LONDON — The Knife Capital story is reflective of exciting developments happening below the radar in South Africa. After sourcing successful tech venture capital investments for billionaire Mark Shuttleworth’s HBD fund, Keet van Zyl and Eben van Heerden branched out into their own business. They were joined by an equally successful Andrea Böhmert and the trio have then quietly developed their skills in the home market. In September, they set up a beachhead in London by aligning with family office Draper Gain, and introduced a fourth partner, Bob Skinstad. As Van Zyl explains in this interview, the former SA rugby captain hasn’t let the grass grow under his feet – last week Skinstad finalised Knife Capital’s first offshore investment, using the South African connection at an innovative Swedish developer MOST, which focuses on the exploding Internet of Things sector. Here’s the back story to the exciting deal which sees the Capetonians investing alongside the creators of the gaming sensation Candy Crush. We’re sure to hear a lot more about the ambitious Knife Capital in future. – Alec Hogg
This special podcast is brought to you by Knife Capital, whose CEO, Keet van Zyl, joins us now. Keet, last time we spoke about Knife Capital you had just concluded a transaction when you moved into the UK. How’s that working out for you?
Yes, it’s been a really exciting journey. Basically, eating our own dog food in terms of helping companies scale internationally and I think we’re at the start of scaling ourselves internationally, which is working out very well for us so far.
And you’ve done the first international transaction.
Yes, MOST is a hardware and software start-up based out of Stockholm, Sweden. Involved in the Internet of Things and looking at innovations that can be applied to that rapidly expanding sector of IoT. It has a multi-functional platform that lets companies monitor their freight assets. What that means, in English, is basically a sensor that monitors and transmits real-time information within freight containers and even static freight, around humidity, light, positioning, shock, temperature so, all things around perishables and sensitive equipment, and what one needs to know. Where are these things and what’s happening to them? It’s obviously, very important for freight owners.
Just explain that a little bit more because in the past week we had an email coming to us from somebody who actually exports fruit and vegetables, and they said this sounded like a perfect solution.
Yes, I think that’s one of the reasons why we are a good fit as an investor because this particular round was over-subscribed and they have some really credible investors already onboard. From where Knife Capital and our networks in SA can add value to a Swedish-based IoT start-up is the fact that there are quite a lot of fruit exporters, (e.g. grapes and other perishables) coming out of this side of the world, going north. MOST is already in 5 continents. We open up a different network and hopefully some opportunities like that, which is why we’re speaking to you, to add value to our brand-new portfolio company and bring them clients and not just money.
Just explain it – what exactly do these sensors do? Why are they so important to have inside a container?
So, it’s market leading functionality, in terms of performance and pricing, and so forth. But if you just imagine a container ship going across the Atlantic or wherever so, think about this little round disc product that’s just smaller than a saucer of a cup and saucer, and you put that inside. It’s got about a 3-month battery life so, it can go back and forth, and there are different pricing models around renting versus just putting it in one shot and then throw it away on the other side, or whatever. That thing transmits all the way through, with the sensor inside that container ship and in real time it can say to the guys, ‘well, right now I can see the fridge is off,’ or ‘below 10-degrees Celsius,’ or whatever it needs to be.
Then one also has the analytics around tracking the journey, which becomes important because it’s not just reactive in terms of what has happened. One can take that data and overlay that with metadata and other things, like weather and so forth. You can almost predict what’s going to happen with your freight so, from that perspective, it becomes a predictive analytics tool where the real excitement comes. You can login, see exactly what’s happening and you don’t have to wait until 2 or 3 weeks later, until the thing is on the other side to know what has happened. You can login, and see in real time what is happening. It’s quite easy for us to test with clients and usually the conversion rate and up-sell is quite good because in the long run, it is a cost saver and it makes planning much easier for clients.
What would happen if you’re sitting in the control room and you’re seeing your precious fruit and vegetables are being shaken up in a way that is going to damage them?
What would practically happen is that one can make a call to the top and ask, ‘what’s going on there?’ There might be some explanations for it, like rough seas or whatever but it helps you more to negotiate rates. It helps you to use other more credible freightliners and it’s also for road and so forth. It helps you to compare one to the other
Keet, what about the involvement of Bob Skinstad?
Bob is one of Knife’s Capital partners. He’s heading up business development that side, in London. An ex-rugby player with a vast network and quite involved in Angel Investment and entrepreneurship so, yes, we came across this opportunity via a mutual link, an ex-South African that’s involved in the MOST founding team. As you know, South Africans are very good at their technology and that technology travels far and wide so that’s how the transaction came about. Bob is going to become a board member that side, and add value.
