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ANNUAL REPORT

MMXXIII

Contents

We are pleased to present Kingson’s Annual Report for 2023.

STATUTORY INFORMATION

FUND NAME
KINGSON FUND I
KINGSON FUND II
ENTITY PARTICULARS
Kingson Capital (Pty) Ltd, 2015/157452/07, FSP46211, VCC-0021
Kingson Capital (Pty) Ltd, 2015/157452/07, FSP46211, VCC-0021
Kingson Accelerate (Pty) Ltd, 2018/438562/07
FUND MANAGER NAME
KINGSON CAPITAL PARTNERS
ENTITY PARTICULARS
Kingson Capital Partners (Pty) Ltd, 2013/054272/07, FSP46400

Important Notice

This report is best read in conjunction with the audited consolidated financial statements of the Kingson Capital Group for the period under review. This report in no way replaces nor supersedes the audited financial statements. The purpose of this report is to provide additional information to the shareholders that include, inter alia, a review of the status of the Funds, the performance of the underlying portfolio companies and some of our broader strategy relating to the investments and certain forward-looking statements.

 

Investment capital is not guaranteed and past performance is not indicative of future performance.

KINGSON/ CAPITAL

The Kingson Difference

Kingson is a venture capital investment firm that provides equity finance for early stage technology startups. We were founded to invest in innovation with a view of operating on a global stage. We aim to invest in businesses that will create the future, facilitate growth and shift economies forward.

 

Our purpose stems from our identity bestowed upon a lineage of kings which we have the honor to continue. Our vision is to create economic wealth by investing in innovation and inclusive technology that can solve for the evolving needs of humanity’s existence. 

 

Our objectives are to identify, invest in and accelerate a portfolio of high-growth businesses and fast-track them for follow-on investment rounds, putting these businesses on the trajectory of delivering superior returns.

 

With reverence for the remarkable, we believe that a path has been mapped out for us to boldly pursue a future of exponential innovation that impacts and changes the course of nations.

Purpose

Answers the question “Why do you do what you do?’

Invest to Steward Innovation¹

  1. Stewarding is to invest, bring to market, nurture and safeguard the innovation in order for the technology to fulfill its designed purpose.

Vision

Answers the question ‘What do you do?’

Create Economic Wealth by Investing in Innovation and Inclusive Technology

Values

Founder-Friendly, People Centric

We invest in businesses because we believe in the founders. Innovation is woven together as part of their DNA. People create value.

Execution Beats Perfection

Momentum is key in the early stage investing world and execution beats perfection, every time.

Active Partnering

We partner with our investors and are active portfolio managers.

INVESTMENT STRATEGY

We invest in innovation and in the future of business. We focus on inclusive technology that broadens access to markets, access to finance and distribution networks.

Some of the core principles we apply to our investment strategy, include:

  • We invest early, typically seed and series A 

  • We search for technology that can scale globally and has proven product-market fit

  • We look for Founders that are ambitious and have an ability to influence and win people over; be it talent, new customers or investors. They have a certain level of expertise in their field (or amongst the team) in order to clearly demonstrate why they are best positioned to solve the market problem they are addressing.
  • A product team that has a clear and articulated product roadmap along with the necessary expertise or know-how to deliver on that roadmap.

  • We carefully consider the people and culture, recognising that it takes both to transition a product into a business with high-growth potential.

  • Teams that execute what they said they would do, when they said they would do it, and in alignment with their company’s objectives.

  • A revenue flywheel that shows the company has iterated on its revenue line items, and is on a clear revenue growth trajectory. 

SELECTION CRITERIA

Product and Service Leadership
People and Culture
Z
Execute Objectives and Meet Deadlines
Moat or Barriers to Entry
g
Revenue Flywheel and Valuation Metrics
INVESTMENT THEMES

OUR LENSE ON THE FUTURE OF TECH

As we observe the volatility of certain industries and consider the macroeconomic trends, we believe that, in the long term, these five areas will not only withstand pricing pressures but show substantial growth and long term value appreciation.

Investment Themes

We invest across 5 key thematic areas:

  1. Digital Transformation: technologies that help improve operational efficiency, enhance customer experiences and/or drive organizational growth and competitiveness. Digital transformation, correctly implemented, always creates economic value and births new ways of doing business.
  2. Future of Finance: is foundational to how people and businesses interact with each other. Technology and financial inclusion represents one of the great catalytic opportunities to transform lives.
  3. Food Security: involves technologies that improve the availability, distribution, access and affordability of nutritious food. Sustainable farming practices are especially relevant given climate change concerns and potential supply chain disruptions. 
  4. Future of Work: refers to the changes that are taking place in the world of work as a result of digitalization and other trends. It includes technologies that help workforces and workplaces prepare for these changes such as learning and on-the-job training and system and process automation. 
  5. Healthcare: technologies used to improve the provision of healthcare to patients

