The recent shutdown of the much-transacted startup DealDey that had not just a celebrated founder but an experienced team to back it up in strategy has spun off a viral conversation.
The offers aggregator platform was acquired by Ringier Africa Deals Group, a joint venture between Swiss Ringier Africa AG and South African Silvertree Internet Holdings (Pty) Ltd (SIH) in early 2016. And it is quite lucky that SIH exited DealDey, its first African e-commerce investment, in a management buyout, mid- last year. In December 2018, the Nigerian deal platform wound up its story, so the timing of the Venture builder could be stated as perfect.
Last year, SIH remained in the news for strategically acquiring majority stakes in the South African e-commerce business and reducing the role of the founders to mere operators of the company.
“Silvertree Internet Holdings is not a fund, so tracking returns like a VC fund is irrelevant. We are also not planning on selling any of the businesses within our stable”
In a conversation with WeeTracker, Manuel Koser, Founder & MD of Silvertree Internet holdings clears out many such queries.
Silvertree Internet Holdings (SIH) founded 5 years ago, calls its self an “Investment Growth Partner“. To many of our readers, this may not be very clear. To explain, SIH elucidates on its website, and positions itself as a “business builder” and an “investor”. On further probing the team, it has been clarified that SIH invests, operates as co-entrepreneur and helps e-commerce companies to scale faster, though they are not any “VC Fund.”
In one of their previous interviews, SIH mentioned that an average European Portfolio gives a 5% return on investments, probably why they are not a VC fund. In their numerous publications on why the Silicon-Valley model may not be apt for emerging markets, it seems SIH has cracked a new investment methodology for growing ecosystems. Because for their own portfolio, Manuel maintains, “Silvertree Internet Holdings is not a fund, so tracking returns like a VC fund is irrelevant. We are also not planning on selling any of the businesses within our stable. Our focus is to target, scale and build sustainable, capital efficient businesses that solve consumer problems. We have access to an operational platform of >25 staff; this allows our brands to reach new heights in the various life stages of their business.”
While the investment thesis of the firm is very straightforward, SIH clearly states on its website that it invests in companies that are post revenue stage and have clear unit economics. Now, e-commerce may sound fancy and the new ‘cool’ for startup founders to tag along with; but the reality for this business too, remains profit. To predict ultimate profitability at an early stage for e-commerce companies is very close to sorcery. And, SIH has picked up this sector for growing themselves, which could be quite challenging. But, the team appears unfazed and pretty confident of their decision. Manuel brings out at this point that, “The future of e-commerce is certain and as an investment growth partner we have a few crucial elements that however aid the decision-making process. For starters, a brand offering a product or service that serves consumer problems is first prize. Other elements that are imperative includes team quality, tenacity, size of the market, CAC versus CLV, scalable infrastructure and capital efficiency.”
In 2016, SIH had announced investing USD 10 Mn in internet companies, which so far has been fully invested as confirmed by the team. On checking with the team on their portfolio size, Manuel responds by saying that “As we are not a fund, portfolio size would be the wrong metric, we can, however, say that Silvertree has a revenue of >R500-million and is growing >30% annually. The $10-million mentioned at the time was fully invested. With a sweet spot in the consumer-facing digital space, Silvertree Internet Holdings has backed some of the continent’s most renowned start-ups, it is an entrepreneur-led holding company that acts as an investment growth partner. Here, we provide support in building and scaling business, consumer and digital brands with funding and ongoing operational support throughout their lifecycle.”
This springs up another pertinent question, i.e. the company which does not consider itself as a VC or a fund, ways in which it can make a return on its investment is through profit sharing with the Founders or an exit. In an interview, SIH has been quoted saying that it eventually works towards acquiring 100% of shares in the businesses it invests in, which could also mean relieving the original co-founders/ promoters.
“Our passion to support entrepreneurs and the entrepreneur ecosystem in South Africa led us to our model, an investment growth partner for entrepreneurs by entrepreneurs.”
Not surprisingly, there were speculations last year that this investment firm reduces the role of the Founder to an employee in his/her own company. Demystifying these doubts around the firm, Manuel says, “[this is] Untrue, we are an entrepreneur-led growth partner that enables growth by reinventing how businesses and digital brands unlock exponential growth. As entrepreneurs, the team understands the pitfalls, challenges and benchmarks that need to be in place to scale and grow. In this light, we can refer to Elon Musk – who is neither the majority shareholder nor controls the board of Tesla or SpaceX.”
Now, this comparison is quite tricky, on one side it does bring out the sheer brilliance and an innovator’s aptitude, but it also highlights the unpredictable and eccentric nature of the leader. Elon Musk definitely is charismatic but also brought down his marketing team’s efforts of years within minutes by pulling down SpaceX and Tesla’s Facebook page.
There are reports of SIH going IPO in 2023, which is a good runway for the ‘investment firm’ to make adjustments to its existing portfolio. Though information on its investments for this year is yet not rolled out, though it confirms not having any exit plans. It can be argued that Founders Manuel Koser and Peter Allerstorfer have invested a significant amount of time in understanding and building e-commerce platforms. Two founders of the SIH team have also been the founding members of JUMIA, which is the only known Unicorn Africa has. So, who would want to give up their ‘Unicorn’ baby; it certainly sounds difficult. But the undeterred SIH team adds, “Our passion to support entrepreneurs and the entrepreneur ecosystem in South Africa led us to our model, an investment growth partner for entrepreneurs by entrepreneurs.”
The SIH business model is undoubtedly different and comes across as an aggressive model. Since the market it operates in is emerging, models like these could also find space to grow. The profits/exit of the portfolio companies will be the truest indicator of the success of SIH’s ‘business builder’ approach, in times to come.