CAPE TOWN — One could argue that contesting outrageously false claims made for obvious political gain is a waste of journalistic time. That’s a narrow and naïve view because it assumes that most South Africans have a similar perspective and can recognise bull-dust, even when it appears in a very large cloud. They can’t. It’s always been about hearts and minds – ask the Nats. I’d venture to suggest that a qualitative and quantitative poll across all income groups and political allegiances would probably show most voters accept Chief Whip Mthembu’s claim that the media failed to appear before the TRC. Here Ed Herbst contributes a telling counterfoil to Mthembu’s claim that in this ‘failure,’ they showed their readers and fellow citizens, ‘the middle finger,’ effectively telling them to ‘go to hell’. That’s recognisable emotive political rhetoric. The question is: recognised by whom? Belief systems inform all sorts of behaviour, not the least of which is an outright denial of truth. The additional value of Herbst’s piece is in a fairly dispassionate assessment of the contributions the media have made to democracy; now and in the past, and a comparison of its regulation and capture under first, the NP and then the ANC. – Chris Bateman

By Ed Herbst*

“Don’t buy City Press, don’t buy! – Jackson Mthembu  defending President Jacob Zuma outside the Goodman Gallery on 29/5/2012

Mthembu said the majority of South African media houses had refused to make submissions to the TRC and this refusal led to the “suspicion” and “mistrust” that existed between the media and those who fought for freedom.

“The media was complicit in the evils that took place in this country and like PW Botha‚ did not appear before the TRC. They showed the people of South Africa the middle finger and said go to hell.” – Jackson Mthembu. –  Times Live 4/8/2017

Julius Malema, for obvious reasons, has given the bibulous ANC chief whip and well-known freedom of expression proponent the nickname of ‘Jack Daniels’. So, when Jackson Mthembu claimed at the Daily Maverick debate in Cape Town last week that the media, with the exception of the Argus Group had, ‘like P W Botha’, not appeared before the TRC, I wondered whether he had been at the sauce again.

Contrary, to Mthembu’s assertion, the media did appear before and make submissions to the TRC and, much like a Cape Times front page lead about Helen Zille having employed a ‘spook with a grabber’, his assertion was devoid of truth.

Mthembu called during the Daily Maverick debate for the media to hold its own Truth and Reconciliation Commission and to apologise to the country for the role in played during the apartheid era. He seems unaware of the role that the Rand Daily Mail and the Sunday Express had played in bringing down the Vorster administration with their Info Scandal revelations.

He also implied that the media did not and is not fighting for freedom. He should have asked Joe Thloloe about that and, should he seek more information in that regard, he can talk to the bereaved kith and kin of Suna Venter – all part of the ANC’s ‘good story to tell.

Questioning whether the media had the ‘moral and political authority’ to regulate itself, he called for an independent authority which would ‘hold the media accountable’ and called on parliament, where the ANC has an overwhelming majority, to investigate and presumably implement a ‘media tribunal.’

Even if he wasn’t four sheets to the wind, talking about ‘moral authority’ is somewhat impertinent coming from someone whose employer was responsible for the Shell House and Marikana massacres, looting the country into junk status, snouting more than R4 billion in Arms Deal kickbacks because they did not ‘…join the Struggle to remain poor’, Nkandla and Guptagate, putting dozens of municipalities into business administration, paying a bribe to ensure that South Africa won the bid for the 2010 Fifa Soccer World Cup,  ignoring preventative maintenance for twenty years, more than 300 000 preventable HIV-Aids deaths, hundreds of depraved farm murders where neither children nor the frail elderly are spared, South African soldiers dying in the DRC to protect the mining interests of Zuma’s family members and cohorts, causing mines to close  and foreign manufacturers to flee, murdering dozens of its own in the internecine battle to access the slate and the trough, giving every possible support to Robert Mugabe and not only inviting Omar al Bashir to this country but assisting him to flee when arrest threatened, thereby justifying the international perception that we are a ‘Despot’s Democracy’.

Attacking the messenger was Mthembu’s best shot at diverting attention from the tightening Guptagate noose or, as Ranjeni Munusamy put it in the Sunday Times:

While the judicial commission into state capture remains on ice pending Zuma’s review application to overturn former Public Protector Thuli Madonsela’s report, Mthembu believes it is necessary for journalists to apologise for what our dead or aging colleagues did during the apartheid era.

Given the fact that the media did apologise to the TRC, I wondered – if Mthembu was not tippled – whether he was suffering from that pervasive ailment among National Party and ANC politicians known as ERA – ‘Expedient Retrospective Amnesia’.

Or, if he was not in the Grip of the Grape, whether his memory lapse could be attributed to the fact that many parliamentary advisers and his fellow ANC politicians were on lucrative ‘fact-finding’ trips abroad and there was nobody at home to brief him before his most recent public appearance.

Mthembu needs reminding that Johan Pretorius and Louis Raubenheimer, both senior news executives in the apartheid-era SABC, testified before the TRC on 15 September 1997 and  close to a hundred Naspers journalists signed a joint TRC declaration  apologising ‘ …for the role that Naspers journalists played in building and maintaining Apartheid hegemony.’ The Argus Group, as Mthembu acknowledges, also made a submission.

Witch-hunt

Subsequent to that, of course, the media was exposed to an ANC-approved witch-hunt in 2000 against the ‘racist media’. The avatar of this venomous but ultimately inconsequential South African Human Rights Commission campaign, driven by Barney Pityana and Christine Qunta, was a marabou stork and a crow perched on a refuse bin in Kampala, Uganda. When no evidence of racism in the media could be found they settled for ‘subliminal racism’.

The Nats went to exceptional lengths, particularly in terms of their State of Emergency laws, to hobble the press – Section 3(5)(a) of the Media Emergency Regulations, 1988 made it an offence to publish newspaper articles which had blacked-out sections or blank spaces which made censorship obvious.

Such measures are a lot more difficult to implement in a constitutional democracy which places a strong emphasis on media freedom and freedom of expression.  The current lobbying by the ANC for a Media Tribunal is, however, motivated by the same goal that the Nats had – to control or, better still, curb the flow of information which is detrimental to it.

To put lipstick on the apartheid pig, Eschel Rhoodie, with the help of John Vorster and Connie Mulder, diverted money from a secret SADF fund to establish one local newspaper, The Citizen.

Anything the Nats could do the ANC can do better and so R1.2 billion – and counting – was made available from the PIC account to give control of almost two dozen newspapers to Iqbal Survé who, like his staff,  is as enthusiastic about the ANC as Eschel Rhoodie was about the National Party.

Our history keeps repeating itself and, on top of that, tens of millions of rands, with ANC approval, was diverted from taxpayer-funded SOE’s like Eskom and the SABC to assist the Gupta’s media ventures.

Like the Nats before them, the ANC constantly threatens litigation against the media – as Zapolean did with Zapiro.

And, like the Nats before them, they have the same problem – a lack of credibility.

Controlling the media

One is puzzled by the ANC obsession with punishing or controlling the media because large and influential sections of the media with huge audience reach answer to the ANC anyway.

In the Mbeki era the SABC, under the aegis of ANC acolytes like Snuki (Zero-sum) Zikalala, Christine Qunta and Thami Mazwai, oversaw a system of pervasive censorship by omission and in the Zuma era, under the aegis of ANC acolytes like Faith Muthambi, Ellen Tshabalala, Hlaudi Motsoeneng and Jimi Matthews, the same oppressive situation has prevailed.

Atul Gupta controls news output at the New Age and ANN7 with an iron fist and much the same situation seems to prevail at Independent Media given the experience of Alide Dasnois and Wally Mbhele.

ANC acolytes

Another problem for Mthembu’s hoped-for media tribunal is that unlike the apartheid-era journalists who testified before the TRC, the current crop of ANC acolytes in the media seem somewhat more reticent about submitting themselves to cross-examination under oath or being questioned in public.

Not only did Snuki Zikalala decline to  appear at the court hearing brought by the FXI about to his blacklisting efforts he did not, as the judge remarked, even submit a written statement  in his defence – and his supporters like Qunta and Mazwai were also not in court to demonstrate solidarity.

Iqbal Survé also had the opportunity to testify in public and under oath in the Labour Court case brought against him in May last year by Alide Dasnois for his gentlemanly, chivalrous and decidedly unchauvinistic behaviour towards her. He exercised the Zikalala option and declined – just as he declined the opportunity offered to him to participate in the Daily Maverick media debate last week.

Joe Thloloe, veteran Struggle journalist and former ombudsman for the SA Press Council, led a panel discussion at The Gathering about the role of the media in contemporary South African society.

He has always countered the ANC’s obsession – like the Nats before them – with media control by his contention that self-regulation through the SA Press Council, is efficient and effective.

In this regard, he was distressed when first Atul Gupta and then Iqbal Survé removed their newspapers from a system which held them accountable.

Investigative journalism

There is, incidentally, an interesting contrast between the investigative journalism which characterised the Info Scandal and the investigative journalism which has prevailed in the current Guptagate scandal.

Former Naspers chairman, Ton Volsoo, says the Afrikaans press made a big mistake in leaving the investigation of the Info Scandal to English newspapers like the Rand Daily Mail under Allister Sparks who used his reporters Chris Day and Mervyn Rees to good effect.

Fast forward to 2015 -2016 and it is Afrikaans reporters like Pieter-Louis Myburgh and Stefaans Brummer of the amaBunghane Centre for Investigative Journalism who are leading the field in investigating the Guptagate scandal. This, while the biggest group of English newspapers, the Independent News Media company of Iqbal Survé, is making comparatively little, if any,  contribution of consequence in exposing this scandal.

