Remgro, the Berkshire Hathaway of South Africa, set up the venture capital fund Invenfin in 2008 to hunt for highgrowth companies. Invenfin was seeking a rare phenomenon: the African startup that could go global. The Ruperts, the South African industrial family backing Remgro, know what a global brand looks like. They control Richemont, the luxury holding company behind Cartier, Alfred Dunhill, and Piaget.
So when Invenfin announced that its investments would “focus on food”, it appeared that smart money saw food brands in the vanguard of the African consumer revolution. “The world has caught on to the potential of this surging consumer market,” wrote McKinsey in its influential report The Rise of the African Consumer in 2012. “African consumers demand quality products and are brand conscious, belying the view that the continent is a backwater where companies can sell second-rate merchandise.”
In fact, Invenfin is focusing on food largely because of the outsized success of BOS, an iced tea drink that was an early portfolio investment. BOS is infused with rooibos, the South African tea plant, and flavored with fruit. Its Redbull-shaped cans are colorfully branded. The popularity of the natural, low-sugar drink has grown among South Africa’s middle classes since its launch in 2010. Now it is going global. This year it launched in the Netherlands and Belgium, and the rest of Europe and North America may be next.
Joe Kieser, co-founder and vice chairman of Invenfin, is a former Coca-Cola executive. He sees a bright future for BOS – partly because it is a healthier cold drink than many on the market. From Invenfin’s offices in Stellenbosch, Joe talked to FUSE about the fund and its bet that there are more BOS’s out there to be found.
FUSE: Why did Remgro and the Rupert family decide to set up Invenfin?
JK: Remgro Group has shown a great respect and appetite for entrepreneurship throughout its history. The Ruperts fully understand the VC space. Rather than a traditional VC, we are a wholly owned subsidiary of Remgro. We are more like a very small, very strategic private equity group within Remgro.
We were given a mandate to seek out unique South African and African opportunities: companies that have the potential to become international brands backed by strong teams with strong IP. There was perceived to be a mutual benefit where Remgro could gain from the investment but also assist the development of these companies and encourage innovative thinking from this part of the world.
FUSE: Why has Invenfin narrowed its focus to food?
JK: About three years ago we invested in a young startup spawned entirely in South Africa. That was BOS, a beverage company. The investment has done particularly well, and it encouraged us to look more closely at food and beverage companies. In September 2014 our board approved a dedicated fund called InvenfinFoods to invest in these opportunities.
So we were impressed by BOS and responding to that, and at the same time Remgro was encouraging us to look at the sector. It is heavily invested in food Remgro owns a 26% stake in Unilever South Africa, the multinational’s South African listed subsidiary, and a controlling stake in RCL Foods] and has expertise there.
We were pleasantly surprised to find a number of companies at various stages of commercialization: some of them new startups and some of them well established companies but nascent in terms of their potential global appeal. The South African food market is well developed in terms of retail and technology, especially at the high end of the market. We saw a great variety of opportunities across the whole spectrum.
FUSE: Why do you think there are so many interesting opportunities in African food right now?
JK: We’re seeing the impact of consumers becoming more discerning. Consumer awareness is rising across the continent. They’re aware of more niches in the market – particularly when you look at premium products – and they are more and more demanding. That, combined with better distribution of products and access to them, has made food and beverage investing a better proposition.
There are conspicuous trends in Europe and the US that have been growing for some time. These trends are conspicuous in Africa too – particularly consumers’ demand for healthier foods with less sugar, with higher protein. That’s a conspicuous global trend that is just as pertinent in Africa.
FUSE: Tell us about the investment prospects that Invenfin is reviewing at the moment.
JK: We are looking at seven companies, some of them in their infancy. Our mandate at the InvenfinFoods fund extends all the way from seed-stage investments to venture partnering with established companies. The companies are predominantly in southern Africa. Three of them have a health angle
FUSE: You worked for Coca-Cola in South Africa for many years. How did that influence your personal interest in BOS, this next-generation soft drink?
JK: I’m comfortable in the beverage sector, and that background is part of what attracted us to BOS. After we first met the BOS team, my experience with Coke put me in good stead to constructively assist in the investment management. One of the things we adamantly believe at Invenfin is that we don’t just apply capital. We bring support and skill sets to help companies grow.
FUSE: What makes you think that BOS is an enduring brand with international appeal and not just a passing fad, given the competition in the beverage space?
JK: BOS has spent three years testing its product in the South African market. I very much see the South African market as the ideal test market for the launch of a soft drink globally. It’s very representative because it’s so diverse with so many social groups and such a spread of income and tastes. And the brand has done well here, so that says something.
It’s a great brand in terms of its backstory and market positioning, it has a great team, and it’s in that sweet spot of being lower in sugar and natural. That gave us the confidence to invest. Now it’s testing itself internationally in the Netherlands and Belgium, and there are early indications of acceptance.
FUSE: How many BOS’s are there across Africa, in terms of food companies with similar growth prospects?
JK: There are a number of them out there. I’d say there are a few more. But we have to be sober about the challenges to internationalize any company and brands. It’s not as simple as just taking a brand and exporting it.
FUSE: Do you see any macro trends, in terms of technology or demographics or such, that make this an especially good time for South African consumer companies to expand internationally?
JK: I’m not sure it’s a better or worse time for South African companies specifically. It’s a particularly good time for products anywhere that respond to acute consumer needs. The great advantage today is that consumers can respond instantly to trends. That can be to your detriment or your advantage, depending on where you stand. If you’re a food startup meeting an acute consumer need, you can grow rapidly. New emerging brands can become fashionable very rapidly through global media, and that is particularly advantageous for us when we invest in those companies.
Also it’s far more acceptable now – it’s even attractive – to purchase brands from another place. In previous years all these brands in South Africa and elsewhere were bound by geography. Now there is almost an in-built demand for something new from elsewhere – like they are even more appealing if they come from somewhere else. The best brands in South Africa and Africa can definitely play to that.