Ex-SAP CEO Launches African Venture Fund

Hasso Plattner, co-founder of the German software giant, is starting a $42 million VC fund in Cape Town to open doors for African tech companies

Emerging economies are seen as the next big opportunity for the technology business, so it seems inevitable that some of the industry's most successful entrepreneurs would start looking there for investments.

On Feb. 15, Hasso Plattner, the billionaire co-founder and former CEO of German software giant SAP (SAP) announced in Cape Town, South Africa, that he is starting a new $42.3 million pan-African venture capital fund with the help of Germany's MAN Ferrostaal, a global provider of industrial services and key player in alternative energy. Plattner is investing $36.48 million of his own money in the fund, while the remainder comes from MAN.

Plattner has recruited an impressive team of managers. Among them: Malengane Machel—son of the late Mozambique President Samora Machel and Graca Machel-Mandela, who is now married to South African icon Nelson Mandela—will be a venture partner. In addition to providing capital, the new fund should help open doors for African companies throughout the tech industry and in such industrial sectors as heavy engineering, automotive, and green technology.

Going Beyond BRIC

It is the latest venture fund to be set up in South Africa by a well-known tech entrepreneur. Mark Shuttleworth, a South Africa native who sold his security company Thawte in 1999 to VeriSign (VRSN) for $500 million, is behind an eight-year-old Cape Town venture fund called HBD Venture Capital. Shuttleworth also invented an open-source software operating system called Ubuntu.

Hasso Plattner Ventures Africa will be targeted mainly at companies in telecom, mobile applications, media, software, renewable energy, and energy-saving technologies, says Eran Davidson, vice-chairman of the new fund. Davidson is also chief executive of Hasso Plattner Ventures, which has established a track record as one of the most active early-stage investors in Germany.

"South Africa still doesn't get the same amount of attention as the BRIC countries," says Davidson, referring to Brazil, Russia, India, and China. "But when you look at numbers from the World Bank, South Africa's climate for investment is better than in India, China, and Brazil."

Difficult to Fund Smaller Deals

The new Cape Town Plattner fund also will serve as a gateway to the rest of Africa, Davidson says. Nelson Mandela's stepson Machel, who has his own investment group—Mozambique-based Whatana Investment Group—will work on certain transactions, helping to identify deals in other parts of southern Africa and to manage some of the investments for the new fund.

In the past, young South African companies have found it difficult to raise money. To be sure, the country—which has one of the oldest stock exchanges in the world—has attracted plenty of private equity for $100-million-plus deals. But when it comes to the other end of the spectrum, small entrepreneurs find themselves facing a huge funding gap. Banks don't want to take the risk, and the few venture firms that do invest in South Africa are focused on deals with later-stage companies.

"Over time everybody has moved up towards bigger deals because it makes sense for their funds, but it doesn't make economic sense for the country," says Andrea Böhmert, a German national and ex-Siemens (SI) executive who has lived in South Africa for 13 years, and who will manage the fund on a day-to-day basis.

Clamoring for Services

Hasso Plattner Ventures Africa will focus on pre-profit innovative companies, Böhmert says. "This is a First World country when it comes to research and development capabilities, but at the same time a developing country, so it is perfectly positioned to develop solutions for the Third World."

Indeed, poor inhabitants of South Africa's townships are clamoring for services such as mobile banking so that they can wire money to relatives and friends or prepay for utilities such as water or electricity. "We are seeing some companies already that will be a good fit for the new fund," Davidson says. "There will be a big emphasis on social entrepreneurship. We can make the world a better place and make money at the same time."

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