There is, of course a big difference between the Rand Daily Mail then and Newspaper House (home in Cape Town’s CBD to the Cape Times and the Cape Argus) now.

While Allister Sparks took Day and Rees off the RDM daily news diary, gave them an unlimited budget and allowed them to focus exclusively on the big story of the day, a leading Newspaper House investigative reporter like Tony Weaver  suffered systematic persecution and public humiliation  – unprecedented in South African newspaper history – after the Sekunjalo takeover until he resigned. This was because he refused to adapt to or accommodate the Fake News value system and ethos adopted by the Cape Times and Cape Argus under the new Iqbal Survé-appointed editors. As a result, Indy reporters have not featured in the annual Taco Kuiper investigative journalism awards since the Sekunjalo takeover and the company has seen the exodus of more than a hundred of its senior news personnel in just three years.

UNISA academic, Dr Julie Reid, has argued eloquently that the world’s leading democracies favour media self-regulation. One can but hope that after a strong tincture or two (but not too many) and after reading the university’s 2011 submission to the Press Freedom Commission, Jackson Mthembu will come to similar insights and that he will help steer the Despot’s Democracy in that direction.

In closing: I was unable to attend the Daily Maverick function at the Cape Town International Convention Centre last week. A resident in the retirement home where I live did attend and she returned hugely enthused. She said the place was packed to the rafters – she estimates close on 2000 people – and said it was exciting to listen to political, business and media luminaries who she had only read about in the past. Jack Daniels, she said, did not acquit himself well as he evasively ducked, dived and obfuscated while answering the questions posed by Stephen Grootes.

• Ed Herbst is a retired veteran journalist who writes in his own capacity.

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By Lulu Yilun Chen

(Bloomberg) — Tencent Holdings Ltd. posted a quarterly profit that surpassed all estimates as its marquee title Honour of Kings drove a 54 percent surge in mobile gaming revenue.

China’s largest corporation reported a 70 percent surge in net income to a record 18.2 billion yuan ($2.7 billion) for the three months ended June, exceeding the 13.5 billion-yuan average of estimates compiled by Bloomberg. Sales rose 59 percent to 56.6 billion yuan, also topping projections.

Tencent’s market valuation is near record highs, fueled by expectations it’ll continue to tap the spending power of 200 million gamers on Honour of Kings and deliver more hits. The title’s popularity helped sales from smartphone play overtake desktops for the first time. The still-nascent advertising and finance business on instant messaging app WeChat has also boosted investors’ confidence it can compete with ad-leader Alibaba Group Holding Ltd. and sustain growth.

“Mobile games revenue grew fast, benefiting from titles like Honour of Kings,” said Li Yujie, an analyst with RHB Research Institute Sdn in Hong Kong. “Advertising business also topped our expectations and grew at a healthy speed.”

Shares of Tencent rose 1.4 percent Wednesday and have gained 70 percent this year, compared with an 80 percent rise for New York-listed Alibaba.

Read also: More woes for Naspers: Tencent accused of ‘harming kids in profit pursuit’

Revenue from Value Added Services, which includes online games and messaging, climbed 43 percent to 36.8 billion yuan. Online advertising sales rose 55 percent to 10.1 billion yuan. WeChat had 963 million monthly active users, up 19.5 percent from the previous year. But the mobile version of QQ, Tencent’s other mainstay social network, had 3.9 percent fewer users at the end of the quarter.

“Tencent’s existing games and pipeline continue to draw new gamers and revenue,” Morgan Stanley analysts led by Hong Kong-based Grace Chen wrote in a report ahead of the results release. They also foresee “strong growth potential in performance advertising and surging revenue growth in the payments business.”

Naspers is feeling the love, and the burden, of Tencent: Gadfly

By Shuli Ren

(Bloomberg Gadfly) — Naspers Ltd.’s conglomerate discount is widening. Its one-third stake in Tencent Holdings Ltd. alone is now worth 27 percent more than the South African internet company’s entire market cap.

After a 70 percent increase in its stock so far this year, Tencent is valued at a whopping 54 times earnings, almost twice the 30 times for Google’s owner, Alphabet Inc. Why don’t investors prefer Naspers? The Cape Town-based company is still trading at a more reasonable 36 times profit.

Much of Tencent’s gain has been driven by Chinese investors. Over the last month alone, mainlanders bought a net HK$6 billion ($767 million) or so of the shares through the Hong Kong Shanghai Stock Connect. Their stake in the Shenzhen-based company has risen to 1.3 percent, from just 0.8 percent five months ago.

One could argue that foreign investors are more skeptical, and expect Tencent’s shares to correct after its second-quarter earnings, due later Wednesday.

More likely, though, they suspect Naspers is a one-trick pony.

The South African company’s $32 million investment in Tencent, in 2001, was the deal of the century: That stake is now valued at $128 billion. But Naspers doesn’t have another genie in the bottle. Its biggest disposal was the $3.3 billion sale of a Poland-based online auction site, Allegro, last year. Naspers bought the company in 2008 for $1.6 billion, making the annual return a relatively unimpressive 10 percent.

Read also: One hit wonder? Naspers trades at 26% below Tencent’s market value

If we strip out Tencent’s numbers, Naspers has been bleeding cash in its core operations for two straight years. Unless it can show earnings from other holdings can outpace those from Tencent, investors may think it just got lucky.

Currently, there’s no way for Naspers to monetize its stake in the Chinese company except by selling it. Tencent hands out hardly any cash — its dividend payout ratio is only 12.4 percent.

So why doesn’t Naspers offload some of its Tencent shares?

Naspers is a hoarder, quite unlike a venture-capital fund that typically trades in and out of technology assets every five to seven years. Since 2005, the company has spent $8.2 billion buying stakes from Russia’s largest classified website to India’s most prominent e-commerce provider. But disposals have been few and far between: A total of $4.9 billion, of which $3.3 billion was Allegro.

Read also: Acquisition-hungry Naspers looks to bond issue as Tencent legacy looms large

Some would say it’s sensible to retain a strategic stake in one of the world’s seven biggest technology companies. Even from a high base, Tencent is expected to increase earnings by 27 percent annually over the next three to five years, according to data compiled by Bloomberg. Owning Tencent puts Naspers in the same league as SoftBank Group Corp., which has a broader base of technology investments.

Precisely because of this over-reliance on Tencent, Naspers needs to show it’s running on more than luck. Otherwise, that valuation discount won’t close.

• This column does not necessarily reflect the opinion of Bloomberg LP and its owners.  

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LONDON — Once upon a time, Allan Gray was South Africa’s most admired money manager. I’m not so sure anymore. It has been almost a decade since the late Simon Marais and his right hand Stephen Mildenhall left the ship. And the man after whom the firm is named departed years before that for Bermuda. Marais and Mildenhall understood that only in exceptional circumstances should a money manager interfere in the running of businesses. If they didn’t like what managers were doing, they voted with their feet by selling out. This humility is not shared by their successors. The firm’s public flip-flopping over Net1 smacked of playing to the gallery. Construction industry insiders are appalled at Allan Gray’s recent behaviour at Group Five. Now these worthies are agitating against Naspers, the most successful stock to ever grace South African portfolios. Allan Gray is stirring up a campaign against CEO Bob Van Dijk, claiming he is overpaid and has done little to earn his keep. They are dead wrong. It was Van Dijk who engineered the Naspers investment into Frankfurt listed Delivery Hero, generating a rapid fire R1.5bn profit for the group. He, too, is behind the hugely successful bet on India’s Flipkart. Also, Van Dijk, like his predecessor Koos Bekker, has steadfastly resisted continuous demands by money managers like Allan Gray for Naspers sell its TenCent holding to “unlock the discount”. Buckling to those short-term trading instincts would have been hugely wealth destructive for shareholders. In effect, Allan Gray’s response to all this is to encourage Bekker’s carefully selected successor to take his world class talents to where they are better appreciated. We suggest it would be much better for Allan Gray to stick inside its circle of competence and, especially, to look in its own back yard. We’re still awaiting a response to allegations of the firm’s massive profiteering through the “fee clustering” practices exposed by 10X’s founder Stephen Nathan. These claims have been studiously ignored in the apparent hope that the public will simply forget. Having known him well, I’m sure none of this would have happened under former chairman Simon Marais’s watch. – Alec Hogg

By Loni Prinsloo

(Bloomberg) – Naspers Ltd. shareholder Allan Gray Ltd. plans to vote against the remuneration policy of Africa’s biggest company because it isn’t aligned to the performance of the media and internet business outside a stake in Chinese giant Tencent Holdings Ltd.

Naspers paid Chief Executive Officer Bob van Dijk $2.2 million in the year through March, an increase of 32 percent, and awarded him $10.4 million in long-term share options. That corresponded with a period in which the Cape Town-based company reported a trading profit of $2.75 billion – or a loss of $379 million when Tencent is stripped out.

The pay plan “is not aligned with shareholders’ interests, the disclosure is poor, and the performance targets appear to be very easy to achieve,” Pieter Koornhof, investment analyst at Allan Gray, said in emailed comments. “On top of that, they are now also proposing to shorten the vesting periods for the long-term incentives.”

Allan Gray owns about 2.3 percent of Naspers stock. Its objections were first reported by Business Day newspaper. The Public Investment Corp., Africa’s largest money manager, is the largest shareholder with an 13 percent stake, according to data compiled by Bloomberg.

‘Fit For Purpose’

Naspers’s board believes its remuneration policy and practice are “fit for purpose and compare well to those of many of our global peers,” Van Dijk said in an emailed response to questions. “While we have increased our disclosure this year compared to previous years based on earlier shareholder feedback, there is always room for further improvement, which the remuneration committee will carefully consider before the publication of our next integrated report.”

