South Africa-based business accelerator Grindstone has launched a new venture capital fund, Grindstone Ventures, dedicated to provide early-stage equity funding to its cohorts of companies and alumni.
Grindstone Accelerator is a structured entrepreneurship development programme that is jointly owned by venture capital fund manager Knife Capital and market access specialist Thinkroom Consulting. It takes South African SMEs with proven traction through an intensive year-long review of their strategies and provides them with the necessary support to build a foundation for growth in becoming more investable, sustainable and exit-ready.
Key growth gaps identified are addressed during the programme, opening up early-stage funding opportunities in these companies to accelerate market access. But the availability of risk capital remains one of the main challenges to the growth of small and medium-sized enterprises (SMEs) in South Africa.
“Linking a funding vehicle to our Accelerator model complements the Knife Capital value chain approach where companies can be de-risked before raising follow-on capital from our Series A and later-stage funds,” says Andrea Bӧhmert, partner at Knife Capital. “The Grindstone Programme is essentially a thorough due diligence exercise to identify the best opportunities – already narrowed down from hundreds of applications,” she adds.
Grindstone Ventures is an open-ended venture capital fund structure, set to invest up to R5-million per opportunity in scalable innovation-driven ventures – likely in co-investment arrangements with Angel Investors and Corporate VCs.
But there is also an innovative element of paying it forward here. All future Grindstone Accelerator cohort companies will obtain a stake in Grindstone Ventures, thereby creating a vested interest in each other by a community of high-growth scale-ups.
“A few of our past Grindstone entrepreneurs have subsequently exited their businesses and became VC Investors with Knife Capital. We are now starting to teach our investee companies to think like investors early on – because we back them to succeed,” says Bӧhmert.
Some of South Africa’s best scale-up companies have been through Grindstone, including radar startup iKubu (acquired by Garmin); augmented reality animation & gaming company SeaMonster (recently secured a $1-million investment from FirstRand’s Vumela Fund); online payment gateway Payfast (last year acquired by DPO Group); financial inclusion business Picsa; geospatial data analytics company Locstat and on-demand grocery delivery service OneCart. Knife Capital invested in ticketing solutions provider Quicket and warehouse management software company Granite via its SARS Section 12J Venture Capital Company: KNF Ventures.
Keet van Zyl, partner at Knife Capital, says the first Grindstone Ventures investments are imminent: “The initial capital contributions are from Knife Capital, Thinkroom and our programme partners, but encouragingly, past Grindstone cohort entrepreneurs are coming on board and respected Angel Investors in the SA startup ecosystem are looking to invest. We already identified the first investment opportunities.”
The new Grindstone Accelerator cohorts six and seven of 10 companies each in Cape Town and Johannesburg is currently being finalised and will be announced soon