SA's FIRST BIOTECH FUND LAUNCHED
Johannesburg - Tuesday March 27, 2001
South Africa's first biotechnology venture capital fund has been launched with an initial capital of R40-million, catapulting the country into the realms of the world of New Technology.
Called Bioventures, the fund will be managed as a joint venture between two of the country's most innovative investment groups- Gensec Bank and Real Africa. Each group is contributing R20-million as founder participants in the fund and a second closing, increasing the capital available for investment, will depend on the appetite of institutional
investors. Initial discussions with investors have indicated considerable interest in this project.
Announcing the formation of the fund today Real Africa Holdings chairman and a director of the fund, Don Ncube said that Bioventures, being the country's first biotech fund, would be able to capitalise on what promises to be an even larger wave than information technology.
"We believe that biotechnology will play an important role in job creation and thus empowerment in South Africa. International indications are that biotechnology will be as important, if not more important, than the information technology industry in its influence on the world economy. Currently US venture capital funds have over $1-billion invested in biotechnology and that figure has almost tripled in the past year.
"We are pleased to partner with Gensec Bank's private equity division in this project because of Gensec Bank's considerable experience in the area of the management of private equity and venture capital funds."
Ron den Besten, who heads up Gensec Bank's private equity division, said that Archway Venture Capital Fund, which focussed on IT and which is also managed by Gensec Bank, has been highly successful. The first fund is fully invested at just over R100-million and the second fund, launched this month, has retained the support of the initial investors and, in addition, has attracted funds from the Industrial Development Corporation. He explained that although biotechnology is still in its infancy in South Africa, now is the time to invest so that Bioventures can capitalise on the available opportunities. "There is growing awareness of the importance of biotechnology in this country and South Africa has a number of unique competitive advantages over the leading players in the field."
He said: "We are not talking about scientists coming up with schemes that are mind-altering. We are talking about practical solutions that will commercialise the resources and knowledge that we have in abundance in this country.
"South Africa has some unique competitive advantages that will give us the edge in biotechnology and these include a wealth of genetic resources, both animal and plant (the Western Cape has the richest floral kingdom in the world); a wealth and established history of traditional knowledge (particularly of medicinal plants); first world science capacity and equipment; low cost skilled labour; and low product development costs
(estimated to be about 14% of that of the US and UK).
"Like Real Africa, we at Gensec Bank believe that biotechnology has a bright future in South Africa," Mr den Besten said, "and we are committed to build this industry through providing venture capital investments in start-up biotechnology companies. As our partner, Real Africa's extensive network will enhance the deal flow to this venture and their investment and industry knowledge will be invaluable.
Mr den Besten added that while the United States has the largest biotech industry in the world, the United Kingdom, Europe and Israel also have well developed biotech industries. "The United Kingdom has 460 biotech companies employing over 40 000 people. Venture capital investment in the wider European context has grown from Euro250-million in 1995 to Euro644-million in 1999. Israel has a flourishing biotechnology industry consisting of more than 120 firms in pure biotechnology and in 1998 sales amounted to $250-million of which 65% was export turnover.
"An attractive feature of biotechnology and its products is that it is easily exportable which is why we are so excited about the potential for South Africa. There are great opportunities for our economy."
Dr Heather Sherwin, who will manage the Bioventures Fund, explained that biotech, is the use of biological systems or processes for commercial use. "The third generation biotechnology industry, the most advanced generation, is still in its infancy in South Africa. There are only a handful of start up companies that fall into this category. However, there are a number of projects currently still at university or science council (such as the CSIR, MRC and ARC) stage which have the potential to develop into successful biotechnology ventures.
"In terms of the earlier generation biotechnology, South Africa has large mature companies such as South African Breweries and Stellenbosch Farmers Winery, which have been built on first generation biotechnology. These industries and the food processing industry are well-established and profitable businesses.
"Billiton (an ex-South African mining company) is the world leader in bio-mining. It has proved that the application of biotechnology to the mining industry is profitable."
Dr Sherwin explained that small companies, that can add value to these industries by developing new processes or products through the use of later generation biotechnology, can also profit from biotech developments.
She said that another industry that has huge potential for growth in South Africa is the waste management industry. "A company developing bio-remediation of waste, particularly medical and industrial waste, would make good returns," she noted. "The development of nutraceutical (beneficial foodstuffs), floriculture and mariculture (farming marine resources) industries has huge potential in South Africa."
Bioventures plans to invest in a range of companies across different sectors and at different generations of biotechnology. It will only invest in companies that have proprietary technology or exclusive access to such technology that gives them a competitive advantage.
Gensec Bank and Real Africa believe that by doing this, risk will be reduced without Bioventures losing out on the potentially very large returns on the third generation technologies. Bioventures also plans not to be over-exposed to one particular industry sector (such as agriculture or food processing).