Convergence Partners looks at investment opportunities in infrastructure and services across the continent
Back in June 2012, Convergence Partners attracted up to US$45 million from the World Bank’s investment arm IFC for its Communications Infrastructure Fund to support the rapid expansion of infrastructure across the continent. Along with this fund and its own investments, Convergence Partners is interested in a range of investment opportunities across the continent. Russell Southwood spoke to Brandon Doyle, CEO, Convergence Partners about what they want to do.
Convergence Partners already has investments in 20 different businesses, the majority of which are minority interests. For as Doyle says:”We’re strategic investors, not operators.”
Its portfolio falls into three distinct groupings: mature stage investments (where the businesses have been going for some time and there’s possibilities for geographic expansion); its capital portfolio (a relatively small component, South African-based businesses that are not yet profitable but have shown ability to generate revenues; and infrastructure (new, greenfield telecoms network elements).
In the capital part of the portfolio, its investment in Cape Town-based Bloodhound is a good example. It produces RFID, GPRS and GPS software for active tracking of personnel like sales people and guards. On the infrastructure side, it has investments in Seacom, the New Dawn satellite (a JV with Intelsat) and FibreCo in South Africa.
“There’s a recognition that now that the undersea is in place, the next challenge is how to deliver high quality, high bandwidth networks. FibreCo breaks the old models down and offers open access, managed fibre on the long-haul section.” It is a new build network in South Africa with three way equal investment between Convergence Partners, Inernet Solutions and Cell-C.
So far it has put 600 kilometres in the ground and has a its first leg from Cape Town to Johannesburg and it will eventually create a nationwide ring across thewhole country. Some of this ring will be created through purchase and swops with other networks:”We want to look at other regions and countries in Africa for this kind of model. But each market has to be looked at in its own right, taking into account demand and local regulations. But we think countries like Kenya and Nigeria have the potential to absorb this type of business model.”
But it’s also interested in the content, services and applications that will create businesses on top of the infrastructure layer. It has two notable investments in this area: Skillpad and Integrat. The former is a white label gaming content platform designed to offer games content for both mobile and online devices. Its games are available in all the various mobile stores as individual titles and across different platforms like Google+ and Facebook. It has 20 million individual users globally, of which 3 million are in Africa.
Integrat is a mobile content developer and aggregator and is making its own content and providing its own payment systems:”It has alternative ways of delivering bulk SMS that avoid the networks and as a result can be offered at reduced costs.”
The Communications Infrastructure Fund will only invest 25% of its total funds in South Africa. The rest will go into investments in Sub-Saharan Africa. A number of other “blue chip” investors are in different stages of signing up:”We’re looking for wholesale, open access networks and we need players who can actively manage and maintain. But there’s not going to be a Pan-African initiative.”
Also although its original BEE transaction expired in Dimension Data Middle East & Africa, it has chosen to keep its investment in place because they believe it is a good vehicle for taking advantage of many different Sub-Saharan investment opportunities.
”South African companies have sometimes struggled in expansion across the rest of the continent. At times they have adopted a somewhat arrogant, big brother approach to the rest of the continent and that doesn’t sit well with Governments and regulators. South Africans need to localize their companies across the continent and to be respectful of local cultures. This is what we’ve been trying to do, moving to local teams and to change and be flexible.”
Doyle cautions against the talk of high growth from African markets:”Yes, there is high growth in some markets and we had rapid growth on Seacom. But generally speaking we’re in a period where you’re building a platform in terms of growth to come. There’s an impatience for returns but it’s going to take a little longer. There’s growth here but it’s much more of a medium-term play.” The “anchor” investors in the Communications Infrastructure Fund are mainly organisations that are comfortable with taking this view.
Convergence Partners can either invest through the Fund itself or from its existing balance sheet. It hasn’t yet set up a separate VC fund but it might do in the future. From its existing balance sheet, it can go as low as US$200,000 or as high as US$20-30 million. Through the Fund, the minimum will be US$5 million and the maximum will be US$40 million, depending on the final fund size. In the case of the maximum amount, “It would need to be part of the funding pie and we would raise additional funding.”
A bumper crop of video clips this week on Balancing Act’s You Tube channel:
Kwabena Smith, Orun Energy on saving diesel costs on base stations
Justin Hartman, Social Code on South Africa's ICT entrepreneurialism and the failure to support it
Julian Macharia, Buni TV on this new online video delivery platform
Envir Fraser, Convergence Partners on investment opportunities in ICT
Tayo Oviosu, CEO, Paga on the mobile money market in Nigeria
Nigerian ICT blogger Loy Okezie on Nigeria's online successes
Victor Dibia, CEO, Denvycom.com on his games portfolio and plans to monetize
Oluseye Soyode-Johnson, consultant to Maliyo Games on the business model
A special for Balancing Act readers:
Kristine Pearson shows how the Lifeplayer, an MP3 player for rural education, works
Mobile learning Steve Vosloo on how m-learning can support teaching
Steve Vosloo on edutainment and interactivity in mobile learning, the Yoza mobile story project and other examples of m-learning in Africa
South African Niall Murphy, Marmalade on multi-platform software distribution for apps based on the ARM chipset