Build, Prove, Go Offshore

Nick Allen, as told to Hardware Things

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).

Savant has an interesting incubator-fund model, and the venture capital firm invests strictly in hardware and life science startups. Last September, Nick Allen, Savant’s Founder, spoke to Hardware Things about these and a lot more.

Hardware Things: So how did you come to start Savant? What led to that?

Nick Allen: 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.

We are hopefully demonstrating that this can be done, hopefully demonstrating that hardware as hard as it is, is valuable. We want to [help] build products that make a difference in people’s lives. We’ve built some companies that have saved people’s lives, saved people’s baby’s lives. [One of our venture companies,] Leatt - to this day - gets a lot of letters from people who have fallen off their motorbikes and bicycles and their lives have been saved by their protective equipment. Snuza, [a portable breathing monitor for babies], the unit goes off and wakes the mother up, and [she can] look after her baby.

We’re currently South Africa focused. Our funders have a very South African focus to them but we’re really hoping to be able to expand that to The African continent, I think there’s a huge untapped and unsupported need for the kind of work that we do both from an incubation and funding perspective. We want [to help] businesses that build solutions to the problems that they see in their lives, in their communities. And you’ll find that more often than not, that those are applicable elsewhere. We’ve worked with the guys at Jonga, they’re building a low-cost security solution for middle income, low income housing. And that’s got a huge opportunity in South Africa. But it’s [also] got opportunity beyond South Africa, same with pretty much everything that we do. That’s our main challenge at the moment, to demonstrate that we can make not just a company that builds businesses that do good but also we want to be able to demonstrate that there’s value to be had, that there’s a return on investment to be had and that it’s a viable investment opportunity.

Since 2004, what are some of the issues that the startups you funded or incubated have faced building hardware on the continent?

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.

Also, I’ve got a very small fund and everyone want me to play earlier and and all my funders want me to play later. That’s why the incubator is important because I’ve got to build my own pipeline. I’ve got to make my businesses more investment ready. So we see a lot of very cool tech that’s very tech [heavy] but not exactly business-ready. And you’ll have to work really hard to make it investment ready. The environment is getting better but it still needs a lot of work.

Are there any specific issues that companies you’ve invested in have faced that you can share?

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. But of course, there are lots of barriers to going outside the country. In the South African environment, you have exchange controls, lack of funding and expertise [for expansion], etc. You know, it’s much harder to go and build your business offshore. So that’s always a huge challenge to our [venture companies]. In the South African market, there are few exceptions, but it’s difficult to build a venture capital-sized Business. Particularly in hardware.

So the guys that are doing well. And they hit their ceiling. They grow, grow, grow and they just pass over the South African market and then it [looks like they’re] deteriorating. So my message is: where’s your next market? Have you thought about your next market? Are we going there with that strategic market opportunity? Where outside of South Africa, and is that big enough? You know, you’ve really got to identify that market really quickly and [how to] get there. I think in many other markets in Africa you’re going to see the same thing.

How big is your fund?

Fund 1 is 155 million ZAR, about $10 million. It’s a seed fund, a very small fund in the scheme of things. I really believe we can get huge bang for buck; we’ve got a couple of businesses that have got huge potential. You put in a million dollars, and in South Africa, that’s a huge amount. We’ll sometimes write smaller cheques to get people from zero to one, what people [have done] with 500,000 to 1.5 million ZAR is amazing, absolutely amazing. Our ability to take really small amounts of money and do great stuff with them is unprecedented. And I think that’s not just a South African thing, but an African thing; the ability to take very small pots [of funding] and turn them into really exciting opportunities.

_{Sign up with your email address to receive the monthly newsletter.}