He’s going to have some interesting people alongside him on the board.
Yes, Lars Markgren, one of the founders of King Digital Entertainment, the guys who are best known as the creators of Candy Crush, the game that I guess my wife and a whole lot of other people play. From a Swedish perspective, it opens up a whole different network, specifically in that side of things for us to potentially plug into. I think that’s another exciting element of this transaction. Credible co-investors, a great team, strong products, a large and global growing market for this type of thing. And Internet of Things thrown in there. They’ve got already proven traction so, from that perspective, it really ticks quite a lot of the investment boxes that makes this an exciting opportunity for everyone involved.
Well, pretty much everyone has heard of Candy Crush but if you are now co-investing with the guys who created that product it sounds like you’re getting involved with some rock stars of the new tech era.
Yes, one would think so but I think that’s the good thing about entrepreneurship is that you have a breakthrough product that makes you a few billion Dollars, in this case, and a lot of the entrepreneurs that have successful products in companies then give back in a way, and invest in other start-ups and use their networks and funding and their knowledge of how to scale a business into the global sphere and invest in other companies where they can see the potential. We’ve got our eyes firmly set on the MOST opportunity but it definitely does help when you look at your investor pool and the wealth of knowledge and networks, and those types of things, around the table. So, yes, the Candy Crush guys – we’ve got our first board meeting up there, post-Knife Investment in the first week of December. So, we’ll find ourselves in Stockholm – that’s how the networking game works.
How big is technology start-ups and innovation in Stockholm, Sweden? We know obviously, of Silicon Valley and London is a pretty strong area as well but it isn’t an idea that comes immediately to mind that the Scandinavians are strong in this area.
Well, Scandinavia has Candy Crush and Nokia – there’s good and some missed opportunities one can say about the Nokia journey. Yes, it is a key world technology hub and they are quite serious about technology, especially in the new era of gaming and connecting the internet and connecting hardware and software devices. So, Sweden and specifically in Scandinavia are quite well known in that area, specifically around hardware and software combination.
So, if you’re looking for an internet of things investment that was probably going to be high on your list as well. Are there any other products that sit within MOST that could be as successful as the one you’ve articulated for us about the sensors in containers?
There are, not that we can say too much about it at the moment, but this is a start-up, which isn’t a one trick pony with one product. This one is reusable, rechargeable, it’s calibrated, lab tested for accuracy and with superior antenna technology. We’re going to use all of that data backup stuff and combine it with the technology that we have in our antennas, and we’ve got a few other products in development, which we will hopefully talk to you about in the next podcast or so. Yes, there are some new developments. It isn’t just about the freight container device but at the moment it’s the breakthrough product and one has to run with it. Really get the market penetration, and the value proposition, and the differentiators over competitors around functionality and performance and pricing. Basically, scale that as quickly as we can now that we do have a foothold.
Have you invested in IoT (Internet of Things) opportunities before?
Ourselves, we’ve been more on the software side. We’ve got one product involved in radar technology, which was Doppler Radar Technology company: FlightScope – one of our HBD (Here Be Dragons) portfolio companies, which basically tracks projectiles and a launch monitor that projects golf balls in this case. So, it’s not, I guess, an internet of things as a new buzzword, and we’ve been involved in that company for 8 years or so, but yes – a hardware and software combination in how to scale those type of products internationally. Specifically, IoT – no, but more and more start-ups are coming across our desks that have got that element on it and some don’t, but they think they do. I think this is at least a natural evolution of where the market is going. VC’s are looking at things like green technologies, the Internet of Things, Predictive Analytics, into areas where there is disruption/ white noise in the market.
And the guys behind MOST? You did mention there was a South African on the tech team. Where do the rest of them come from?
Some of them are ex-Nokia technologists that have got good experience when it comes to marketing and scaling. So, Jon, Matilda, and the team over on that side, as the CEO and the COO so, there’s a good mix of a team that’s got experience in business development. It’s a technology heavy team clearly but we find that often, a team is technologist heavy without having the business development marketing people to drive the products – that could become the best product never sold when it sits on the shelf so, yes, that’s their background and it’s an exciting combination.
What are they expecting from you guys?
