Capital Eye Investments, the company that emerged out of what was left of JSE-listed UCS Group after Business Connexion acquired its services businesses four years ago, plans to launch a private equity fund to invest in start-ups and established technology businesses.
Capital Eye, which has investments in 13 technology companies — many of them focused in the retail and financial services industries — is already positioned as a “quasi private equity investment vehicle”, says CEO Dean Sparrow. Sparrow was previously deputy CEO at UCS Group. The launch of a new fund would effectively be the company’s second fund as it already invests in a range of businesses, just not through a formal fund as the vehicle.
“It is a little early to confirm the exact size of the fund as it will come down to the capital appetite… However, it’s unlikely to be less than R500m,” Sparrow says.
Investors in Capital Eye include UCS co-founders John Bright and Duncan Coles (who serves as chairman), as well as members of the executive management team. Some former UCS shareholders – just over 100 in total – also elected to retain their equity when the group was delisted following the deal with Business Connexion. There are 110 investors Capital Eye in all.
The business continues to look to invest in similar areas to the old UCS Group, given that’s where the executives’ skills lie. The focus is on retail solutions as well as related industries, especially where those industries are converging. Sparrow says there are big opportunities as mobile operators and retailers get into financial services and as banks launch mobile products.
“This is a very exciting investment space, which is fundamentally what has driven the Capital Eye investment strategy to date. We have invested in disruptive technologies that facilitate the convergence that’s taking place between industries.”
Sparrow says third-party investors have expressed an interest in participating in a formal private equity fund if Capital Eye were to launch one. He says Capital Eye shareholders would also want to take part. “We think there are requirements for a new structure for Capital Eye, creating a fund with a specific investment mandate and leveraging some of the executive capacity and infrastructure we have here.”
Sparrow expects the fund will be operational within the next two or three years. “It’s an exciting way of accessing additional capital while giving our existing shareholders an opportunity to participate.”
He doesn’t believe it makes sense for Capital Eye to consider a listing on the JSE, where financial services businesses, alongside which it would probably be grouped, tend to be rated according to their net asset value rather than their growth potential. “I don’t see that helping to unlock capital.”
However, it’s possible that technology companies in which Capital Eye invests could seek a listing if it makes sense down the line.
Sparrow says Capital Eye divides its investments into typical venture capital-type projects (investments, usually in the form of loan funding with some of this funding converted to equity later, of between R5m and R15m) and more established, private equity-type businesses (with valuations of R100m to R150m). It tries to keep the portfolios in balance to reduce risk but also maximise growth potential, he says.
The more private equity-focused of the two portfolios is made up of businesses that typically generate between R100m to R200m in annual revenue and between R15m and R30m in profit, Sparrow says.
The business has three core pillars or focus areas. These are retail and financial services applications; supply chain and logistics; and mobile payments.
The first pillar consists of some of UCS’s historical retail businesses, which focus on point-of-sale and other in-store solutions as well as proprietary software for retailers. There’s also a focus on financial services through a business called Alacrity.
The second area includes companies Worldwide Chain Stores, based in the UK, and South African-headquartered Cquential and focuses on supply chain and logistics solutions, including fleet management.
The last pillar is mobile payments, where some of its businesses have been grabbing headlines this year for their involvement in big financial services and retail products.
Emerge Mobile, which has developed a mobile point-of-sale solution that allows merchants to accept card payments on their smartphones, this week launched a commercial service through the iKhokha brand. The solution does away with the need for plumbers, electricians and other service providers to rely on often inconvenient cash payments or electronic funds transfers to accept payment from clients. The Durban-based company is now working with international payment associations to take its product to other emerging markets around the world.
Another business in the hold is wiGroup, which provides a mobile transaction platform to retailers, allowing shoppers to use their phones to conduct transactions using their phones at the point of sale. WiGroup’s technology forms a key part of the agreement between Pick n Pay and MTN to offer low-cost financial services to their customers.
WiGroup’s offering is not specific to any brand, bank or retailer, says Sparrow. “We have rolled out nationally in Shoprite and Pick n Pay stores and created a backend mobile aggregation platform that allows third-party players … to plug in. Our platform becomes a switch or an exchange for mobile transacting, which retailers can open to multiple players.”
Capital Eye’s most recent investment is in a company called Indaba Mobile, which provides a communication platform similar to WhatsApp or BlackBerry Messenger. Unlike those systems, though, it’s designed to work across all phone types, even “dumb” phones using USSD codes. The idea is that retailers use it to communicate with their customers, collecting data that can be analysed, and minimising the need for SMSes, MMSes and paper-based brochures. — © 2014 NewsCentral Media
