Hope you’re doing well.
After writing The Prize Economy last year, I meant to write a follow-up piece focusing on venture capital firms on the continent who have an explicit hardware focus. It didn’t pan out the way I envisioned but I got a great interview with Nick Allen who’s the Founder of Savant, a South African venture capital firm who invests in hardware and life science startups. For today’s letter, I thought I would share that with you.
In case you missed it, here’s last month’s newsletter.
By August of 2021, Savant had disbursed $1.22 million in investments in the previous 12 months. A small fund (their Fund 1 was only about $11 million) dedicated to hardware companies, that represented a significant chunk of their business. The ventures also showed a huge breadth in the products they developed, ranging from fitness management solutions to utility power generation. That’s an anomaly for firms brave enough to invest in hardware on the continent, who are usually focused on a single vertical (like All-On) or are a subsidiary of a large multinational (like Shell).
I was interested in learning more about Savant, as well as their incubator-fund model. Last September, I spoke to Nick Allen about these and a lot more.
This interview has been condensed for this newsletter. It will appear in full on the Hardware Things website on October 17, 2022.
Chuma: So how did you come to start Savant? What led to that?
Nick: I originally studied civil engineering, and then spent a few years in IT working for the NHS. After that it got a bit boring, I decided to go and find the next challenge in my life and so I did an MBA back in Cape Town, at UCT Graduate School of Business. During a little stint at the University of Chicago as part of an exchange programme, I realized that I enjoyed the finance courses and that I wanted to get into early stage. I arrived back in South Africa and [found that] the VC space was pretty dead. Found my place in an incubator, doing life sciences incubation, working with early-stage life sciences companies. The challenge I found was that there was low scope. There wasn’t a big enough life science community in Cape Town at that time. And I kept on saying to the board members like, “guys, we’ve really got to broaden our mandate and our scope.”
When that didn’t work, I then left to do my own thing. That was the beginning of Savant, in September 2004. First, I wanted to broaden the scope of what I was already doing. Secondly, I wanted to work with fewer companies, in terms of being able to choose the companies that I work with, to spend more time with them and help them succeed. And we have been fortunate to work with some companies that have done very well. Over the years there was always a huge challenge of funding. Funding was always like the big block, you know. A lot of people say you’ve got to bootstrap. Bootstrapping in software is one thing, but it’s difficult to bootstrap a medical device. There’s got to be some funding along the way to take your idea, your concept, [and] turn it into reality. So yeah, through out the time we were always trying to persuade other funders to move into the space or, to get later stage funders to do something earlier.
There was always that gap. Then we realized that we have secured [enough] by ourselves to help with that gap. That’s where the venture funding came from, we went out and raised funds. Now we’ve got this ecosystem that works, where we identify really early-stage interesting stuff in the incubator, and the goal is to build it and create a pipeline for the fund. And we have had a couple of deals that have demonstrated how that worked. If you look at the majority of the deals that we’ve done, they have come through the incubator. So yeah, it works. But we’re a small fund, we’re a small company.
Chuma: Since 2004, what are some of the issues that the startups you funded or incubated have faced building hardware on the continent?
Nick: Probably the biggest thing that we face is that the environment — even in Cape Town and I think Cape Town is more advanced than most areas not just in South Africa, but the continent from a hardware perspective — is that the environment doesn’t build teams the way we should. We often find that we get approached by founders that are usually the pure techies. There’s an engineer or a scientist. But they don’t have the Biz Dev person or the marketing guy or the finance person. And we’ve got to try and build those teams around them. That lack of commercial experience and expertise that makes it really hard for them to succeed. So, we’ve got to work on building environments where these founder teams can meet each other.
I think the big thing, particularly in the local South African market is that it’s a small market. We don’t have the billion people, whatever market size, that really makes it attractive. So [I tell people], it’s really build, prove, then go offshore as quickly as possible or outside the continent wherever you’re going to find that big market.
LG’s Mission for the Future Challenge is now open for applications. The challenge is open to startups in the Digital Health, Electric Mobility, Display Solutions, and Smart Lifestyle spaces looking to scale their product utilizing LG’s reach.
Deadline: October 6.
The Africa Startup Initiative is receiving applications for their ASIP Accelerator Programme, open to African startups in the Agritech & Supply Chain, IOT & Connectivity, and Clean Tech sectors. The accelerator is particularly targeted at startups looking to scale through corporate and public sector partnerships.
Deadline: November 11.
In Kenya, Solar Freeze is developing cold storage units using forced-air evaporative cooling, at a cost less than half of typical refrigerated cold rooms. They’ve built “swamp coolers” using corrugated cellulose in a bid to use more locally sourced components.
Until next time,