South African venture capital firm, Knife Capital, has successfully closed its $50 million Series B fund, aimed at filling a critical funding gap in the growth stages of startups.
The fund, aptly named Knife Capital III, will focus on supporting South African entrepreneurs in the Series B stage, with a specific emphasis on startups exhibiting high exit potential, according to a report by TechCrunch.
“Knife Capital’s move comes in response to a funding void that has historically hindered growth-stage startups in South Africa from accessing the necessary capital for expansion. The firm aims to provide essential support to startups that have shown promise and have the potential to generate strong returns through exit opportunities,” the report noted.
In an interview with managing partner Andrea Bohmert in February 2021, she highlighted the growing trend of international investors showing interest in African growth-stage startups, but often lacking the local support necessary due to the funding gap.
This scarcity of local venture capital firms operating in the growth stage has deterred international investors from pursuing co-leads for investments.
The new fund will not only focus on South African startups but will also co-invest in businesses from other African countries in collaboration with local investors.
Knife Capital, founded in 2010, has steadily made its mark in the South African venture capital landscape. Its first fund, Knife Capital Fund I, provided seed capital to startups, while the second fund, KNF Ventures, launched in 2016, primarily targeted Series A stage investments.
With seven successful exits across its previous funds, including significant acquisitions like Visa’s $110 million acquisition of fintech startup Fundamo and orderTalk’s acquisition by UberEats, Knife Capital is aiming to replicate its success and support further international expansion through its third fund.
Co-founder and partner Keet van Zyl emphasized the firm’s unique approach: “What Knife Capital does is looking at the business from exit backward.”
The firm’s strategy involves considering potential acquirers, building a partner universe, and establishing key metrics for a successful exit before making investments.
The latest fund has garnered support from a diverse range of investors, including the International Finance Corporation (IFC), the Mineworkers Investment Company (MIC), the SA SME Fund, Standard Bank, and others.
The Cape Town-based venture capital firm plans to invest in 10-12 startups through this fund, with an average investment size of $3 million, leaving room for follow-on investments.
The firm has already made investments in DataProphet, a South African AI-as-a-service business, and Kasha, a Rwandan health access platform.
As Knife Capital focuses on fostering a credible venture capital asset class across Africa, it aims to contribute to the growth of the continent’s startup ecosystem by generating returns for allocators and LPs, thereby demonstrating the viability of the African venture capital space.
Despite the challenges faced in raising the fund, including macroeconomic conditions and the complexity of aligning various funders’ mandates, Knife Capital has successfully closed its Series B fund and is now well-positioned to continue supporting high-potential startups in South Africa and beyond.