Naspers hit the jackpot when a 2001 investment in then-unknown Tencent grew into a 33 percent stake in the WeChat creator worth about $131 billion. The stake is, however, now worth more than Naspers’s market capitalization, putting pressure on the company to get more out of a portfolio of other businesses that range from education software in the U.S. to pay-TV in sub-Saharan Africa.

Allan Gray, also based in Cape Town, is earning a reputation for agitating for change at South African listed companies after successfully pushing for a boardroom shake-up at engineering firm Group Five Ltd. The money manager has also spoken out against the running of welfare-payment provider Net1 UEPS Technologies Inc.

“Most of the executive remuneration is based on Naspers including Tencent and very little is based on the performance of the rump – i.e. Naspers excluding Tencent,” Koornhof said. “As a result you have a situation where the rump – which executives have control over – performs poorly, but executives continue to receive large payouts because Tencent – which executives don’t control – is performing well.”

Naspers shares rose 1.1 percent to R2,930 as of 9:14 a.m. in Johannesburg, valuing the company at R1.29 trillion ($100 billion). The stock is up 46 percent this year, the best performer on the FTSE/JSE Africa Top40 Index.

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JOHANNESBURG — It didn’t take long for analysts yesterday to deconstruct pro-Zuma supporter Mzwanele Manyi’s ‘purchase’ of ANN7 and The New Age from the Guptas. Manyi’s shelf company Lodidox ‘bought’ the two media agencies for R450m through vendor financing. Beyond the smoke and mirrors, it’s clear that Manyi’s company is just another front for the Guptas. It’s questionable as to whether the Guptas’ media businesses are even worth R450m, meaning Manyi may have inadvertently tied himself down to a dud for the next few years. But the vendor financing purchase is not the major news. More importantly, the Guptas will be seeking ways to continue doing business in SA without bank accounts. Now that Baroda has dumped them, it’s desperate times and desperate measures. – Gareth van Zyl

By Donwald Pressly*

21 August 2017 – There is nothing intrinsically wrong with a newspaper – or indeed, television station – being allied to a political party.

In the United Kingdom there is a very thin veneer of independence when it comes to its mainline newspapers. Some are pro-Conservative or Labour to the point of being hostile to the political groupings outside of their anointed favourites.

But we all know where the Daily Mail and the Telegraph stand. They pretty much follow the Tory line. The Guardian is broadly Left, and more or less supports Labour.

Here in South Africa we had Naspers in the apartheid days which only a few years before democracy opted not to support the National Party. Die Burger and its sister newspapers didn’t make any bones about their contempt for the United Party or the Progressive Federal Party – let alone the ANC, of course.

Now we have ANN7 and The New Age. They have been – and will continue to be – ANC supporting newspapers. Actually they are pretty forthright about it. ANN7 pretty much is a mouthpiece of President Jacob Zuma’s faction in the ANC. Everyone knows where they are coming from.

What is different about these two outlets in South Africa is that there is a tremendously strong line of evidence that they have been backed with public money – taxpayers money – through a variety of government/Gupta family deals. They include ‘legitimate’ advertising by parastatals and government departments and other agencies. The New Age breakfasts have proved that there is no free breakfast.

Mzwanele ‘Jimmy’ Manyi has taken over – or is about to take over – as bossman of both ANN7 and the New Age. He makes no bones about his support for Zuma and Nkosazana Dlamini-Zuma.

Both these outlets are skating on the edge of hate speech laws in South Africa, but their support for the ANC is, surely, legitimate until it is proved that public money is being misused to prop up these enterprises.

We must continue to ask serious questions about this, but they provide a window to the inner workings of the – admittedly now rather corrupted – ruling party.

Interviewed on ANN7 Manyi said the news teams would continue to reflect the views of the voiceless. “When you listen to ANN7 you will get a full picture of what is happening in South Africa. Quality news must come here. It must be credible, it must be real. It must be factual.”

The presenter on ANN7 described Manyi’s purchase of a majority share in ANN7 as an appropriate fourth “birthday present” for the station.

Former African National Congress MP Vytjie Mentor posted on Facebook yesterday that it appeared that the financing for the two news teams had been sourced from the Industrial Development Corporation. If this is so, it is deeply concerning, as this body is a government agency.

Readers and views should not avoid reading and viewing these propaganda teams. It will give them an insight into the thinking of the ruling faction in South Africa. Thank goodness we still have alternative information teams from independent newspapers groups like TMG and, ironically, Media24 (the old Naspers) as well as eNCA.

In a jaundiced sort of way, South Africa now has a spread of ideological news services from which to build a picture of what is really going on in the country, warts and all.

• Donwald Pressly is the editor of Cape Messenger.

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JOHANNESBURG — At a shareholders’ meeting on Friday, Naspers managed to beat off a bid to reject the company’s pay policy by securing 79% of a vote to approve the move. During the week, critics had hit out at the company for depending too much on Tencent’s performance when it comes to rewarding executive staff. Naspers owns 34% of Tencent and debate this year has been raging about alleged value destruction inside the Naspers group itself. Of course, profitability (or the lack thereof) doesn’t always tell the full picture of a business, especially an internet business that is pumping significant amounts of CapEx into various parts of its operation. As CEO Bob Van Dijk highlights below, the company is expecting those investments to start reaping rewards. Meanwhile, former Naspers CEO and current chair, Koos Bekker, also gave shareholders a timely reminder of how Naspers, by hanging onto its stake in Tencent, has made shareholders wealthier. – Gareth van Zyl

By Loni Prinsloo

(Bloomberg) — Naspers Ltd. Chief Executive Officer Bob Van Dijk said five years of heavy e-commerce investments are bearing fruit, which should prove to investors that the assets are worth more than they think.

Van Dijk is seeking to show shareholders that Africa’s largest company by market value has more to offer than just its well-timed investment in Chinese Internet giant Tencent Holdings Ltd. Cape Town-based Naspers has ridden the coattails of the WeChat creator to be the best performer on Johannesburg’s FTSE/JSE Africa Top 40 Index this year with a 50 percent rise.

The catch is that the market values the 33 percent stake in the Shenzhen-based company at almost $32 billion more than Naspers as a whole. Outflows of South African capital since late 2015 have contributed to the widening disparity, according to Van Dijk.

He said the value gap will start to close as Naspers’s classified-advertising division, which includes Russia’s Avito, turns profitable in the current fiscal year. The services unit of payment business PayU is close to breaking even, and Polish e-commerce platform eMAG is starting to benefit from a large customer base. The companies are part of Naspers’s e-commerce unit, which recorded a loss of $682 million for the 12 months that ended in March, leaving out interest, tax, depreciation and amortization.

“We are excited about a business like eMAG turning profitable,” Van Dijk said in an interview Friday. “That will be a catalyst to recognizing the value of our other assets.”

Read also: Mark Ingham: Tencent hits it out the park, but have doubts around Naspers

Naspers has for years scoured the world looking for another early-stage technology company that will eventually replicate the success of Tencent, in which it invested $32 million 16 years ago. The company has since put money into a wide range of assets, including Russia’s Mail.Ru Group Ltd. and Indian travel agency MakeMyTrip. It sold Polish online auction site Allegro for $3.25 billion last year.

Van Dijk’s main immediate priority will be on expanding Naspers’ companies to reach broader audiences and using technology to improve customers’ experience. “We have a big team that looks at using artificial intelligence in our classified platforms to eliminate spam ads, for instance,” said Van Dijk.

Earlier on Friday at the company’s annual meeting in Cape Town, Chairman Koos Bekker countered criticism Naspers relies too heavily on its $132 billion stake in Tencent. He reminded investors that they would have been a lot poorer if he’d given in to similar pressure to sell the holding years ago. The shares have risen more than sixfold in the past five years, closing Friday at HK$328.40, as Tencent’s services have become an integral part of Chinese life.

“Five years ago there was also a lot of unhappiness,” Bekker told shareholders. “If we had sold then, you would have gotten HK$45, now you get HK$325. We are not married to the share, but at this point in time it’s paying shareholders.”

Bekker said that the assumption that Tencent is making money and Naspers’s other ventures are loss-making was “illiterate,” since profitability doesn’t accurately capture the value of the businesses. He said the biggest internet companies grow faster in both China and the U.S. and that the argument for breaking up technology companies is flawed.

“Amazon, for instance, has made losses at times,” Bekker said. “The link between short-term profitability and value is simply not there.”

The debate over Naspers’s non-Tencent assets has spilled over into the discussion over the African company’s executive compensation. Allan Gray Ltd., holder of a 2.3 percent stake, said earlier this week that the remuneration paid to top executives including Van Dijk isn’t aligned to the performance of the underlying business, excluding Tencent.

The CEO was paid $2.2 million in the year through March, an increase of 32 percent, and awarded $10.4 million in long-term share options. In that time, Naspers made a trading loss of $379 million when Tencent’s contribution is stripped out.

Naspers’s executive pay policy was approved at the shareholder meeting with 79 percent of the vote. Certain investors, including Bekker, hold special shares that give them a majority vote.

