The big news from South Africa last month was that Uber Eats acquired a local restaurant tech company, orderTalk, the latest in a list of successful startup exits for venture capital firm Knife Capital.
This is not new ground for Knife Capital. Based in Cape Town and London, the growth equity investment firm exited Kubu to Garmin, and the company is forging a reputation when it comes to exits — still a rare thing in the African tech startup space, even as investment figures continue to rise.
Tech startup information portal Disrupt Africa, which tracks investment and acquisition activity, recorded only five startup acquisitions in 2017. Most notably, Nigerian e-commerce startup TopCheck was acquired by South Africa’s Silvertree Internet Holdings, and South Africa’s WumDrop was bought by Makro.
This was down from nine startup acquisitions in 2016, while five were tracked in 2015. Exits are still a rare thing indeed.
Not so rare, however, for Knife Capital, which is developing quite a track record. Its latest success is orderTalk, which was founded in 1998 and received investment from HBD Venture Capital, owned by internet billionaire Mark Shuttleworth and subsequently managed by Knife Capital, in 2008 to scale the business internationally.
That it did, growing its client base aggressively in the U.K. and U.S., and eventually relocating to Dallas, Texas. Now, orderTalk has been acquired by Uber Eats. The deal was significant for the company and the founding team, as it leverages orderTalk’s technology within the exciting food tech space with a credible partner in Uber to scale globally, said Knife Capital co-founder and partner Keet van Zyl.
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“For the investor, it is significant in terms of highly favorable return on investment, and the fact that it is easier to invest than to exit and realize a return from that investment. Another exit for us and more learnings to take forward into our portfolio of investments to set them up for exit-readiness,” van Zyl said.
For the South African tech scene, the exit represents another “inspirational data point” of local entrepreneurs and locally-developed technologies making an impact on a global scale, Van Zyl said.
The Knife Capital partner feels acquisitions and exits are on the rise, but says each deal is different.
“Each of our exits have unique elements to the journey. orderTalk was highly scalable, had a recurring revenue model, was growing aggressively and generating sustainable cash flows. It already repaid the initial VC investment in dividends back to HBD, and continued to pay dividends twice a year,” Van Zyl said.
“We had patient capital and there was therefore not an element of urgency to exit from the investor perspective. But the company was increasingly being approached by credible investors and strategic acquirers. Uber was the right fit from a strategic growth perspective at a valuation that made sense for the shareholders.”
Time frames also vary but are long.
“It does take time to build a startup into an exit-ready scale-up. Especially from Africa where most of these investments are in the B2B space. Currently, the timeframes are four to seven years, but it could even be longer in some cases,” said van Zyl. “Our orderTalk exit was 10 years post-investment. Time-frames will hopefully shorten but while it is easier than ever to build a product these days, building a sustainable company is just as hard as it’s ever been.”
Nonetheless, he does expect to see more exits over the next few years, saying it is just a matter of time given that many investors in Africa have strong portfolios already. Eventually, these companies will mature and scale, interesting prospective acquirers.
Paul Cook, managing partner of Cape Town-based Silvertree Internet Holdings, agrees. Silvertree has acquired a number of African tech startups over the last few years, and Cook says more will join the party as investors from the first wave of big investment deals seek liquidity.
He believes classifieds and e-commerce companies are the most likely targets, but says acquirers look at other things too, primarily a solid business or one where companies like Silvertree can add real value, decent scale, and a good price.
“In practice, this means an industry that we at least somewhat understand, and a shareholder that is seeking an exit,” Cook said.
When these deals occur, however, is still fluctuating.
“I don’t think there’s big enough deal flow at this stage to learn real statistical lessons. Certainly, I don’t think we’re yet at the stage that a startup can reliably target a five-year exit timeline, it is too immature a market for that,” said Cook.
“In particular, compared to places like Silicon Valley, we don’t see acquisitions by tech companies in the ‘acquihire’ model – a tech company buying a small startup at least partially just for the team. This is a big source of small- to mid-range exits in the U.S., but still pretty rare locally.”
Tom Jackson is co-founder of Disrupt Africa, a news and research company focused on the African tech startup ecosystem.