Digital Transformation

Future of Finance

Food Security

Future of Work

Healthcare

LETTER TO SHAREHOLDERS

The volatility felt in the public markets, rising inflation and higher interest rates that started in early 2022 has most certainly begun to impact venture capital. It is understood that private market valuations lag public markets, but to what extent. More recent research has shown a positive correlation between lagged public markets and the venture market by 9 to 18 months. As a result, it is no surprise then that valuations in venture capital have dropped sharply. Market data shows venture growth falling 62% year over year and early stage venture capital valuations falling 20% through to June, 2023

Some market commentators believe venture is bottoming out, and indeed the recovery of tech valuations in the public markets is a welcome reprieve. Top of mind however for early stage investors is still valuation, placing continued pressure on priced rounds and step-ups between early-stage financing. 

Our focus over this period has been to protect the valuation gains we have made over the life of the fund, some of which has been buoyed by the weakening of local currencies against the US dollar (more of this is discussed further below in the report).

During the year, we conducted a full end-to-end assessment of the business of our management firm. This has proved extremely helpful. Because we are a small team and there is overlap of certain functions, sometimes important aspects can be overlooked owing to competing time-sensitive matters. This assessment highlighted areas which need focused attention, and we have begun to put steps in place to ensure we meet our objectives. The operational activities we’ve identified cover nine distinct areas. 

Some of these that require dedicated resourcing, include: 

  • Telling our story better (media profiling) and raising awareness of our firm and investments. One of the ways we will do this is through Our Stories of Impact which will profile the impact our investments are making.
  • Back office technology tools that are system-integrated providing us with quick access to important data points for better decision making, and
  • Investor relations including communications, a central repository for investors and an always-be-raising campaign management strategy.

The above steps, and broader strategy, are important for us as we look beyond the next 5, 10 and 15 years. How we build now shapes the opportunities we will be able to invest in the future. I look forward to sharing more of our 2030 & Beyond strategy in our upcoming investor meeting.

During the year we also managed to conclude a BEE transaction for the fund manager, which has introduced black ownership at a fund manager level. We are pleased to be making progress in light of our transformation objectives.

Thank you for investing, and thank you for pioneering the future with us.

Yours in VC,

   

BUILDING A STRONG FOUNDATION FOR FUTURE YEARS

BY KINGSON/

An important area of focus over the last financial year has been to strengthen our back-office functionality and equip us with the appropriate tooling to operate across geographies and multiple time zones.

A core step to creating a successful remote-first working environment is to build a knowledge retrieval system instead of exclusively depending on knowledge transfers. Rather than one worker depending on accessing knowledge from a specific co-worker, all employees can tap into a trusted data system regardless of time, location, role, or peer availability.

To enable this, we have invested in our own systems and processes to deepen reliability and access to an enriched knowledge retrieval system. 

Altvia is our Customer Relationship Management software that covers the full lifecycle of fund raising, through to investment and management of portfolio assets as well as stakeholder communication and reporting. It provides for a single-entry point where any information can be retrieved across the various stages (Files Connect) and workflows across the business (Formstack). API integration allows us to connect data rich research (Preqin) into our system, communication is bifurcated through enhanced protocols, and we’re able to integrate with our cloud-based filing system (Google Drive) and instant messaging communications platform (Slack). Each of the technology tools that hosts or transmits data is secured via AES 256-bit encryption and TLS/SSL encryption protocols.

KINGSON INSIGHT

NXTGEN INVESTING

“We’re in the middle of a multi-trillion dollar transition of wealth between generations; 30% of Next Gens have already assumed control of their families’ operations – with another 27% expected to do so within the next decade.”

“Next Gens and family office VC activity are closely entwined. 39% of Next Gens take an active involvement in venture capital within their family office.”

“Globally, venture capital and digital assets are two of Next Gens favorite asset classes.”

– Campden Research, NA 2022 Report

KINGSON INSIGHT

WHAT IS WEB3?

“Web3 is the next generation of the internet. At its core, it promotes decentralized technologies and represents one of the biggest shifts in how we interact, share, consume, and create online.”

“Web3 allows individuals to have more control over their data and content.”

Web3 is known as the “read/write/own” version of the internet.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KINGSON INSIGHT

SME FINANCE GAP AND THE ROLE OF INCLUSIVE TECH

“Small and Medium Enterprises (SME’s) are critical to the global economy, providing 40-50% of global GDP and about 65% of global employment.”

“The SME Finance Gap, the difference between the financing needs of the SME and the actual credit available to them, has grown from $5,2 trillion to over $12 trillion.”