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JOHANNESBURG — If you look at the Zuptoid-fawning editors and owner of Independent Newspapers, and the ANC’s own version of NP master propagandist and fake news generator, Eschel Rhoodie, (Jimmy Manyi), the alleged affairs of Cyril Ramaphosa quickly lose purchase. Manyi’s Gupta-gifted ANN7 was the only TV station present when Ramaphosa, in what many say was a tactical blunder, unsuccessfully tried to legally interdict the Sunday Independent from publicising his alleged philandering. Seated next to convicted criminal and wealthy fellow businessman, so-called ‘Sushi King’ Kenny Kunene was the newspaper’s editor, Steven Motale. Here, veteran journalist Ed Herbst does his coverage of the media war for the soul of the ANC proud, questioning just why the e-mail leaks went solo to the Sunday Independent. He joins several other respected analysts today in suggesting captured state intelligence services were behind the leak but that they miscalculated the amount of damage this would do – true or not. Ramaphosa admits to an affair eight years ago, but to no others. As Herbst illustrates, he’s in ‘solid’ political company. Africans don’t resign over mere sexual peccadillos. It’s ugly and sexist and patriarchal, but indigenous African norms are not those of the Western World. As the ANC leadership war hots up, so media colours are being nailed to the mast. For the likes of Independent’s Dr Iqbal Survé and Manyi it could be a long walk on a short plank. A Ramaphosa victory would quickly put their shaky funding and practices to the sword. – Chris Bateman

By Ed Herbst*

However, in August 2013 there was a major coup when Independent News and Media, the newspaper chain which Tony O’Reilly had run into the ground en route to his own bankruptcy, was bought by Sekunjalo. Sekunjalo was a conglomerate company run by Iqbal Survé, a somewhat overwrought but pro—ANC Indian. At a stroke this put all the main daily morning and evening newspapers in all of South Africa’s major cities into the ANC camp. – RW Johnson How long with South Africa Survive – The Looming Crisis (Jonathan Ball, 2015)

ANN7 is the only channel broadcasting court proceedings between Sunday Independent and DP Ramaphosa live. – Nzinga Qunta 2/9/2017

Two of the founding pillars of the factional African National Congress in its contemporary iteration are the slate and the trough. Success with the former guarantees access to the latter. Both are predicated on a sense of entitlement and a justifiable sense of impunity because no snouter is promptly investigated and tried unless, like Cynthia Maropeng they steal not from the fiscus but from the ANC itself. Ask Shaun Abrahams – he’ll tell you.

All the indications are that the ANC will be returned to power after the 2019 elections, albeit with a reduced majority – part of a downward trajectory caused, in the main, by the changing rural/urban and age dynamics as well as growing public distaste for the systemic corruption which now characterises the ANC. The latest IPSOS poll indicates that ANC support could drop to 47%.

Of more immediate concern is who will become the next president of the ANC in a few months’ time.

This will be determined by the slate and Moeletsi Mbeki, in a recent article in Die Burger, said that Cyril Ramaphosa, a Venda, does not have the level of support enjoyed by KZN’s Nkosazana Dlamini-Zuma. The deputy editor of the newspaper, Johan Maarman said those who were banking on a Ramaphosa victory would be as disappointed after December as David Cameron was after the Brexit referendum vote and Hillary Clinton on 8 November last year.

Iqbal Survé, the owner – thanks to the ANC-controlled PIC – of the largest group of English newspapers in the country, has moved swiftly to align himself with and ingratiate himself with the NDZ camp. A fortnight ago he hosted the launch of a book detailing the period when Nkosazana Dlamini-Zuma was chairperson of the African Union Commission.

Funded by the CIA

Speaking at the function, Survé lavished praise on her but also took the opportunity, as he so often does, to lash out at the Naspers company and to accuse the editor of the Sunday Times of being a ‘paid security spy’ – just as he accused the Mail & Guardian three years ago of being funded by the CIA.

The claim about the Sunday Times editor being a ‘paid security spy’ is interesting when one asks the question: Who supplied the editor of the Survé-owned Sunday Independent, Steven Motale with the hacked Cyril Ramaphosa emails which formed the basis of the sensational claims vilifying him on the  front page of the newspaper at the weekend and dominated the headlines of all the Sunday newspapers?

The next question is why the hacked emails weren’t also supplied to the TMG and Caxton newspapers.

Motale’s front page lead in yesterday’s Sunday Independent met every element of the newspaper definition of a scoop. So why him and why the Sunday Independent when the impact would have been far broader had the hacked emails been leaked to all the major newspapers in the country?  Would it not boil down to a question of trust?

Another interesting factor is how Motale came to be the editor of the Sunday Independent in the first place.

Motale was dismissed as editor of the Citizen after tensions arose between him and management about political articles which were appearing in the newspaper. According to R2K these articles were about investigations into corruption allegations against former finance minister Trevor Manuel, as well as reports critical of finance minister Pravin Gordhan and ANC chief whip Jackson Mthembu. Note that all of these people had expressed concerns about the Zuptoid regime corruption. A year prior to this, Motale had written an article apologising for media criticism of President Jacob Zuma. In short, he is an unabashed supporter of Zuma and presumably also supports the aspirations of Zuma’s ex-wife to be the next president of the country.

The Labour Court then set aside his dismissal but he remained on suspension and still faced disciplinary charges. It was clear that there was an irretrievable breakdown in trust between Motale and the management of the Caxton Group.

So how did Motale become editor of the Sunday Independent?

For that to happen, the incumbent had to be dismissed.

The incumbent was Wally Mbhele who had displayed a disturbing tendency to play with a straight bat.

On 14 May this year the Sunday Times revealed that Mbhele had been dismissed, not for writing but for publishing an article which accurately outlined how the ANC had gerrymandered the parliamentary appointment of that great Zuptoid benefactor, Brian Molefe. Iqbal Survé, according to the Sunday Times report, demanded that Mbhele publicly apologise to Molefe. When he refused to do that, his career as editor of Sunday Independent was over, thus paving the way for the appointment of Zuma acolyte, Steven Motale and the publishing of an article which will enhance the NDZ campaign and detrimentally affect the chances of a Ramaphosa appointment. Survé’s complaint to the SA Press Council about the Sunday Times’ Mbhele article was dismissed. This complaint, in itself, was ironic given that Survé had followed the example of the Guptas and withdrawn his newspapers from Press Council oversight and adjudication  at a time when the Council had received 78 complaints about the  ethically dubious articles routinely published in his newspapers.

The dismissal of Wally Mbhele had about as much in common with ethical news reporting as the dismissal of Alide Dasnois for producing with limited resources and under demanding deadline pressure, an obituary tribute to Nelson Mandela which Time magazine rated as among the top 15 in the world.

(Ramaphosa, it should be noted, has been outspoken in his condemnation of Gupta-linked corruption and, by implication, the Zuma role in this corruption.)

In short, are you surprised that the hacked Ramaphosa emails were leaked only to an editor who is a Zuma imbongi and to a newspaper owned by someone with strong ANC antecedents who has very publicly thrown his weight behind the NDZ presidential campaign?

Leak wars

In an article, ‘The leak wars’ I quoted Mizilikazi wa Africa about how he would arrive at work and find Tony Yengeni’s bank statements lying on his desk.

That article was about a South African media tragedy – about how the Sunday Times believed and acted upon leaked falsehoods about SARS and the so- called ‘Rogue Unit’ which ran a brothel and the so-called SAPS ‘Cato Manor taxi hit squad’. When these malevolent leaks were subsequently proved to be politically motivated and devoid of truth, the incumbent editor Phylicia Oppelt was moved sideways and the newspaper apologised.

The big question is who hacked into the Ramaphosa emails and why were they leaked only to Steven Motale?

Dear Cyril Ramaphosa

What were you thinking going into bed with Jacob Zuma in the first place? He was always going to eat you alive.

— Palesa Morudu (@palesa_morudu) September 3, 2017

Ramaphosa says such ‘targeted attacks’ are typical of the sordid Zupta-controlled security police and mirror the stratcom techniques of the apartheid era security forces.

We now need to confront the likelihood that state agencies and resources are being abused to promote factional political agendas. We also need to confront the reality that those behind these agendas will go to any length to protect themselves and their interests.

“We need to ask who these people are, and on whose behalf they act, Ramaphosa said.

ANC secretary-general Gwede Mantashe echoed Ramaphosa’s sentiments:

The Sunday Independent’s exposé smacked of the Ben Schoeman era and how smear campaigns played out during the apartheid era.

The anti-Ramaphosa leak to the Sunday Independent has echoes of the ANC’s catastrophically inept dirty tricks ‘war room’ endeavour before last year’s municipal election.

As the ANC avidly strives to emulate the nefarious activities of its predecessor, I am reminded of the way in which the apartheid-era security police leaked the details of Alan Boesak’s affair with Di Scott to the media.

The difference was that details of the Boesak/Scott trysts were leaked to all the major newspapers whereas now only the Sunday Independent received Ramaphosa’s hacked emails. Could this be because both Steven Motale and Iqbal Survé have publicly indicated their support for the Zuma faction of the ANC?

Cyril Ramaphosa's quiet financial support for 54 young students twisted into sexual fantasy by Zuptoids. Will these cretins stop at nothing? pic.twitter.com/uKVUtqPAcu

— Alec Hogg (@alechogg) September 2, 2017

Another thought. When Allister Sparks was editor of the Rand Daily Mail and the newspaper was investigating the Info Scandal, he left the reporting to Chris Day and Mervyn Rees yet all the evidence in the MacBuffalogate saga is that Steven Motale drove the process himself …

At the time that the news broke both Zuma and Survé were in China.

Nothing changes as the ANC, once again, proves the veracity of R W Johnson’ assertion – it never held the moral high ground in the first place.

In this regard, Paul Trewhela raises cogent concerns.

It is a sad reflection on the state of the nation after two decades of ANC corruption, mismanagement and incompetence, that one of the touted selling points of Ramaphosa as a presidential candidate is that ‘He has got so much money he doesn’t have to steal.’

If Ramaphosa is a womaniser, he is hardly alone in senior ANC ranks – ask C.l.i.t, another presidential hopeful, he’ll tell you.

In fact, they’re constantly at it in the ANC – ask Malusi Gigaba and Razzmataz

Or ask Vytjie Mentor about the ‘flesh torpedo’.