From our perspective as a co-investor, I think they’re expecting a good partnership, governance and so forth. Obviously, the money is our ticket in and we have a significant minority stake in that business. But I think more so, to help with market access specifically in the emerging market, Africa context, but also to take that blueprint into other emerging markets. There’s an expectation and specifically, we had a good look at our value add before we made the investment at our network base and say, ‘well, are we going to be able to add value?’ So, yes, there’s a good expectation of acting like a partner and create market access and find opportunities. There is a sales office in SA for MOST already, and we will become, I guess, a partner to that sales office to throw leads into that so that the guys can follow up on, do the tests, and we know that first and foremost, if you can bring your portfolio company some clients then you earn their respect.
Yes, there’s a big potential market, I guess, just for the fresh product exporters from SA but who else would find this interesting or find it a useful investment to make from their perspective?
Initially, we are focussing on the agri-food processing industries and perishables because of the fact that that is a natural fit and sell. But there’s quite a lot of sensitive things that get transported around so, from that respect, it is also big machinery, manufacturing and, also small manufacturing capabilities where you need to really know that these things are, being multi-million Dollar equipment getting shipped halfway across the world and you need to know what’s happening to them. So, yes, our initial focus is around the food market, perishables, food industries and agri, and that’s a natural fit between what we’re doing down here at the tip of Africa.
Also, SA being far away geographically from the Northern Hemisphere and where much of the stuff is made. Let’s just say, I was importing some very sensitive technical equipment could I put a sensor or could I use the MOST product, given that it was economically viable for the size of the product I was buying? Could I put that into my own container just as a one off?
Yes, it doesn’t have to be a big fleet of offerings. The product is quite economical even if one just buys it for a once off trip. That’s what the guys have been working two-years or so, to perfect it. It needs to be feature rich but it also needs to be affordable and you need to be able to login via your MOST control panel, and be able to look at things like, ‘where exactly is it?’ What is the current temperature and, also what does the dashboard of what the temperature fluctuations were, like humidity and those types of things, and shock incidents? If one wants to arguably just do a one-off thing you can get one of these sensors, put it in there. Obviously, the ideal client has a bit more of a fleet of things that goes from this side to that side but it isn’t something that’s unattainable for once off equipment and things.
What about the competitors to MOST?
This is a competitive market but there aren’t that many competitors in this particular niche, and there are some solutions and some freight companies offer certain things, like location of the ship, and so forth. But this is the micro environment, what’s going on inside of that container. You must also remember that that container could also be at the bottom of a whole host of containers and surrounded by, and you’ve got a whole lot of metal around you – now you have to get that signal out of the bottom of that container to some GSM network,and get it to the MOST control panel in real time. Whilst there are competitors we focus on the differentiators around functionality and performance because the technology specifically around things, like antenna strength and so forth, are market leading.
How big is the potential for this company?
There is a large and growing addressable market around where we oprate of seven-billion, or more than that. So, the potential of this particular company to become big whether one now goes for an exit, or whether the company is highly profitable and becomes large and specifically, as we touched on earlier, the fact that this is not a product company – it’s a company that has one successful, (in terms of traction) product so far, and we need to apply those type of technologies – what we used under learnings, in terms of this MOST device into other products. Yes, and that opens up other IoT markets for us so, I think ‘how long is a piece of string,’ to answer that particular question.
So, MOST is more of an invention hub, if you like, and this is the one product that they’ve invented that has attracted you and your attention, but many more potentially down the line.
Yes, our attention is attracted by the team and the execution ability and the fact that they already know how to commercialise at least one product. If that can be replicated by this particular team, remembering the team also includes the investors, us behind it, King Digital Entertainment with Candy Crush and so forth, and you throw all of those things in the pot – it’s still difficult but it becomes a bit easier to envision that other products could be successful as well.
Keet, what’s next for Knife Capital, outside of this very exciting investment that we’ve been talking about?
Well, I think for us we are focussed on doing transactions at the moment. Raising capital is always in the background in our minds and we do have some really credible funders working with us at the moment, to see how they could participate in our offering, which now includes both overseas family office money coming into SA. It includes South African money being invested here and then it includes doing business and investing in businesses in Sweden, Kenya, and so forth. We are looking at some companies outside of SA but those we will generally do with partnerships. Yes, we’ve got our very exciting Section 12J, which is a tax incentive fund within SA, and we’re quite active in terms of those investments as well. What’s next for Knife is basically, we just need to do quality deals like this one, one after the other, and then add enough value so that they grow and not fail. Then I think from there onwards, the rest of the things will fall in place so that’s what’s next.
Keet van Zyl, and this special podcast was brought to you by Knife Capital.