“Inclusive technology has the potential to close this data gap – it is not that there is not enough capital, rather it is that the supply of capital cannot find a home – and data helps connect the two.”

FUND I

FACT SHEET

Kingson began deploying funds late in Q3 of 2016. In total, 10 investments were made in the lifecycle of the fund covering the period September 2016 through to April 2018; the details of which are included below.

PERFORMANCE

%

IRR

The Internal Rate of Return (IRR) is an annualised rate of return for shareholders taking into account the time value of money.

TVPI

The multiple of 3,57 is indicative that the value created for shareholders is 3,57 times the capital contributed.

Total Value to Paid-In Capital (TVPI) represents the total value of distributed capital (from capital already returned to investors) plus residual value. The residual value is calculated as the sum of the unrealised value of the investments at the end of the reporting period. TVPI is a standard multiple used to measure the return multiple for investors. Kingson has applied consistent valuation techniques year-on-year, with valuation methodologies aligned to the International Private Equity and Venture Capital Valuation Guidelines (IPEV). Investment capital is not guaranteed and past performance is not indicative of future performance.

POSITIONS

Assets Acquired

Exits

Million in ZAR in assets under management

  • 10 ASSETS ACQUIRED
  • 4 EXITS
  • 176 MILLION ZAR

in assets uner management

CHANGES TO THE PORTFOLIO

There were no changes in the composition of the underlying portfolio assets during the year, except for the exit (wind down) of the business operations of one underperforming asset.

VALUATIONS

Percentage increase in the valuation per share in this financial year

Net asset value per share in ZAR

KINGSON/ FUND I

PERFORMANCE AND VALUATION OVERVIEW

The Fund’s performance can be summarised as follows:

TCC
Total Contributed Capital
ZAR
49,450,000
TVPI
Total Value to Paid-in Capital
Multiple
3,57
RVPI
Residual Value to Paid-in Capital
Multiple
3,57
DPI
Distributed to Paid-in Capital
Multiple
N/A
IRR
Internal Rate of Return (weighted avg)
%
26,7

The Total Contributed Capital (TCC) represents the total contributed funds by shareholders into Fund I, and each of the following multiples represent standard reporting metrics for a fund. In each case, the TCC is used as a denominator when calculating the multiple.

 

Total Value to Paid-In Capital (TVPI) represents the total value of distributed capital (from capital already returned to investors) plus residual value. The residual value is calculated as the sum of the unrealised value of the investments at the end of the reporting period. Since zero capital has so far been returned to shareholders, the TVPI and the Residual Value to Paid-In Capital (RVPI) are one and the same. The multiple of 3,57 is indicative that the value created for shareholders is 3,57 times the capital contributed.

 

The Internal Rate of Return (IRR) is an annualised rate of return for shareholders taking into account the time value of money. The current IRR of 26,7% surpasses the 20% internal hurdle rate by which we measure Fund I.

 

 

 

 

 

 

 

 

Kingson has applied consistent valuation techniques year-on-year, with valuation methodologies aligned to the International Private Equity and Venture Capital Valuation Guidelines (IPEV).

VALUATION OVERVIEW

Our portfolio was not immune to the impact of the global markets on venture capital. Higher interest rates and slowing revenue growth impacted all valuations with the only exceptions being Finfind and SMEasy. The valuation uptick on Finfind (based on the preceding valuation round) was all attributable to the natural forex hedge with its valuation denominated in USD. The effect of this is aptly captured in the graph below. 

The overall share price of Fund I has increased 8.6%, up to a total value of R38,566 per share. 

The granular detail reveals large variances within the portfolio:

  • BIC Solutions has had a very difficult year, with slowing revenue growth compounded by the loss of a big contract and not seeing the turnaround in certain loss-making entities as expected. The business is still profitable, but with profits going backwards, we were compelled to downgrade our valuation by 38%.
  • Colorgen has come through its toughest period yet, with numerous factors leading to a cash flow crunch. At the time of valuation, positive interventions were already bearing fruit, but we felt it was prudent to reduce the value by 28% (in line with how the company was tracking against budget). 
  • Trackvia has been battling for about two years, and its turnaround has been slower than expected. Based on current earnings forecasts, a substantial downward valuation was required again this year. 

GROWTH IN SHARE VALUE FOR FUND I

There has been a 21,6% CAGR (compounded annual growth rate) in net asset value per share since inception.

The FX Hedge indicates the effect of the natural forex hedge as a result of Finfind’s valuation denominated in USD. As much as 86% of the share price of R38,566, or R33,420, is valued on a USD basis.

KINGSON/ FUND I

SCHEDULE OF INVESTMENTS

FUND II

FACT SHEET

Kingson began deploying funds late in Q4 of 2019. Five of the investments related to the inaugural Silicon Valley immersion program held in 2020.

