Global Downturn Or Not, Naspers Foundry’s Woes Were Mostly Local
Naspers Foundry, the largest venture capital outfit in South Africa, is winding down. Owned by Naspers, Africa’s most valuable by market cap, the VC firm was set up in 2019 to back and support high-potential tech companies solving social problems in the country.
The USD 100 M Fund largely blames the current nature of the global venture capital industry for the closure. Indeed, investors have since early 2022 tightened their purse strings, adopting a more preserved and earlier-stage approach to putting money into tech startups.
“The global investment environment, as well as the local South African one, has changed, and we have made clear the need for our business to adapt. In line with changes across the wider business, we have reviewed our early-stage investment strategy within SA to bring it in line with our international approach,” a spokesperson explained.
However, the Fund’s struggles are more inward than outward and more local than global.
Though the put-to-use regarding its stash was questioned at the onset, it made three investments between 2019 when it started and 2020 when the global pandemic hit, single-handedly backing SweepSouth, Food Supply Network, and The Student Hub in their seed rounds. USD 2.1 M, USD 1 M, and USD 2.9 M respectively.
In the bull run year of 2021, Naspers Foundry alongside other high-profile investors participated in 5 deals: Aerobotics’ USD 17 M Series B, WhereIsMyTransport’s USD 14.5 M Series A, Ctrl’s USD 2.3 M seed, Naked’s USD 10 M Series A and Planet42’s USD 3.4 M equity intake.
In 2022, the Fund independently funded three deals: Floatpays’ USD 1 M seed, Nile’s USD 2.5 M seed, and LifeCheq’s USD 2.5 M Series A. This 2023, it has only made one investment, co-leading anothber equity round of USD 15 M for Planet42. For a high-flying VC with a low-flying approach, it’s a healthy streak.
The wrap-up of Naspers Foundry can be largely blamed on the challenges experienced by its parent firm, Naspers. One of the company’s main subsidiaries, Chinese multinational tech conglomerate Tencent, experienced a sharp decline in value back in March 2022. Naspers’ financials back home were negatively impacted, WeeTracker reported.
This March, the consumer internet giant announced that it is cutting ties with OLX Autos, one of its assets on the classifieds market. The company is part of OLX Group, an online marketplace, which in turn exists under the auspices of Prosus, 57 percent of which is share-held by Naspers. Naspers cited high costs and a slowdown in the use car market.
“While OLX Autos has built leading positions across many of its key markets as a result of its strong technology platforms and local focus, pursuing a global growth strategy is no longer the right approach for Prosus and its shareholders. Prosus will explore all options for the OLX Autos business, acknowledging that significant value exists within local markets,” a Prosus statement read.
Back in South Africa, Naspers shut down its OLX unit a year ago, maintaining only its local automobile trading business, Autotrader.
The multinational has also faced regulatory and legal challenges in South Africa related to its ownership structure and tax payments, leading to increased scrutiny and pressure. In 2020, the country’s competition commission blocked Naspers from acquiring 60 percent of WeBuyCars for a reported ZAR 1.4 B (around USD 70 M), accusing the company of anti-competitive practices.
In 2022, the regulator stated that Naspers has been exempting historically disadvantaged persons (HDPs), including women and people of color. Truly, only 13 percent of the founders Naspers has backed are people of color, and just 8 percent are women. Partly, this comes as another proof of the existence of white monopoly capital in South Africa, amidst a myriad of diversity issues.
The competition commission seems to have singled Naspers out. It is rumored that its passive-aggressive approach to controlling the company’s influence has continued since the WeBuyCars saga. Investors quietly speak of authorities indirectly sabotaging some of Foundry’s deals in a bid to tame Naspers’ dominance in the local scene.
When South Africa’s competition commission first called out the firm, the country’s tech community hoped it would address the diversity deficit going forward, being that it had at the time deployed only about half of its dry powder.
Now, nevertheless, the Fund fancies a globalized method of investing, as opposed to its original mission of supporting promising local tech-enabled upstarts. As such there is little to no room for new capital injections, let alone for the diversity problem to be addressed.
“Naspers will continue to support the development of South Africa’s early-stage tech sector, assessing the market and new opportunities in a way that is consistent with our other global markets.”
While the VC firm retains its portfolio of a dozen firms and will continue with follow-on investments, worries arise that it might stop making new investments in the market altogether, particularly in a market where an early-stage funding gap persists.