University Technology Fund to grow R150m fund size with new investors, co-investments [Updated]

With the SA SME Fund‘s R150-million University Technology Fund set to make its first investment in the coming months, fund manager Wayne Stocks says he’s “silently confident” that the fund manager will be able to increase the fund size.

The University Technology Fund, which aims to invest in intellectual property (IP) developed at local universities, is an initiative of the R1.4-billion SA SME Fund.

Stocks, from Stocks & Strauss which manages the University Technology Fund, told Ventureburn yesterday that the fund manager had screened 18 deals from six universities over a two-month period.

Three of these are currently in the due diligence phase, which the fund manager aims to conclude in the next two months.

The R150m University Technology Fund has screened 18 investments from six universities

The R150-million fund is made up of two parts. The first, R125-million committed by the SA SME Fund, will help fund Series Seed and Series-A investments.

The second, a R25-million portion, will be for pre-commercial (pre-seed) funding in the form of grants. Of the R25-million, R17.5-million has been committed by Stocks & Strauss and the balance of R7.5-million by Stellenbosch University and the University of Cape Town.

Last week Stellenbosch University and the UCT announced that they had each committed to co-investing R20-million in university IP, alongside the fund.

Stocks said at its current size and given the current co-investment amounts raised by universities (together at R190-million), the fund aims to invest in 15 to 20 projects that have either a patent or prototype developed or that have made some revenue and are ready to ramp up commercialisation.

He said the R17.5-million committed by Stocks & Strauss will be used to provide pre-seed grants of between R500 000 to R1.5-million in projects that are at the concept stage, but require further lab testing or trials.

In addition, the fund manager will work with respective technology transfer offices at universities to license IP for commercialisation.

The fund will also work with the Department of Science and Technology’s Technology Innovation Agency (TIA) which offers grants of R600 000 — via universities and various small business support organisations — to entrepreneurs that develop innovative ideas.

While the fund doesn’t have any specific target to fund black or women innovators or founders (only its own internal goals), Stocks pointed out that 50% of the 18 projects the fund screened recently had black or women innovators and founders behind them.

A key requirement is also to ensure that the IP benefits South Africa — through jobs and exports, he added.

Interest from two private investors

Stocks conceded however that the R150-million current fund size is small. He added that the fund managers will rely on co-investment raised by other universities to grow this amount, as well as investments from private funders to top up the R150-million, in its next closing by 31 January 2021.

But the SA SME Fund, which draws its contributions from a number of listed companies as well as from the Public Investment Corporation (PIC), is nearly fully invested. Earlier this month the fund’s CEO Ketso Gordhan said R1.2-billion in commitments had already been made.

It means that the University Technology Fund can’t expect further contributions from the SA SME Fund any time soon.

But Stocks revealed to Ventureburn today that two private sector funds are already doing due diligence on the fund.

He added that there are global development finance institutions (DFIs) that would be all too happy to invest in for profit businesses developed at universities.

The money isn’t a lot, but if Stocks & Strauss can deploy it quick enough in the right kinds of businesses, they just may be able to convince other private investors to come on board.

Universities are a haven for bright ideas — ideas that could help grow South Africa. But without capital most of these, and the innovators behind it will never get the chance they deserve. More money is sorely needed.

Editor’s note (26 February): Stocks & Strauss’s Wayne Stocks clarified that the R17.5-million committed by his organisation forms part of R25-million of the R150-million fund, that will be used for pre-seed funding in the form of grants. He said of the R25-million Stocks & Strauss controls R17.5-million in its discretion, while the balance of R7.5-million is controlled by the universities (UCT and Stellenbosch).

Stocks earlier pointed out in a subsequent email to Ventureburn that while the University Technology Fund, that his organisation manages, does not have any transformation prerequisites to its investment mandate, it does have internal transformation goals. The story has been amended to reflect this.

Featured image: The University of Cape Town (Facebook)