PERFORMANCE

%

IRR

The Internal Rate of Return (IRR) is an annualised rate of return for shareholders taking into account the time value of money.

TVPI

The multiple of 1,74 is indicative that the value created for shareholders is 1,74 times the capital contributed.

Total Value to Paid-In Capital (TVPI) represents the total value of distributed capital (from capital already returned to investors) plus residual value. The residual value is calculated as the sum of the unrealised value of the investments at the end of the reporting period. TVPI is a standard multiple used to measure the return multiple for investors. Kingson has applied consistent valuation techniques year-on-year, with valuation methodologies aligned to the International Private Equity and Venture Capital Valuation Guidelines (IPEV). Investment capital is not guaranteed and past performance is not indicative of future performance.

POSITIONS

Assets Acquired

Exits

Million in ZAR in assets under management

  • 9 ASSETS ACQUIRED
  • 7 EXITS
  • 34 MILLION ZAR

in assets uner management

CHANGES TO THE PORTFOLIO

There were no changes in the composition of the underlying portfolio assets during the year.

VALUATIONS

Percentage increase in the valuation per share in this financial year

Net asset value per share in ZAR

KINGSON/ FUND II

PERFORMANCE AND VALUATION OVERVIEW

The Fund’s performance can be summarised as follows:

TCC
Total Contributed Capital
ZAR
18,885,000
TVPI
Total Value to Paid-in Capital
Multiple
1,74
RVPI
Residual Value to Paid-in Capital
Multiple
1,74
DPI
Distributed to Paid-in Capital
Multiple
N/A
IRR
Internal Rate of Return (weighted avg)
%
19,9

The Total Contributed Capital (TCC) represents the total contributed funds by shareholders into Fund I, and each of the following multiples represent standard reporting metrics for a fund. In each case, the TCC is used as a denominator when calculating the multiple.

Total Value to Paid-In Capital (TVPI) represents the total value of distributed capital (from capital already returned to investors) plus residual value. The residual value is calculated as the sum of the unrealised value of the investments at the end of the reporting period. Since zero capital has so far been returned to shareholders, the TVPI and the Residual Value to Paid-In Capital (RVPI) are one and the same. The multiple of 1,74 is indicative that the value created for shareholders is 1,74 times the capital contributed.

The Internal Rate of Return (IRR) is an annualised rate of return for shareholders taking into account the time value of money. The current IRR of 19.9% does not surpasses the 20% internal hurdle rate by which we measure Fund II.

Kingson has applied consistent valuation techniques year-on-year, with valuation methodologies aligned to the International Private Equity and Venture Capital Valuation Guidelines (IPEV).

VALUATION OVERVIEW

Our portfolio was not immune to the impact of the global markets on venture capital. Higher interest rates and slowing revenue growth impacted all valuations with the only exception being Finfind. The valuation uptick on Finfind (based on the preceding valuation round) was all attributable to the natural forex hedge with its valuation denominated in USD. The effect of this is aptly captured in the graph below. 

The overall share price of Fund II has increased 7.8%, up to a total value of R1,623 per share. 

Other positions worth noting include:

  • Enlabeler’s valuation has been held consistent with the initial investment. Enlabler is currently on a fund-raising drive, seeking a higher valuation, but this will likely only reflect in the new period.
  • The loan receivable to Sortd was marked down to zero. The amount represented a commitment contribution pending finalisation of the due diligence process. Kingson elected not to continue with the deal, and allowed the deal to subsequently lapse. This was an out of the ordinary item that happened to coincide with events around the outbreak of the pandemic. This is considered a once off event.

GROWTH IN SHARE VALUE FOR FUND II

There has been a 16% CAGR (compounded annual growth rate) in net asset value per share since inception.

The FX Hedge indicates the effect of the natural forex hedge as a result of Finfind’s valuation denominated in USD. As much as 70% of the share price of R1,623, or R1,139, is valued on a USD basis.

KINGSON/ FUND II

SCHEDULE OF INVESTMENTS

KINGSON/

AUDIT REPORT AND SUMMARY OF AFS

A summary of the consolidated annual financial statements for the period ending 28 February 2023 are presented below.

Directors Responsibilities and Approval

The directors are required to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements.

The annual financial statements are prepared in accordance with the International Financial Reporting Standards for Small and Medium-sized Entities and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

Auditor’s Opinion

The audit was conducted in accordance with the International Standards of Auditing by Marwick and Company Inc. The Auditors responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of the report. A copy of the report is included in the consolidated annual financial statements and can be downloaded here.

ASSETS
NET EQUITY
INTERNAL RATE OF RETURN
FUND I
175,853
175,528
26,7%
FUND II
33,945
33,834
19,9%
TOTAL
209,798
209,362