Or Irvin Khoza about how he became a grandfather.

That’s not the point – having been reduced to junk status by the Zuptoids, we want someone who can help us avoid a grovelling approach to the IMF for a bailout.

Max du Preez wrote a prescient article two weeks before Steven Motale hit the headlines with his exclusive.

To be frank, NDZ is in the heart of the corrupt Zuma-Gupta nest and beholden to them, and is being promoted actively by the Gupta propaganda machinery.

The question that the Du Preez article raises is:

How do you define ‘Gupta propaganda machinery’?

What Steven Motale’s front page lead in one of Iqbal Survé’s newspapers reveals is that the ANC’s ‘good story to tell’, dirty tricks leak war is gaining momentum although political analysts feel that it’s impact on the allegedly tumescent Macbuffalo will not be significant.

Paul Trewhela raises cogent constitutional concerns in this regard.

Just how dirty that war already is becomes evident in Mark Shaw’s recently-published book and in the evidence being presented to the Moerane Commission, evidence which does not implicate the Democratic Alliance or other opposition parties.

• Ed Herbst is a retired veteran journalist who writes in his own capacity.

Ramaphosa targeted as South Africa’s succession race turns ugly

By Mike Cohen

(Bloomberg) — The race to lead South Africa’s ruling party is turning increasingly nasty.

Allegations that Deputy President Cyril Ramaphosa, a front-runner for the post, had extra-marital affairs with at least eight women and paid expenses for some of them were splashed across the front page of the Sunday Independent, which cited Ramaphosa’s private emails to back up the story. It didn’t say how it obtained them. Ramaphosa called the report part of a covert operation to halt his drive to root out corruption in the ruling African National Congress.

“We already had a somewhat toxic political environment in South Africa and it’s just got a bit more ugly,” Daniel Silke, director of Political Futures Consultancy in Cape Town, said by phone. “Extra-marital affairs have not had any dramatic effect on leaders’ political fortunes. For those who wish to damage the Ramaphosa campaign, I would say they would need to try a little bit harder.”

The controversy comes less than four months before the ANC is due to elect a new leader, who’ll also be its presidential candidate in 2019 elections. Ramaphosa’s main rival is Nkosazana Dlamini-Zuma, 68, the former chairwoman of the African Union Commission and President Jacob Zuma’s ex-wife. The contest, which analysts say is too close to call, has exposed deep divisions within the 105-year-old ANC, which has dominated South African politics since white-minority rule ended in 1994.

Emails Hacked

Ramaphosa filed an unsuccessful lawsuit Saturday to stop the newspaper from publishing the revelations. While he admitted to an affair eight years ago, he denied having other extra-marital relations in an interview with the Johannesburg-based Sunday Times newspaper and said his emails had been hacked and altered, possibly by members of the intelligence services.

“This latest episode extends far beyond an attempt at political smear,” Ramaphosa said in a statement Saturday. “It represents an escalation of a dirty war against those who are working to restore the values, principles and integrity of the ANC and society. It is evident that there is a well-resourced, coordinated covert operation underway to prevent those responsible for wrongdoing from being held to account.”

Outrageous smears on #Ramaphosa circulating on social media. Dirty stuff. Nkosazana #Zuma camp seemingly getting very desperate

— Barney Mthombothi (@mthombothi) September 2, 2017

Ramaphosa warned that state intelligence agencies and resources may be being used to fight factional political battles.

Read more about the contenders for the ANC leadership here.

A lawyer who co-founded the National Union of Mineworkers, Ramaphosa, 64, helped negotiate a peaceful end to apartheid and draft South Africa’s first democratic constitution. He lost out to Thabo Mbeki in the contest to succeed Nelson Mandela as president in 1999 and went into business, amassing a fortune before returning to full-time politics in 2012 as the ANC’s deputy leader.

Zuma Scandals

Zuma, 75, who’s been implicated in several graft scandals since he took office in 2009, has indicated that he wants his ex-wife to succeed him. Ramaphosa criticized his boss’s March 31 decision to fire the respected Pravin Gordhan as his finance minister — a move that prompted two ratings companies to downgrade the nation’s foreign-currency debt to junk — saying he and other ANC leaders weren’t consulted.

On the campaign trail, Ramaphosa has spoken out against graft and called for a prompt investigation into allegations that members of the wealthy Gupta family, who are in business with Zuma’s son, looted billions of rands from the state. Zuma and the Guptas deny wrongdoing.

#Ramaphosa The last time a deputy president was victimised using state resources, with a rape case and 783 charges, he became President.

— Shevolution (@BuhleTonise) September 3, 2017

Zuma is attending a summit in China and his spokesman Bongani Ngqulunga didn’t answer a call to his mobile phone. The president, a Zulu traditionalist who has four wives and at least 20 children, has publicly admitted to having two extra-marital affairs.

Ramaphosa’s admission that he had an affair eight years ago will probably help deflect further personal attacks, which are likely to be forthcoming, said Theo Venter, a political analyst at North-West University’s business school in Potchefstroom, west of Johannesburg.

“The intensity of political noise will increase now that we are closing in on the final lap of the ANC leadership race,” Venter said. “The allegation with regards to Cyril Ramaphosa’s extra-marital affairs will not have a lasting effect.”

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JOHANNESBURG — News about Liberty-owned Stanlib looking to close down some of its equity funds will probably spark further debate about the relevance of money managers. Already, the likes of more passive investing tools like ETFs and players such as 10X have started to disrupt the investment world in South Africa, casting a spotlight on fees and performance. Over a decade, the Stanlib SA Equity Fund is ranked 54th out of 60. The company, though, is hoping that a focus on performance rather than fees as well as a rationalisation will help its prospects. – Gareth van Zyl

By Renee Bonorchis

(Bloomberg) — Stanlib, the South African money manager owned by Liberty Holdings, plans to close down some of its 19 equity funds to boost returns as part of a restructuring.

“We’re going to rationalize the product suite and are assessing which equity funds still have demand and relevance,” Herman van Velze, Johannesburg-based Stanlib’s head of equities, said on Monday. Some funds will close early 2018 and the range of mandates will be narrowed without any job losses, he said.

The fund closures follow an organizational revamp that started at the end of last year, which split the investment team into three franchises, consisting of absolute returns, equities and multi-assets, van Velze said. It also changed incentive structures to resemble those of boutique firms, which typically pay managers based on returns rather than just fees. The adjustments have resulted in an improved performance over the past three months, he said.

Liberty Chief Executive Officer David Munro has sought to stem sliding profit at the Johannesburg-based insurer since taking the helm at the end of May after the abrupt departure of Thabo Dloti. Munro has said his team is working with the leadership of Stanlib, which oversees 593 billion rand ($46 billion) in assets, to try and improve the performance of equity portfolio managers at South Africa’s sixth-largest money manager.

Liberty said in August that Stanlib’s South African earnings dropped 54 percent to 115 million rand in the first half as margins came under pressure, mainly because of weaker investment markets. The unit also took write downs related to the termination of an administration program it had outsourced and the start of new franchise businesses.

Betting on Naspers

One of its flagships, the Stanlib SA Equity Fund is ranked 155th out of 164 funds over 1 year and 54th out of 60 over a decade. The 1.9-billion rand fund, managed by van Velze, Theo Botha and Ndina Rabali, declined an annualized 3.4 percent over the 12 months to July, compared with the 4.7 percent increase in its benchmark, the FTSE/JSE Africa Shareholders Weighted All Share Index.

Stanlib is betting on media and technology company Naspers Ltd. to improve returns that have consistently underperformed peers and benchmarks.

The 165-member FTSE/JSE Africa All Share Index has climbed 11 percent this year, driven by Naspers, which has surged 43 percent. The Cape Town-based company’s $132 billion stake in Chinese media company Tencent Holdings Ltd. has helped the stock price increase six-fold over the past five years. Naspers makes up 10 percent of the Stanlib Multi-Manager All Stars Equity Fund of Funds, the only portfolio to have beaten its benchmark consistently.

“We were very underweight on Naspers, but it’s now 20 percent of the South African equity fund,” van Velze said. “We think Stanlib can pick up on the market’s momentum and is reasonably well positioned,” he said. Naspers has slumped 4 percent since reaching a record high on Aug. 24.

More Changes

While Stanlib’s equity funds are struggling, its bond funds are doing better, with the 24 billion-rand Stanlib Income Fund having beaten its benchmark since its inception in April 1987.

Munro, who became the third investment banker from Standard Bank Group Ltd. to take the top post at the insurer, said last month that some errors had been made at Stanlib. Standard Bank, Africa’s largest lender by assets, owns 54 percent of Liberty. Liberty has declined more than 6 percent this year, the biggest drop on the five-member FTSE/JSE Africa Life Assurance Index after MMI Holdings Ltd.

“Liberty and Standard Bank agree that the performance of Stanlib needs to be improved from both a profitability and a fund performance perspective,” said Warwick Bam, an analyst at Avior Capital Markets. “The issues with Stanlib are a combination of investment performance and operational inefficiencies. Our view is that additional changes will be made to Stanlib.”

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LONDON — In a relatively short time, Knife Capital has established a reputation as one of South Africa’s most astute early stage venture capital investors, having shepherded a number of tech startups to sales into multinationals. The firm’s roots go back to unearthing opportunities for the family wealth offices of super entrepreneurs Mark Shuttleworth (Thawte) and Hasso Plattner (SAP). While telling his firm’s story, co-founder Keet van Zyl unpacks the attractions of South Africa’s tax incentivised J12 venture capital scheme, shares some secrets of Knife’s success and explains what entrepreneurial traits attract investors. – Alec Hogg

This special podcast is brought to you by Knife Capital whose co-founder, Keet van Zyl, is with us on the line from CT. That’s an interesting name for a company, where did it come from?

