Meet the Investor: Zachariah George, Cactus Advisors

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Zachariah George has had quite the life so far, from India to Wall Street via the Middle East. Now, he is focused on backing African tech startups.

George, who was born in India but grew up in the Middle East, spent seven years as an investment banker on Wall Street with Lehman Brothers and Barclays Capital.

In 2010, intrigued by the growth of venture capital in emerging markets, he came to Cape Town on holiday to watch the FIFA World Cup, and ended up staying permanently. He says the local tech scene is very exciting indeed.

“Cape Town especially has a unique mix of strong tech development talent, great design expertise, and powerful and well established digital media agencies, together with an increasing amount of risk capital flowing into the entrepreneurial sector,” George told Disrupt Africa.

He started his African adventure running the continental operations of global VC investment advisory firm U-Start, leaving that role in 2014.

“Although we did quite a few deals during that period, I came to realise that simply providing funding for early stage tech enterprises was not good enough,” George said.

“It could in fact hurt them more than helping them. What was required in a talented, growing emerging market like South Africa was the presence of proper mentorship, advice and business guidance to startups and SMEs around how to build products in a lean and agile fashion and understand their end markets and route to market.”

George launched Cactus Advisors, which he said was born out of a need to help startups and small business scale and grow, and at the same time educate large corporations on how to effectively engage with innovative, disruptive technologies coming from the startup world.

The company has advised executive teams at various corporations and institutions in Africa, including Old Mutual, ABSA, TIA, SEFA, Endeavor, Enablis and the Allan Gray Orbis Foundation, on investments and financial strategies in working with startups, but has also tried to have a direct impact on startups themselves.

“Cactus Advisors has individually helped several SMEs raise capital to scale and grow their business,” George said.

“However, the time and effort to do so is hugely sub-optimal from an effort versus impact and return perspective.”

Hence what he saw as a pressing need to lay the foundations for a venture accelerator programme where multiple SMEs and startups could benefit simultaneously from the the shared advice and support of numerous industry and subject matter experts.

In 2015, Cactus Advisors ran Tech Lab Africa, a venture accelerator programme based in Cape Town and backed by Barclays Africa. Ten ventures from across Africa in the fintech and e-health sectors completed the programme, subsequently raising more than US$10 million in funding collectively. It ran a similar programme for the Allan Gray Orbis Foundation last year. This has helped George make some investments of his own.

“Cactus uses some of its own capital to make angel investments in ventures that come out of these and similar accelerator programmes in Africa – putting its money where its mouth is by backing companies that have gone through a structured growth and scaling programme and whose likelihood of success are statistically far higher – on average – than those that don’t,” he said.

So far, the company has backed five startups: South African companies e-Factor and HouseME, Uganda’s Intelworld, as well as a Nigerian fintech startup and a South African travel company. And more could be on the way, after Cactus Advisors this year took on the role of co-managing Startupbootcamp Africa.

George said the new programme – Startupbootcamp’s first in Africa – is fully committed to furthering the cause of creating top-tier tech ventures from Africa in becoming iconic global companies of the future.

“We are backed by Old Mutual, RCS, BNP Paribas, Woolworths Financial Services, PwC and Nedbank,” he said.

When it comes to investing, Cactus Advisors uses its own balance sheet.

“We are not particularly fond of 12(j) type venture investment vehicles as they are highly restrictive of the type of investments funds can make – for example more than 80 per cent have to be South Africa-domiciled companies – and with tax savings as the key driver of investing into a 12(j) fund, we do not believe that serves the best interests of pure venture capital investing,” George said.

In fact, he prefers investing in South Africa-operational companies that have their incorporation and IP registered offshore. He also has a diversity of interests when it comes to startups.

“Fintech, insurtech, Internet of Things, Artificial Intelligence and Machine Learning, platforms and marketplaces. Agri-tech, healthtech, energy tend to be much longer cycles and are capital asset heavy – so we tend to stay away from them,” George said.

He said African startups typically lack B2B traction and commercial engagements with key stakeholders in industries like financial services and telecommunications that can provide access to market and distribution.

“African startups are also typically very immature when it comes to understanding the fundamentals of growth and scaling and parting with equity in exchange for sophisticated investors helping grow their business,” said George.

Though he believes startups do not get enough assistance from policymakers, he says locally the Western Cape and the City of Cape Town are leading efforts to change this.

“What is really needed nationally and at a local level are tax subsidies to encourage entrepreneurs to start their own businesses, as well as R&D funding to help cover the costs of setting up tech businesses,” George said.

Though investors in Africa are still generally focused on property, mining, retail and manufacturing, he says things are starting to change.

“We are seeing a steady increase in the venture capital space, which is always heartening for people like us!”

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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