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While many in South Africa’s agricultural sector are struggling in the wake of one of the country’s worst droughts in recent history, it’s been a very different experience for Peter de Vries and John Stone.
The two, who run Hortec — a business they founded in 2004 — have seen revenue from their testing and pesticide laboratories as well as weather station business generate double-digit growth in each of the last three years.
Admits De Vries (pictured above): “The drought has been very kind to us”.
While the Hortec runs a pesticide testing lab as well as several laboratories that help farmers test things such as the sugar content in fruits to gauge when the fruit is ready for harvest — in top demand as been its weather stations.
Business Partners in 2016 invested R15m in Hortec through its VC fund
The weather station is essentially a small box powered by a solar panel that includes a sim card. The box then pushes temperature and other atmospheric readings directly to the farmer’s cellphone.
So far the duo has sold 500 such stations across the country, in places like Marble Hall, Musina, Tzaneen, Addo, Kirkwood and Citrusdal.
“My bookkeeper said if you put this kind of growth on paper you would be mad,” he says.
Behind much of the firm’s growth has been SA financier Business Partners, which invested R15-million in the business in 2016 through its R400-million venture capital (VC) fund, in return for a 40% stake.
“It’s a big chunk but if we didn’t have it (the equity finance) we wouldn’t have grown up until now,” says De Vries.
Part of the investment included Business Partners buying out the stake of another (not named by De Vries) VC fund.
The previous VC company’s focus on taking cash out of the business at any cost had done nothing to grow his business, says De Vries.
However when Business Partners took over, the funder granted the business a six month payments holiday.
Initially the funder held monthly board meetings with the business until it had a better handle on what was going on in the business. Now board meetings usually take place only once every six months, though they must still email financial statements to the fund monthly.
28 businesses funded since 2012
Hortec is one of 28 small and medium-sized firms that Business Partners has invested in via its VC fund by March this year, since the fund’s inception in 2012. In all the financier has invested R131.3-million in these firms.
Business Partners CFO Siphethe Dumeko told Ventureburn in a call last week that the outlook for the financier’s VC investments is currently not a rosy one, given the slowdown in the economy over the last few years. “It’s a tough market,” conceded Dumeko.
The financial results, released earlier this month, are indicative of this — with net profit from the total portfolio having fallen 2.5%, after rising in every one of the previous successive four years (credit losses however decreased from R76.3-million to R51.6-million).
In the year to 31 March, Business Partners disbursed R816-million, with R20-million of this invested through its VC fund in nine companies.
In terms of the financier’s VC porfolio, Dumeko estimates that about 30% to 40% of the portfolio are “doing well”, while the remainder are either breaking even or are “struggling to hit turnover”. One company which the financier has invested in, is battling because it is struggling to obtain Black Economic Empowerment (BEE) accreditation, he said.
Dumeko said about half of the investments were in innovative technologies or software, with the other half going to manufacturing firms and commodities.
Most of the investments are in existing companies that focus mainly on the local market and that are seeking to introduce new product lines, rather than in startups, he added.
Investments include among other things — a multi-purpose power plug, lab equipment, female sanitary product, construction of telecom towers, an internet service provider, solar-electric geyser manufacturer and a company that makes beverage dispensing equipment.
Business Partners seeks to invest for five to seven years. Dumeko added that the financier has yet to exit any of its investments.
Featured image: Hortec co-founder Peter de Vries (Supplied)