Knife Capital Launches $50 Million Fund for African Series B Startups

Knife Capital, a venture capital firm originating from South Africa, is currently in the process of establishing a $50 million fund dedicated to supporting startups seeking Series B funding. Designated as Knife Fund III, also known as the African Series B Expansion Fund, the firm’s primary objective is to make direct investments in the rapid growth of prominent South African companies.

Early Successes and Fund Evolution

The firm’s initial fund, Knife Capital Fund I – formerly HBD Venture Capital – was a closed private equity fund overseen by Eben van Heerden and Keet van Zyl. This fund concentrated on providing seed capital to emerging businesses. Notably, it achieved substantial returns through successful exits, including Visa’s acquisition of Fundamo, a fintech startup, and UberEats’ purchase of orderTalk.

In 2016, Knife Capital introduced its 12J offering with Knife Capital Fund II (KNF Ventures). This fund focuses primarily on Series A investments and currently holds eight startups within its portfolio.

Expanding Opportunities and Internationalization

Last year, the firm communicated to TechCrunch its plans to extend Fund II and welcome additional investors. The intention was to provide startups with access to valuable networks, financial resources, and opportunities for expansion.

Co-managing partner Andrea Bohmert stated at the time, “Our goal is to facilitate the international expansion of South African and African companies.” This commitment was exemplified by DataProphet, a portfolio company that successfully secured $6 million in Series A funding to extend its operations into the U.S. and European markets.

Addressing the Series B Funding Gap

Bohmert explained to TechCrunch that the third fund is designed to tackle the significant shortage of Series B funding within South Africa’s venture capital landscape. This gap often hinders businesses from reaching their full potential or forces premature exits.

“We are observing a growing number of companies capable of securing funding rounds between $2 million and $5 million,” Bohmert noted. “While these amounts are substantial within the South African context due to lower operating costs, companies require considerably more capital when expanding internationally and establishing infrastructure in new territories.”

The Role of Local and International Investment

Bohmert further highlighted the scarcity of South African VC funds, aside from Naspers Foundry, capable of providing checks exceeding $5 million for financing the international growth of South African companies.

Consequently, Africa has become a breeding ground for international VCs who can offer substantial funding but often lack the localized support that these companies require. Furthermore, international investors frequently seek local co-investors in South Africa, and their absence can jeopardize potential investments.

Knife Capital aims to bridge this gap by establishing itself as the preferred local lead investor for South African technology companies pursuing international expansion, collaborating with international investors to lead Series B discussions and subsequent funding rounds.

Securing Anchor Investment

This week, Knife Capital secured a $10 million commitment from the Mineworkers Investment Company (MIC), a South Africa-based investment firm. This investment establishes MIC as an anchor investor in the fund, alongside other local and international partners.

MIC’s Strategic Alignment

Nchaupe Khaole, CIO at MIC, stated that a shift in approach to venture capital investment by local institutional investors has been a long-term objective for MIC. Partnering with Knife Capital allows this vision to begin to take shape.

“Our investment provides not only capital but also leverages our strengths as an experienced investor, including our ability to foster partnerships within our portfolio companies to drive tangible economic impact in South Africa,” Khaole said. “We are pleased to be a key driver in the success of this funding initiative.”

Fund Timeline and Investment Strategy

Knife Capital anticipates a first close by May and a final close by the end of the year. The fund’s strategy centers around co-investing, with plans to support 10 to 12 companies.