Well, the real story is we had an article coming out in a publication and we were under pressure for a name and we couldn’t come up with one. Most of the ideas were boring and not really screaming our company culture – anything around “grow” or going into that trajectory, or whatever. Anyway, we went to lunch at a restaurant, ordered some crisp Sauvignon Blanc on a summer’s afternoon and said we were not leaving the restaurant until we’ve got a name. That restaurant was Knife Restaurant in Century City.

After how many bottles of wine did you decide that on the restaurant’s name…

It was a few and it was deep into the night. I think Andrea stood up and said, “Man, what is Apple? What is a brand? The brand will be what we make the brand to be in time. Essentially, we can call ourselves Fork, or Knife, whatever.” We were like, hey, Knife – it’s sharp, it’s edgy, it’s us. I did regret it for the first year. But then no one forgets it and now we’re embracing it.

The story about how Knife Capital started was basically, the two initial co-founders, Eben van Heerden and myself, started working together at Mark Shuttleworth’s venture capital fund called Here Be Dragons (HBD) in 2006/2007. So, it’s been a good 10 years of working together now and counting. Essentially, we spun Knife Capital out of HBD. We started in June/July 2010, in the middle of the soccer World Cup. Basically, we just changed our salary slips over for management fees and Mark Shuttleworth being quite an entrepreneurial guy appreciate our chutzpah and said, ‘yes.’ So, we’re still working with HBD portfolio companies.

Andrea joined us about a year later to add a little bit of flair to the emancipated accountants that we are and bring a bit of strategy and marketing skills to the table. She started Hasso Plattner Ventures in South Africa, (he is the founder of SAP) and invested that fund. So, for a while we were competitors in the SA market and then we decided to collaborate.

Those are two very big names, Mark Shuttleworth and Hasso Plattner.

Yes, I think if you really unpack the venture space or the risk investment venture capital space, or however you want to define it because it is a matter of definition in SA. It is really built on some high net worth individuals with entrepreneurial culture, the route that Shuttleworth, Anton Rupert, Patrice Motsepe, Jannie Mouton and more recently Michael Jordaan and a couple of other people went. If it wasn’t for them there would really be very little big-ticket risk capital going into early stage investments.

So, yes, we cut our teeth in the so-called family offices of high net worth individuals who gathered their wealth in various ways and then give back by being interested in the entrepreneurial space and understanding the importance of the link between job creation, technology, innovation, and a country’s success.

What part of the entrepreneurial chain do you focus on?

We are in the intersection between later stage venture capital and early stage private equity. It basically just means that we need a bit of more traction than just an idea phase. We always explain to the entrepreneurs that it’s innovation driven so, there needs to be some element of scalability, and innovation, or intellectual property, or some barrier to entry if someone else also thought of that idea last night and is working on it. What kind of protection is there, and secondly, what kind of traction is there? Traction is this momentum.How much traction is always the question? But we generally say, post-revenue. The company needs to at least bring us one client, which is not their mother that bought the minimum viable product.

And the sectors that you focus on?

It is technology but technology these days is very broadly defined. I don’t think there are many sectors which are not touched by technology. In a typical sort of venture capital fashion, we look at some of the sectors which are more prevalent in this space. The Internet of Things, when it comes to software as a service. We’ve had some very good successes with Radar but I think that was more just the way the cookie crumbled. Looking at Fintech (financial technology), telecoms, cleantech and health and those types of things. It has to have some element of innovation and that leans itself to technology.

The reason for that is if you invest a smaller ticket size – we invest up to $5m per investment – and generally, that is still quite small. You can’t really drill a hole in the ground or build a manufacturing facility or do property development with that. But if you put that kind of money behind a technology venture you can actually scale it quite far, internationally.

You’ve had some very big successes. Was that just luck?

I would never discount the role of luck but yes, there was definitely some design in it. We’ve had some good success stories. I think our first big success story was we did a predictive analytics company, Pretoria based guys were called CSense and that we exited to General Electric, which was quite a big win. Then still one of our favourite and one of SA’s recent technology Fintech’s success stories – a mobile financial services company called Fundamo, which we exited to Visa. That was a $110m exit. We had about a 27% stake in the end in our HBD Fund. That is sort of premise of venture capital. You need one or two of those big success stories to make the whole fund pay itself back and then there’s still a few other success stories to come. Some of the other companies we exited via management buy-outs. Then we also have an acceleration program, which about 2 years ago, we had a Radar and computer vision company called iKubu where we assisted the exit to Garmin.

So, yes, I think those things help. Most of the exits or the buy-backs or the success stories are not necessarily that NASDAQ-listed big ticket things that happen, but it does help for credibility and experience. Every time you go through one of these exits you have a few more battle scars and the next time you face some Swiss IP lawyer sitting in front of you, you definitely wish you had some clauses in your contract, which next time is definitely going to be there.

Keet, what do you look for though, given that you’ve had these successes. I remember the Naspers story with Tencent, was they just threw mud at the wall and hoped some of it stuck and my goodness, one piece stuck very well. What kind of approach do you take?

I think we take a more pragmatic approach. It’s definitely not, and that’s the sort of difference, I guess, between building sustainable businesses and backing entrepreneurs who would probably most likely succeed anyway. Versus 1 out of 10 will succeed, and the rest you’ll write-off. It’s not the Silicon Valley model of Moneyball, one-to-many model. It’s more really looking at some entrepreneurs, looking at the culture, looking at the scalabilities, some traction, which de-risks it in some way. Then we really look and ask ourselves some deep questions about what value can we add above money? So, if we can add some quick wins, can really act as a partner? These are all things that any investor would tell a company on what they’re going to bring to the table. But what we do know is the only way to win the entrepreneur’s respect is to bring a client or two. So we aim to do that within the first 12 – 18 months, to really bring some big clients to the table. Then we act as a co-partner.

So, from the Shuttleworth and the Plattner days, with the three of you, you did a deal with African Dawn. What was behind that?

We exited those companies and with the management contract of HBD and under the arm and some big exits we thought well, let’s go and look at the institutional space in SA and any other developed country where VC and growth equity is prevalent – the pension funds, life companies, the asset managers – they have some portion of their allocations towards alternative assets of which this venture gameplays a part in. So, we approached those companies and most of them – and I can understand why, in retrospect but the naivity of youth – said ‘look, this doesn’t really move the needle even if you guys succeed, it doesn’t really help us. We have to have a seat on the Investment Committee. It’s just a lot of trouble and this risk and we believe one in ten will succeed so, we don’t understand the model. One asset manager famously told us that during this meeting I lost or made, and I don’t really know which one it is, your whole fund on the share price of one of my listed companies, in which I’m invested in. So, I don’t care.

So, we basically thought, okay one of the other ways to take that mandate fit out of the equation is to be listed so, we took a lot of advice on being listed. We tried that or we looked it and it was quite expensive. Then on paper thought well, one of the other ways to do it is to do a reverse listing. So, at the time, African Dawn came from an interesting history and they acquired Knife Capital to capacitate the group to help them execute their new vision at that time of investing in innovative entrepreneurial companies. I think there are some reasons why those synergies didn’t really materialise. It was quite a long road to do so and, in the end, we decided to rather do a management buy-back and recently, actually bought ourselves back out of African Dawn. But there are still some ventures we collaborate on.

So, it was a couple of years almost, of pedestrian growth within the business, as you were trying to settle in to African Dawn. Now though, you feel that you’re ready to start taking off again?

Look, we’ve got quite an entrepreneurial spirit so, it wasn’t necessarily pedestrian. We did one or two interesting things with the African Dawn team. And one of the things we also launched last year was a SARS Section 12J venture capital company, which basically is a tax break vehicle where investors in that fund can write-off that whole investment to their taxable income. So we did raise money in an indirect way. We really are very proud of the investors we have in that fund and the minimum investment in our specific 12J is R1m. Some of these entrepreneurs that we helped with their success stories and exits, have backed us, and put that money back into the fund. About 80% of our investors, which is only between 25 – 30 are entrepreneurs that have exited their SA businesses. So we’ve got a very entrepreneurial investor base and we’ve done one or two investments. We’ve done a few exits during that Afdawn period. But yes, our tails are up. We’ve really got some interesting expansion opportunities at the moment at our feet. It’s a good space to be!

That really brings us to the next part of the story, the one that you announced this week. You’ve now moved into the UK, opened a London office, and done a deal with Draper Gain, also through one of your partners, Bob Skinstad, (most people know him from his rugby prowess) but he’s also an entrepreneur and an angel investor. What got you thinking on the globalisation story?

Our 12J fund is called KNF Ventures, which is obviously linked to Knife. But we retrofitted that to our mantra of combining Knowledge; Networks; Funding. We’ve always said that the three things that any high growth business needs to succeed are firstly the knowledge. The entrepreneur needs to be awesome at his or her craft and we need to be very good at what we do, in terms of business building. Then: Networks, at the end of the day, you need a client, or a connection, or the right staff member. If someone can bring those networks together and put the so-called players in the right positions – that is a hell of a skill. Then there’s the funding.

So on the network side, Bob really helped us to launch the 12J company and got involved there as an investor and equity partner but through that all, he started heading up the business development functions for Draper Gain, a UK based family office. He moved his family over there last year and one or two of the bigger deals that they were starting to look at, they needed our skillset and we helped them just doing due diligences and looking at it more closely. That relationship developed to us saying, hang on, why don’t we fully embrace this, this team that comes out of a history of family office management. Establish that on a more permanent basis, become equity partners and with a big investment commitment. We then established a Knife Capital London office, which gives us an interesting value proposition.

