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    HomeAnalysis & OpinionsSouth African Banks Are Massively Backing Local Startups, But There’s More to It

    South African Banks Are Massively Backing Local Startups, But There’s More to It

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    South African banks are significantly backing local startups, marking a trend unparalleled elsewhere in Africa. In early March, Standard Bank South Africa, the continent’s largest lender by assets, made an unusual move by providing substantial support to Planet42, a Pretoria-based car subscription company founded in 2017 by two Estonians, Eerik Oja and Marten Orgna. The bank injected $16 million (R300 million) into the predominantly debt-financed company, which had previously received backing from prominent investment entities like the now-defunct Naspers Foundry and Rivonia Road Capital.

    Around the same time, the bank also invested approximately $11 million in the local fintech startup Float. This investment, structured as a revolving credit facility, could be seen as life-saving due to its nature. Less than a year ago, another South African startup, WhereIsMyTransport, faced collapse despite raising $27 million in funding from reputable investors, including AfricInvest Innovation Fund, Japan’s SBI Investment, Toyota Tsusho Corporation, Google, and local bank NedBank Group. Float’s total funding now approaches $30 million, and Standard Bank’s latest investment undoubtedly provided another lifeline.

    Name of Startups/VC FundsName of Investing BankIndustry of StartupsYear InvestedAmount InvestedStartups Invested in by VC
    TripploStandard BankLogistics Tech2022Undisclosed
    Khula!Absa BankInsurTech2023Undisclosed
    Knife CapitalStandard BankTechnology/Financial Services2022Part of $50M Investment RoundDataProphet
    Hlayisani CapitalStandard Bank Technology2021UndisclosedSnapplify; GoMetro
    NomaniniStandard BankFinTech2019Part of $4M Investment Round
    AdvannotechStandard BankEnterprise Management2019Undisclosed
    BancXCapitec (Via Imvelo Ventures)Fintech2021Undisclosed
    A2X MarketsAbsa BankStocks Trading2020Undisclosed
    Payment24Standard BankFinTech2020Undisclosed (Acquired 40% stake)
    Lipa PaymentsCapitec(Via  Imvelo Ventures)FinTech 2022US$663,000
    KOKORand Merchant BankClimateTech2024Undisclosed
    FloatStandard BankFinTech2024US$11 Million 
    Planet42Standard BankCar Subscription2024US$15.6 million
    WhereIsMyTransportNedBank Mobility2020Part of a $7.5M Round
    Acumen SoftwareCapitec(Via  Imvelo Ventures)Enterprise2021Undisclosed
    MoneyWorksCapitec(Via  Imvelo Ventures)FinTech2020US$265,000
    inQubaRand Merchant BankCustomer Management Software2020Undisclosed

    Identifiable Patterns

    Investments by South African Banks in Local Startups Are Primarily Driven by Expectations for Returns

    During the peak of the funding boom (2020–2022), South African banks predominantly regarded investing in startups as a cautious strategy to manage the disruptive potential of these ventures and to prevent missing out on the ‘huge opportunities’ promised by such high-growth companies. This calculated approach involved taking minority equity stakes in startups to “gain insights into their growth cycles and receive additional return on investment commensurate with the success of the venture supported,” as stated by Sacheen Kala, head of Standard Bank’s Moonshots innovation division.

    This strategy explains Standard Bank’s involvement as a limited partner in Knife Capital’s $50 million Series B expansion fund, which has already invested in South African AI-as-a-service business DataProphet and Rwandan health access platform Kasha. Another local bank, Rand Merchant Bank (RMB), also participated in this fund. Catherine Townshend, from RMB’s Growth Capital Solutions team, attributed the bank’s interest in technology startups to the global shift towards digitization prompted by the Covid-19 pandemic.

    Standard Bank also invested in Hlayisani Capital as a limited partner in 2021. Although a private equity deal, the fund’s mandate extends to technology companies such as Snapplify and GoMetro.

    South African Banks Have Shown No Intentions Through Their Investments of Acquiring Startups They Invest In

    Apart from acquiring a 40% stake in Payment24, a Cape Town-based white label platform facilitating unified payments, card issuing, acquiring, card management, fleet management, and fuel tracking, local banks in South Africa have consistently emphasized their primary motivation for backing startups: returns on investment. They have not expressed intentions for future acquisitions or other purposes beyond this. To ensure access to the best startups in South Africa, banks have partnered with leading local accelerators like Founders Factory Africa. This partnership enables banks to have a quality supply of deals and maximize their investment returns. 

    South African Banks Operate with Loose Investment Theses, Ensuring They Have No Deep-Layer Commitment to Startups Like Venture Capital Firms

    The investment pattern of South African banks in local startups can be described as transient, short-term, and heavily influenced by prevailing market conditions. The majority of these investments occurred between 2020 and 2022, a period marked by a trend of increased investment in startups. During this time, investments predominantly took the form of equity, reflecting the prevailing desire for high returns among startup investors.

    In the current funding environment, investments from South African banks to startups have largely come in the form of credit facilities, further reinforcing this pattern. Interestingly, as investor interest in climate tech grows, South African banks are also moving in that direction. Rand Merchant Bank recently invested an undisclosed amount in local climate tech company Koko. Phil Norton, Carbon Finance Lead at RMB, described the investment as a commitment to enforcing the Nairobi Declaration, Africa’s strategy for using carbon as a mechanism to finance the continent’s energy transition.

    In summary, while major South African banks demonstrate optimism towards technology startups, their approach appears inconsistent and unpredictable. Unlike venture capital firms, they lack a deep connection with the essence of startups and may not be as readily available when needed the most.

    Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert. As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard.

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