Early-stage businesses with a strong developmental impact are set to benefit from the soon-to-be launched high-growth development equity fund by Futuregrowth, a leading South African fixed interest investment company.
The fund will form part of Futuregrowth’s suite of developmental investment funds which cover a range of impact areas such as infrastructure, social services, clean power, agriculture, regional development, and more.
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As a developmental investor, Futuregrowth is South Africa’s eighth largest asset management firm with over 50 fund products, more than 25 years of track record, and a staff complement of over 100. The fund will sit alongside the firm’s equity fund, which has accumulated a 16-year track record of investing in developmental unlisted equity.
“Through the development equity fund, we have been investing in early-stage equity transactions for over nine years,” explains Amrish Narrandes, head of private equity and venture capital at Futuregrowth.
“We have been considering an early-stage equity fund for several years, watching the evolution of the South African market, considering South Africa’s strategic position for disruptive enterprises, and investing in several high-growth equity transactions,” adds Andrew Canter, chief investment officer of Futuregrowth.
He says Futuregrowth believes “the time is right for a risk-seeking offering”.
The development equity fund currently has over R3.4 billion under management, of which R500 million relates to developmental early-stage investments. This portion includes disruptive financial technology (FinTech) companies such as Yoco, Retail Capital and Lifecheq, and, more recently, Ozow.
Additionally, the fund has invested in companies engaged in various other subsectors, including health technology (hearX), agriculture technology (Inseco), and marketing technology (Mobiz). It recently sold one of its first early-stage investments, CashConnect, to Nasdaq-listed company Net1, generating a 33x multiple on invested capital (MOIC) and a 48% internal rate of return (IRR).
“Taken as a whole, our experience in early-stage investments indicates a sound investment return,” believes Canter.
Futuregrowth seeks a range of new investments
Born out of the development equity fund’s strong investment process and developmental focus, Futuregrowth will seek to invest in a range of investments, including early-stage or highly-scalable businesses that offer new services or products, niche markets, or disruptive technologies in growth markets.
It aims to support businesses driven by excellent teams in need of capital to help them grow – from venture capital to early-stage private equity, as well as other special opportunities.
“The new Futuregrowth high-growth development equity fund aims to support South African entrepreneurs who push the boundaries with innovative technologies that change how we live. We believe that by backing South African startups, we can play our part in job creation and in growing our economy,” says Narrandes.
Due to the early-stage nature of the businesses in which the Futuregrowth high-growth development equity fund will seek to invest, it places a significant amount of emphasis on the strength of the management team.
“We source innovative start-up businesses by backing South African entrepreneurs who are brave enough to take risks and disrupt industries. It is these entrepreneurial leaders who will be instrumental in unlocking South Africa’s economic growth potential, while delivering strong commercial returns and meaningful social and environmental change” says Narrandes.
The Futuregrowth high-growth development equity fund will be a closed-ended, limited life fund with a four- to five-year draw period and a five- to six-year payback period. The company is targeting R500 million to R600 million of committed capital, and its indicated fee will be 2% on committed capital plus a 20% incentive fee.
Futuregrowth has kicked off the fundraising process and is aiming for a first close by the end of 2022.