Most SA entrepreneurs with scalable businesses want to scale that internationally. I mean, it’s not to say they all need to scale into London – most of our other businesses have scaled into the US or into the emerging market, Latin America, Pakistan, and so forth. But it does create an interesting platform for networks, funding, resources, and so forth at least in a First World Country. Then the flip side is also true. We find ourselves in pitches or in boardrooms on the London side, a lot of the scale ups or the growth companies – they are quite interested because of our other office in Cape Town.

This is a perfect beachhead market to test product to go into because of one of SA’s unique differentiators. We’ve got this unfortunate and fortunate disparity, between First World and Third World, but it does create in a weird way a perfect test market. So, people who want to expand their businesses, test it over here and we use it, as a back door for growth into emerging markets from that side. Our investment mandate has expanded now, where we don’t only invest in SA businesses but also in global businesses that want to expand this way.

Keet, it’s quite interesting when you have a look at what you do and the success of similar types of skillsets from South Africa in Silicon Valley. You obviously know the people better than I do, but top of the head Elon Musk, Roelof Botha, there are many more in that ilk who are just below the radar. Did you ever think about doing what you’re doing in Silicon Valley rather than Cape Town?

Never say never but it’s definitely not necessary to have a nice office in every tech hub in the world. Luckily, one or two things that those ex SA’s in those spaces have in common is they generally like rugby or they get homesick enough to follow that so, it’s quite interesting the actual networks that a guy like Bob has access to. We spend enough time there. Some of our companies have expanded into the US, and we help them. I think from that perspective it’s more the network element and co-investment opportunities and learning from what’s going on in those markets because it still obviously, at the forefront of technology innovation. It’s more learning, copying, taking it all in, and where we can, work together. But I don’t think, at this stage, looking at establishing on the other end of the world, which is not in the same time zone, which is not a quick flight away. Our business is actually still fairly small.

But to reverse that. You’ve got those skillsets sitting in Cape Town as well. Many of the people who’ve done well in Silicon Valley, come from the same universities, from the same backgrounds. As presumably, some of the guys you invest in.

Yes, I think that is, if you look at the similarities between the regions. If you always look at SA, or especially a hub like CT, and Jo’burg is also becoming a formidable tech hub and so is Durban. If you look at the cross-section between lifestyle, advertising agencies, creative souls, entrepreneurs who can choose where they want to live and top universities and research institutions. Then access to angel investors, international and local, and a lot of the international guys that come and live in Cape Town in summer they want something to do or they basically, contact us and say, ‘can we co-invest’ or ‘we’re interested to mentor.’ So, I think from that element there’s a lot of similarities. The skillset is here. It’s definitely from a technology standpoint. We can rattle off a lot of success stories from Willem van Biljon and the guys at, the moment, at Takealot but before that it was Amazon EC2 Cloud and a couple of success stories. Especially when it comes to fintech and radar, and those types of things.

So, I don’t think SA entrepreneurs, and technology and intellectual property and research institutions have to stand back for anyone. From that perspective, we certainly remain very excited about the SA market and I think this move is not a move out of SA, to now go and look for investments in London. It’s more pulling back family office money via London, co-investing with our 12J investors this side and create more, bigger ticket sizes for investment companies. Just that missing middle. That’s where the big gap still lies. If you look at a good scale-up company or start-up and they want R3m or R5m these days, they can find it. But now they start growing and all of a sudden, they need R20m or R30m. Then what do they do? They basically, get on a plane and they go and raise it either in Silicon Valley or in Europe. We’re trying to say, no, wait, we’ve got a better plan.

Is it always an equity investment or do you do loans as well?

For us it’s a significant minority equity investment. Typically we’d want between 20 and 30% stake in investment. But it obviously, ranges. It could be lower if it’s a bigger company, and so forth but for us, we try and go for vanilla equity, have a seat on the board. Try and add value in that way, have some minority protections. We live by the sword and die by the sword. I know there’s very much interesting elements and interesting instruments one can use but for us, it’s well, let’s make our investment smell, and look, and feel like we’re just another partner in the business. We don’t want to take your house. We want to take your mind space and act as a partner and basically, have the equity upside but also have the equity risk, and we manage that risk or mitigate it in various ways.

The whole discussion we’ve had today, if you were to get a thread, it’s relationships. The relationships that you have with family offices with the entrepreneurs, with the companies that you invest in, and you talk now as well about serving on the board, adding value. How do you know about the guy on the other side? Warren Buffett says when he does business with someone he does it on a handshake. He said, it’s easier for him to see who he doesn’t want to do business with, than who he does want to do business with but how do you know? What have you learnt in that field, in the relationship field?

Yes, I think we’ve learnt and you obviously have to contract for the down-side but when you have to pull the contract out of the drawer and manage that investment by saying, ‘listen, in terms of clause 12.3, I don’t think you can do this.’ Then you might as well write that investment off. We have a very open culture with our entrepreneurs and if we can’t manage the relationship over a proverbial beer or coffee – just say listen, we think that we didn’t appreciate this or we think we’re going in the wrong direction here, without putting gloves on the whole time. But it is a relationship. It’s a long game – an exit typically is four to seven years. So, if you’re going to partner with someone for that type of time period you might as well have trust. At the end of the day if you can’t establish that early on. Yes, pattern recognition, just that feeling of the people are on the same page as you are. We look very much for cultural elements in the business. We spend a lot of time in our investee companies’ office. Not necessarily bothering them the whole time but we are at least, there fairly often so we can get to know middle-management at the water cooler and those type of things.

Just to say, we’re not just waltzing in here every now and again, and wanting a report, in terms of how it’s going so, we can rap you over the knuckles. It’s more like how can we get involved and act as a partner? But I think that relationship element that you touched on is the only way to manage this kind of investment. If you go further up the ladder towards higher private equity type investments, obviously you pick a management team. And that management team you’d expect to have a FD and a CEO that knows what they’re doing and a COO, and a HR manager and all those people in place. So, that team must just get on with it but in our case a lot of the time, we’re inspirational speakers. Other times we’re corporate governance custodians and sometimes we’re just the shareholder at the ground, type of thing.

Keet, when I listed MoneyWeb, when I brought in an investor, a very famous but very low profile, he doesn’t like anyone to know his name kind of investor, he said to me the biggest risk in making the investment in my company was people change when they get a little bit of money in the bank. Entrepreneurs don’t always remain as passionate. Have you found that that is an issue that you’ve had to deal with?

Look, there is definitely some element of carrot and stick. We generally invest via milestones so, let’s say an investment needs R10m, we would typically not put it all in on day one. There would be a set of agreed, in the due diligence, we would do a gap analysis and say do we all agree that these following gaps, if they are fixed, will make it a better business? Yes, okay, so let’s allocate that money. The first R3m goes towards the most important gaps and then we put in the other R3m and so forth. So, to answer your question, once the last cent has gone in, and somewhere between month 12 and so, then there is sometimes a bit of an attitude change. I think when you get to that stage you better have, as an investor, decided or proved which type of investor you are. Are you a reporting line? Are you there to add value? Are you a partner? Are you just passive?

But something does change because the power shift changes a little bit, it’s just natural human nature. I think mostly so far, so good. I mean there’s been one or two failures in the wake, but on a balance of power I think the advice I need to give to any entrepreneur is to do your due diligence on your funder. Phone their past portfolio companies, they’re all on their websites, and just have a chat to the entrepreneurs. What kind of investor was this and how did they treat you when things went bad because at some point it will go….? These are is entrepreneurial ventures and things don’t always go in a straight line upwards. And how did they act in that situation? So, yes, it is money and it is serious business so, at the end of the day, we are custodians of our investor’s money and we can’t just always be the nice guy.

This relationship with Draper-Gain in London, presumably that also unlocks the potential for more capital?

Yes, That is a very substantial pool of potential capital and relationships that we can tap into. As long as we perform and continue doing good investments, I think from that perspective that relationship will continue growing into value adding to the portfolio companies as well. We’ve also got, via those relationships, interesting angles into different businesses, which could create market access opportunities for the investments that we invest in. From that perspective, we do have a bit of a lens on knowing the family office portfolio businesses and these are bigger investments which they have stakes in, which can then act as conduits for helping these businesses we invest in. So, without giving too much away, there is definitely some overarching strategy and it’s not just random, good investments that we’re looking at.

And another overarching strategy is to arbitrage the low cost, high skilled base of SA with the hard, currency revenues elsewhere in the world…

Yes, the model of VC, and specifically in SA, I know it myself and all of my colleagues that play in the space. It’s a game where we can’t complain too much about the remuneration structures but it is a long-term game so, I think from that perspective, our cost base is low, our offices are small and humble, and our incentive structures are based on, ‘well, if we succeed then we all succeed together.’ We want to make money with each other and with our investors, and I think from that perspective the model intuitively works.

Keet van Zyl is the co-founder of Knife Capital. This special podcast was brought to you by Knife Capital.

The post Knife’s Keet van Zyl: What a successful VC investor looks for in an entrepreneur appeared first on BizNews.com.

LONDON — In this edition of the Old Firm, David Shapiro and I talk about KPMG’s growing problems – and what happens next; disagree on the bonus paid to the Naspers CEO; revisit David’s dark experiences at Corpcapital; have another look at the Bitcoin bubble bursting; and chat about this week’s Biznews event in London with FW de Klerk. – Alec Hogg

Well it’s a warm welcome to David Shapiro. It’s been quite a week, Dave. Pressure building on KPMG, McKinsey, SAP, goodbye Bell Pottinger – my goodness.

