Four Sars Section 12J venture capital funds that invest in SA tech startups

South Africa’s venture capital (VC) tax incentive allows investors that invest in accredited VC companies that then invest in small businesses, to make a tax deduction of 100% in the year that the investment was made.

To date the SA Revenue Service (Sars) has approved over 120 such funds (find the list here). But very few invest in tech startups.

While Sanari Capital and its Section 12J fund last year invested in two tech startups — Internet of Things (IoT) platform Sensor Networks and Snapt, which provides applications delivery controller solutions (see here and here) — there are really just four funds that invest in tech startups.

It’s why Ventureburn in August last year raised concern about the incentive fuelling a private equity, rather than venture capital sector (see here) and why Silicon Valley based entrepreneur Vinny Lingham yesterday called 12J funds that invest in property a “tax dodge” (see here).

Here then are the Section 12J venture capital companies (VCCs) that invest in the tech sector (some include a few non-tech related investments in their portfolio too):

KNF Ventures: Run by Cape Town based venture capital (VC) company Knife Capital, KNF currently has a portfolio of five investments. The fund was approved by Sars in 2016. The investments include beverage startup Pura — which was concluded in November (see this story), ticketing platform Quicket, machine learning startup DataProphet, tutoring platform SkillUp, and Internet of Things (IoT) temperature monitoring platform PharmaScout. The R1.4-billion SA SME Fund (which draws its contributions from 48 listed companies) in October last year invested R20-million in the fund (see this story). Plans to increase the Knife Capital fund to between R150-million to R180-million, in which case the SA SME Fund would put forth an additional R10-million Individual investors must each invest a minimum of R1-million. Knife Capital partner Keet van Zyl told Ventureburn yesterday that the fund is “inching towards the R150-million mark” (up from R120-million in November) if one includes provisional commitments.

Kalon Venture Partners: This Johannesburg based VC company’s 12J fund was also approved in 2016. So far the fund has invested in five tech companies — the latest, in November last year, being R10-million in proptech startup Flow (see this story) (the deal was controversial as it involved a possible conflict of interest). Kalon’s other investments are: SA financial services chatbot providers FinChatBot (see here), R7-million SA shopping community app SnapnSave (see this story) and R10-million in fintech i-Pay (see here). The fund also invested R1.5-million in business management and accounting system SMEasy. Kalon Venture Partners CEO Clive Butkow (who also confirmed the amount that Kalon invested in SMEasy) told Ventureburn yesterday that his VC raised R107-million over the 36 months, the period that Section 12J rules allow funds to raise capital. Not all the funds have been deployed, and Butkow says the fund can likely invest in three or four more startups and still be left with 20% of the original capital, with which to use towards a next round. He said fund two, for which Kalon is currently raising, has no targeted close, but he says R100-million raised over three years would be a suitable figure.

Kingson Capital: This Durban based VC fund was approved in 2015 by Sars. Earlier this month the VC launched a second fund, a R400-million fund aimed at investing in 30 to 50 tech startups and black-owned small businesses. Kingson Capital’s first fund (Fund One — see the portfolio here) invested in 10 companies, including Finfind – a matching platform for lenders and businesses seeking funding, Spazapp – an online ordering system for the informal marketplace (see this story) and Healthcloud – a data aggregator in the healthtech space. Just over 30 investors and limited partnerships participated in that fund. Kingson Capital founder Gavin Reardon told Ventureburn earlier this month that the 10 businesses the fund invested in employ a total of 102 people, with 30% of these being new jobs created. Revenue of these firms has grown an average of three to five times since the fund invested in these firms in 2015. Reardon declined to disclose the size in rand value of Fund One, saying only that investors asked the VC to not make the fund size publicly available.

Lion Pride Agility VCC Fund: Earlier this month Ventureburn revealed that Silicon Valley based SA entrepreneur Vinny Lingham is partnering with an investment house in South Africa in a new R500-million venture capital (VC) fund, which has already identified 15 investments (see this story). The fund is a partnership between investment house Lion Pride and Lingham’s angel investment company Newton Partners. The fund will invest in both technology that is making a social impact in South Africa and in disruptive technology. The fund’s aim is to raise the first R200-million of the fund by the close of the 2018/19 tax year on 28 February, the fund’s CEO Deven Govender said earlier this month. The fund was approved by Sars in September last year and is managed by Jaltech, an organisation that administers various Section 12J funds.

Read more: Section 12J funds that invest in property are a tax dodge says Vinny Lingham
Read more: New Vinny Lingham linked R500m VC fund currently mulling 15 investments [Updated]
Read more: SA VC Kingson Capital launches R400m fund to target tech startups, black SMEs [Updated]
Read more: Section 12J industry body established to ensure industry sustainability
Read more: What investors should look for in a Section 12J VC company [Opinion]
Read more: State must close door on those that misuse VC tax incentive [Opinion]
Read more: Savca raises concern over governance issues in Section 12J VC tax incentive
Read more: Venture capitalists welcome Section 12J proposals but call for more changes
Read more: Investors clamouring for 12J VC incentive following tax hike – fund managers
Read more: Can 12J VC tax incentive create the jobs South Africa badly needs?
Read more: Foreign investment injection could propel South Africa’s VC ecosystem, 12J funds

*Correction (15 February 2019): In the initial version of this article we mistakenly stated that SA’s venture capital (VC) tax incentive allows investors that invest in accredited VC companies that then invest in small businesses, to make a tax deduction of 125% in the year that the investment was made. It is in fact 100%. We regret the error.

Featured image: Counselling via Pixabay