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HBD Venture Capital announces first profitable sale of portfolio company
Cape Town, May 15, 2007: HBD Venture Capital announced today that it had sold one of its investments Red Five Labs, smartphone software developers, to Fedgroup. The transaction resulted in HBD achieving an 84 percent internal rate of return (a cash profit in excess of 100 percent) on the investment. This is the first successful sale from HBD's Fund1. The deal, which illustrates the upside of the venture capital model, is good news for the relatively undeveloped venture capital industry in South Africa.
Eben van Heerden, investment and portfolio manager at HBD Venture Capital, one of South Africa's only true venture capital firms, said that there was still a degree of speculation as to whether the venture capital model could work in this country. "We are delighted with this success and continue to be bullish about the potential of venture capital in South Africa. HBD made its first investment in Red Five Labs in November 2005. From the outset we were impressed with the potential significance of the company's then undeveloped technology."
"The sale of our investment in Red Five Labs not only brought us a significant profit but help demonstrate the added value that venture capital can bring to a business," said van Heerden. "The knowledge and experience to create a liquidity event, be it in the form of a sale or a listing, is an important consideration when business owners negotiate an investment with a VC firm. We are therefore excited that the recent success with the sale of Red Five Labs will increase the number of opportunities for us to evaluate and ultimately invest in."
Co-founded by entrepreneurs, Dusan Babich and Mike Welham, Red Five Labs develops technology that interprets various programming languages for smartphones and allows them to 'speak the same language' - a global first that positively reinforces South Africa's reputation of a world-class telecommunications developer.
Babich said, "HBD recognised our global potential and provided the start-up capital. Now the business is ready for the next phase and Fedgroup understands where the industry is headed. The sale is a great outcome and we are excited that Fedgroup shares our vision to further develop software that works across a wide scope of industries, not only mobile phone technology."
Anglo Dutch Holdings PTY Ltd ("Fedgroup") - a holding company whose financial services subsidiaries control investments in property, property and trust administration and industrial / commercial mortgage bonds - purchased HBD's 23 percent investment in Red Five Labs. The remaining shares are held by the founders' and the Innovation Fund who co-invested with HBD.
Said Grant Field, Fedgroup Development Manager, "We see the acquisition as an exciting opportunity which will diversify our investments and ensure a close association for the continued development of our financial services software. We believe that the investment will provide benefits to our group short term and long term," says Field.
Founded by Mark Shuttleworth in 2000, HBD has launched two venture capital funds, the now closed HBD Fund1 and the more recently launched HBD Fund2. "While Fund1 is closed for new investments, we remain committed to the growth and ultimate profitable exit from these investments. The sale of Red Five Labs, which is a Fund1 investment is testament to that commitment," said van Heerden.
Having invested in a number of diverse industries such as EDH sports technology, IncuBETA online pay per click advertising and software, Themepack youth marketing medium, Metricap metered dosage technology as well as Red Five Labs, HBD is positive about their future as venture capitalists. "We are currently looking at several new investments as well as continually evaluating the readiness of our existing portfolio for exit opportunities." said van Heerden.
"There is too little understanding of the vital role that venture capital can play in the establishment and growth of a young business. An understanding and foresight that bright-eyed entrepreneurs Dusan and Mike, both just 27 years old, needed to start Red Five Labs," concluded van Heerden.
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Bottom: Grant Field, Eben van Heerden, Dusan Badich and John Field |
