Building up VC from scratch in South Africa

From Googling potential LPs to backing the most promising South African start-ups, Knife Capital's Andrea Böhmert is demonstrating that venture investing in the region can be profitable.

Andrea Böhmert, co-managing partner of South African venture firm Knife Capital, says she is opportunistic – a trait that helped her to land an LP for her first fund, as well as fund some of the most promising start-ups in the region.

Knife Capital recently held a first close on the firm’s third fund, a $50 million fund to make Series B-type investments in South Africa, making it the largest local venture fund in the region.

For Böhmert, the road to this kind of venture success has been paved by seizing opportunities as they come – which has been especially important in a country with such a nascent VC industry.

Böhmert came to South Africa in 1994 after completing her master’s degree in business economics at the Technical University of Aachen (RWTH Aachen) in Germany to complete a three-month internship at the German-South African Chamber of Commerce and Industry in Johannesburg, South Africa.

Andrea Böhmert, Knife Capital

After her internship, the local branch of Siemens offered her a job as an assistant in the strategic planning department and she decided to stay for a little longer. “I thought that I would accept their offer and then ask them to transfer me back to Germany in a couple of years,” Böhmert told Venture Capital Journal.

But those plans didn’t pan out like that as other opportunities came to her. After seven months at Siemens, she was promoted to the head of strategic planning for Siemens Southern Africa. Five years later, she launched a consulting company to help young South African companies.

“I saw all the great things that start-ups could do in the region and beyond, but none of them were really making money,” she said. “I realized that these companies could do much better if they had access to venture capital.”

However, at that time, South Africa’s venture capital industry was virtually nonexistent, aside from a couple of government funds that were “very reluctant to invest in risky businesses.”

Googling an LP

Böhmert set her sights on starting her own venture firm, and pitched every local investor she could find as potential LPs. None would invest, however, saying venture capital as an asset class was too risky for them; just because it works in Silicon Valley doesn’t mean it would work in South Africa, they told her.

“I then thought that if I couldn’t raise money in South Africa, maybe I should raise the capital from outsiders who might be interested in South Africa,” she said.

She compiled a list of LPs with the help of Google search, and one of the results that popped up was Dr Hasso Plattner, a German billionaire and co-founder of software company SAP.

“I found out that he owned real estate in South Africa and had just launched his venture fund in Berlin, Germany,” Böhmert said. “He was a perfect match.”

She sent a long initial outreach email – a digital cold call of sorts – in which she asked for help to start a venture firm in South Africa.

“I never expected him to reply,” she laughed. But he responded three days later and asked to present her plan to the head of their fund in Germany.

Like with her first job at Siemens, she found herself in the right place at the perfect time again.

Plattner was in talks with Nelson Mandela, then president of South Africa, about supporting the country. Böhmert’s proposition came to Plattner at the right time. He invested in what eventually became Hasso Plattner Ventures Africa, which included Böhmert at the helm. Plattner committed €25 million ($30 million) to the fund, which was topped up by another €4 million from a German corporate, to invest in early-stage tech companies in the region.

When the operations of Hasso Plattner Ventures Africa were later taken over by German management in 2011, Böhmert left to join Knife Capital.

“South Africa is a fascinating place because it is a first-world and third-world country at the same time,” she said. “It has absolutely all the components of an emerging market. Our technology gets underestimated [sometimes because of that], but the inventions compete globally against the best and come out on top.”

Burgeoning region for VC

Böhmert said that venture as an asset class in South Africa is still in its infancy. The government created a special taxation regime, where qualifying investors can deduct the full amount of their investment from taxable income. However, she said there’s still a long way to go.

“First of all, we have very few local investors whose investment mandates don’t necessarily overlap. That is the main reason why we rarely syndicate in South Africa,” she said. “On the other hand, until recently, there weren’t many high-profile exit opportunities in Africa, so we didn’t have success stories and role models to validate the efforts of first funders.”

Nevertheless, Knife Capital Fund I has generated significant exits from its portfolio, including the $110 million cash acquisition of mobile financial services provider start-up Fundamo by Visa, as well as UberEats scooping up restaurant tech company orderTalk for an undisclosed price.

“We have proven that venture capital in South Africa can work,” Böhmert said.