support to grow further. However, we’ll be speaking to various people over the next year.
VB: Have you had any interest from other investors — like local or international VC funds, angel investors?
FM: If it makes sense for us, we would consider getting external investors onboard.
VB: SA has slipped into a recession, yet the size of acquisition deals seem to be on the increase (judging from the recent Getsmarter acquisition of over R1-billion).
FM: South Africa as a country might be slipping into recession. But the specific opportunities for innovative companies, providing products and services locally and abroad, are still huge.