IDC VENTURE CAPITAL 37140

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  • 1. Venture Capital Unlocking Equity Finance for Early-stage Technology Businesses
  • 2. “Economic merit is the prime consideration of the IDC in respect of any application for finance” Financing early-stage technology businesses The innovation chain includes basic and applied research, technology development and technology transfer and proliferation, as well as business development, marketing and globalisation. Although significant sources of finance exist for basic research as well as for businesses with well-developed products and markets, technology businesses in the seed and start-up phases of their development find it increasingly difficult to access funding for development and commercialisation of their technologies. In order to fill the funding gap and support businesses that creates innovative technologies, the IDC has launched the Venture Capital Strategic Business Unit (SBU) to provide finance to these businesses and entrepreneurs to take their products and businesses from the concept stage, through product development and testing, prototype development, product commercialisation and industrialisation, market launch and development to full commercial traction in the marketplace. In this way, the IDC supports the development, commercialisation and globalisation of South African technology, whilst assisting entrepreneurs in building successful businesses. T The unit’s strategic intent
  • 3. “The business must be in the seed or start-up development stage” The aim of the business unit is Our investment as follows: philosophy • Support of promising seed The IDC’s approach towards and start-up phase its venture capital investments technology-focused is guided by the following key businesses. principles: • Development and • Economic merit is the successful prime consideration of the commercialisation of IDC in respect of any promising technology- application for finance. based products and related • Our equity investments are services. intended to be temporary, • Providing venture capital with a clear intent for the finance on a full risk- business to become self- sharing basis by taking up sustaining within a meaningful minority equity reasonable time and for the stakes in the businesses. IDC to exit from its • Supporting businesses investment. through their initial • The IDC will fully share in development, the risks of the business by industralisation and growth acquiring a significant phases. minority equity stake, and • Providing impetus to will aim to earn a return on technology development its investment and support in South commensurate with the Africa. risk assumed. • The IDC does not seek shareholding control, although in these early- stage businesses the IDC will play a more active role through the provision of strategic input in management structures and at Board level as required and establish sound corporate governance processes.
  • 4. “The Venture Capital SBU has a clear focus on businesses in development stages” • It is the IDC’s policy to incentivise entrepreneurs adequately to share in the upside potential of the project. • The IDC expects the entrepreneurs and owners of the business to be fully committed to the business and to provide a meaningful financial contribution to the business. Focus area Our focus area is to support technology-focused entrepreneurs and businesses in their early-development stage in high margin, high growth market segments through equity investments to finance the development, commercialisation, industrialisation, growth and globalisation of their products, services and businesses. The IDC Venture Capital SBU is specifically focused on the following business stages: Seed capital: Funding for research, evaluation and development to prove the concept or business to qualify for start-up capital. This may include product development, market research and development of the business plan. Start-up capital: Funding for new businesses to complete product development before commercial traction of the business is achieved.This may include initial marketing effort, assembly of key management, finalisation and testing of prototypes and initial scaling up of production systems from prototype to production models.
  • 5. We are particularly focused on The Venture Capital SBU has a the following technology- clear focus on businesses in based industries: development stages as • Information technology discussed above. Business (mainly software seeking later-stage finance, eg development, eg for for capacity expansion, should financial, accounting, approach the other relevant healthcare, IDC business units. communications and other industries). Investment criteria • Telecommunications The primary investment (software and hardware criteria that the IDC considers applications in mobile, when assessing venture fixed-line, satellite and capital business proposals virtual communications include: networks). • The business must be in • Electronics (eg in the hi- the seed or start-up tech security industry and development stage. medical devices). • The management team • Specialist engineering must include people with products (eg automotive the key competencies industry applications, (technical, financial, production systems). operational, marketing and • Financial services sales) or suitable people technology. must be identified to take • Mining technology. on these responsibilities. • Other selective • The business must be able technologies (eg chemistry, to maintain a sustainable biotech, cleantech). competitive advantage.
  • 6. “The business should be able to maintain a sustainable competitive advantage” • The product should be earnings, empowerment, aimed at a clearly development of SMEs and identifiable market and rural development). show a clear technological advantage over competing Finance products on products. offer • The owners must clearly Venture capital finance is indicate their full available by way of equity commitment to the contributions (direct equity, business and should quasi-equity and provide a meaningful shareholders’ loan funding) own contribution to the of between R1 million and business. R30 million per project, with • The product should be the initial investment size not aimed at a high growth exceeding R15 million to market. allow for follow-on funding • The business is to show to businesses where initial high value-added and high success has been proven. profit margins. The IDC will acquire a • The IDC’s investment is to meaningful minority equity show a real internal rate of stake (between 26% and 49%) return (IRR) of at least 30% in the business with the per annum. intention to exit the • Prospect of good exit investment in the medium possibilities for the IDC term.The size of the equity should exist within a holding acquired by the IDC reasonable timeframe. will depend on the amount • The successful of funding required, the value commercialisation of the of the business at the time business will lead to the of investment and the risk realisation of significant assumed and return expected developmental returns by the IDC from the (creation of sustainable investment. employment, technology development, export
  • 7. Business plan guidelines • Market analysis (market Applicants should submit a trends; industry analysis; formal application in the form customer profiles; market of a detailed business plan to research results; competitor enable the IDC to fully assess analysis; substitute the business proposal. products; three year sales forecast – units and value; In constructing the business market share; entry barriers; plan, the following potential market segments information is mandatory to – size and growth); ensure the evaluation process • Marketing plan (overall is accelerated: marketing strategy; pricing; • Information on applicant advertising and promotion; (contact details); sales tactics; distribution); • Executive summary; • Management team • The company (history; (organisational chart with mission statement; strategic responsibilities; CVs of key objectives; shareholding people); structure; directors; current • Critical risks (highlight key business activities; key risk areas and describe plans strategic to minimise their impact); partnerships/alliances); • Funding (details of funding • Product description required and application (detailed description of thereof; capital invested to products on offer; status of date; owners’ contribution); development; key • Financial plan (valuation; key milestones achieved and assumptions; three years’ still to be achieved; cost historical (audited in the breakdown; technology case of an existing employed; intellectual company) and projected property; patents; royalties; income statement, balance competitive advantages; sheet and cash flow SWOT analysis); statement; break-even • Technical information analysis; business ratios); (description of process; • Material contracts and/or details of plant, equipment agreements, and and building requirements; • Ownership (before and after details of actual and IDC funding). projected operating costs and capital expenditure; information on raw materials and suppliers); • Present employment and the number of new employment opportunities to be created;
  • 8. Head Office 19 Fredman Drive, Sandown, 2196 PO Box 784055, Sandton, 2146, South Africa Telephone: +27 11 269 3000, Fax: +27 11 269 3116 Call Centre: 0860 693 888 Email: callcentre@idc.co.za, Website: www.idc.co.za G R A P H I C O R 3 7 1 4 0