And that continues. You can add to that other issues like North Korea setting off more missiles, which I think is quite worrying but the markets just seems to brush them aside as a ‘non-event.’ But I think the Bell Pottinger and certainly KPMG started to pick up as well McKinsey. I think businesses are now not quite sure how to handle it. Many businesses, I think even our auditors at Sasfin, we have KPMG and I’m not quite sure what kind of stand they’re taking. Whether they’re just taking the status quo and not doing anything but there is certainly an outcry and the media response has been enormous as well. It’s challenging, Alec, you can’t ignore. Businesses have to make a moral stand. These are the people that (as we mentioned last week) act as the guardians or the spokesmen for outside shareholders, for their stakeholders and so on. You’ve got to make sure that they’re conducting themselves morally and doing the right thing.

Dave, you know Iraj Abedian. He spent a lot of time on the radio with us. He’s a measured, very cautious and certainly a deep thinker. For him to come out with a statement, which is on BizNews today, that unpacks KPMG. He says, ‘KPMG did worse things than Bell Pottinger, and McKinsey, and SAP. And McKinsey and SAP stole hundreds of millions of rands,’ he says, ‘from state resources and KPMG is worse.’ Wow!

That’s the whole thing. Where auditors turn blind eyes to it of course, they’re equally as guilty and that’s the worry. We don’t know what they did. We don’t know what they turned a blind eye to. I don’t think they personally stole it but they certainly gave it the blessing and that’s what auditors do. You’re there to check the books, very simple. I’m an auditor by profession and you’re there to report that companies are keeping proper books and records and adhering to rules and regulations, and check.

How many times did we discuss, you know you talk about how you can fiddle provisions and how you can fiddle the books? I still maintain that accountancy is a bit of a fraud because it allows public companies or most companies really, to manipulate the numbers, and that’s the duty of the auditors to say, ‘no you can’t,’ or ‘no, you’re not allowed to.’ I think there’s a huge outcry even over my favourite company, which is Naspers, where the new CEO is paying a bonus out of a write up in one of their investments, which is Tencent. Now, he hasn’t really added to it and yet he’s paying himself a fat bonus from that. I can give it to Koos. Koos was the person who found this investment but this is a passive investment. They don’t really add value to it.

No, we’re going to disagree on that one, Dave. If you have a look, you’ve got to get past Tencent because it is so enormous and have a look at what Bob van Dijk has done elsewhere. In this year he’s done Delivery Hero, which added R1.7bn to the bottom-line of Naspers this year. Then, of course, he’s also been very involved with their investments into India, Flipkart, which is giving eBay a hiding over there so, you’ve got to say, ‘sure we understand the Tencent thing.’ But really, this guy is world class. If Naspers don’t want him then Google will snap him up. That’s the problem.

I’m not arguing that point. I’m not arguing that he has… But to what extent do you pay the bonus, on what value? If it’s on the value of what he added in, in real earnings, yes. But to base it on share price increases, which are really driven by Tencent – I think that’s where the difference is. Do you remember back in the day I still spent a few months at a place called Corp Cat?

Oh dear.

Do you remember?

How could I forget it?

No…

We all thought you had lost your mind.

Yes, and David, (I can’ remember his name – I’ve got a senior moment), you had been interviewing him and he came out of the studio. Shame, he died, what was his name? Alec, help me on this one.

I’ll help in a minute. We’ll come back to it.

He was a journalist.

David Gleason.

He walked out of the studio and he had said to me, ‘I’ve got a big story coming next week on Corp Cat.’ I was horrified because I was about to join them, this was in 2003/2004. What happened is and that was the story when Nick Frangos resigned and he resigned basically, on the mark up, and there were corporate governance issues.

Yes, it was the mark up of an internet company and I remember it very well. There was the NASDAQ boom at the time, and there was a massive increase in the notional value of this company, from zero to gazillions. And bonuses were paid on it and they took that into their earnings and Nick Frangos said, (as the chairman), ‘this was crazy.’ The board refused to listen to him and he resigned. He was the first whistle blower.

He was, and Deloitte’s, I think Deloitte’s were the auditors who sanctioned that.

Well, there we go.

Funny enough, I’ll tell you who else was there was Nigel Payne, also was brought in, as an independent assessor, and he also gave it a clean bill of health.

That’s correct.

I get very worried when people pay bonuses out of non-cash gains in assets but you might the right thing. I’ll concede. I love Naspers, I love the business, I love what they’ve done and I love the value they’ve added to the JSE.

And the value they’ve added to the pensioners in SA. If you ever, for a minute think of the increase in the retirement funds from people, the State’s retirements funds, through to pretty much everybody who’s got a retirement fund in SA because Naspers is 20% of the JSE all share index. They’ve added huge value so, I say, ‘don’t knock them.’ They’re doing it great. They’re the gift that keeps on giving. If you want to criticise there are many others to criticise, rather than those who’ve actually been giving to you.

I’ll back off from this one.

Was it David Gleason that you were talking about?

David Gleason, of course man. I never forget, I walked out. He was being interviewed by you and he said to you, ‘I’ve got a big story coming next week.’ This was in the Classic FM studios in Braamfontein. I said, ‘oh my god, I’m joining them next week.’ It didn’t last because 9 months later there was nothing left. They were dis-abandoned but I always… It was an exercise that I remember very clearly and I always look for that in the way that companies pay out money.

But David, it gets back to that thing of Hemmingway’s and I’ve been using that a lot lately, gradually then suddenly. Corp Capital, gradually there was a lot of talk, a lot of sniffing around and then suddenly, after Nick Frangos came out and said, ‘this is wrong,’ and that was the end of them. They went so quickly that you almost had to wipe the sleep out of your eyes and it was over. KPMG, to me, feels like the same thing. The complete disdain with which Trevor Hoole, who’s their SA partner, has been treating people in the media asking very relevant questions and Magda Wierzycka from Sygnia – you’ve got to admire her.

She stood up and she fired them first. She now has been joined by Iraj, who stepped off the board of MunichRe because of what KPMG have perpetrated. He took 3 months to investigate them. After 3 months, he asked them questions. They could not satisfy him and he’s really lambasted them. Not least because they wrote that report on Pravin Gordhan, which actually got Pravin Gordhan fired (if you want to put it that way). They have damaged this country and the report that they wrote on him they now, well everybody knows it was a R23m to write what the people who paid for the report wanted it to be written – this is bad stuff. My question really is, do you remember Andersen’s very well with Enron?

Very, I was at a firm called Schwartz Fine, which is actually merged into Andersen’s. I did my articles at Schwartz Fine. So, Andersen’s was blue blood. You had to qualify to do articles there. They didn’t take anybody, only the best of the best went to Andersen’s, and that’s the kind of name they had and they didn’t last long.

And Enron dropped… What happened with Enron, refresh our memories there?

Well, it was the same issue. They were the people who cleaned Enron’s dealings, which were false. I can’t remember the exact details of Enron but fundamentally it was a sham and the auditors were Andersen’s and they fell. And of course, once they fell, it was not more than the workings of a handful of people – they brought down this international firm because they couldn’t survive. Everybody asked the same questions and they merged into KPMG, which is the irony.

Isn’t it.

I think it’s the same thing. I don’t think KPMG SA will bring down KPMG International.

Why not?

I think, well I think there’s going to be a lot of questions. They could be. There are only 4 now, and what surprised me is that I haven’t heard or we haven’t heard anything from the international firm at all. There’s been no attempt to send in the army or the heavy weights and kind of redeem their name. I think you’re right. I think you’re dead right. I think it’s going to be a very tough turnaround for them because people are going to start asking questions and once it starts, the momentum starts it’s very difficult to stop that.

The mismanagement of the communications in this case, David, has been spectacular. Having spent a couple of years in that field I cannot believe how useless these guys are at managing public perceptions. It’s almost like everything they do, they’re doing it wrong again. Or they are either terribly incompetent or they are rotten to the core, one of the two, and they know that if they open the door the whole edifice is going to collapse. It’s either incompetence or rottenness but either way, they’re putting that brand massively at risk. If this had happened in the USA, rather than in SA, what do you think would have happened by now?

That’s what’s interesting is that it doesn’t seem to have gone beyond our borders. That’s what I find… Bell Pottinger went. Nor has McKinsey. I’m not sure how McKinsey’s are involved in any way at all but when you’re in that kind of role you can’t let anything slip. Do you know what I mean? It’s not a matter of one deal, whether McKinsey or if they were involved…

David, they were involved. They took hundreds of millions of rands, and they gave it to a front company. That’s cut and dry. You can’t even say, ‘ooh, do we give them the benefit of the doubt?’ They got the contract because they agreed to give the Guptas hundreds of millions of Rands through a front company. It’s that simple and it’s now been authenticated that the Gupta-Leaks are accurate and clear. McKinsey have got a big problem but what I love about the way Iraj unpacks the whole thing and I urge people who haven’t read it yet to go and read it because he explains and says, ‘look as far as SAP and McKinsey are concerned – an open and shut case, we know what they did.’ And everybody does, who’s been following the story. But he says, ‘with KPMG it’s even worse.’ Don’t you, when you become a chartered accountant, have to sign some kind of code of ethics or some kind of a belief of honour?

That’s all part of your training. That’s what you are. You’re there to protect the public and other stakeholders. You’re not there for the convenience for the board of directors. You’ve got to ask the questions and one wonders. Alec, the biggest problem is that these are the people who pay you. It’s a big account, you don’t want to lose it and the problem is once you start to twist your standards and once you start to lower your standards then of course, you’re no longer trustworthy.

A slippery slope.

That’s very hard to do. It’s hard for them because can you imagine you’re the partner and you’re going to lose the account but that’s where… I never forget a story and when I was at Schwartz Fine there was, well we did the Tiger Brands, or what was Tiger Oats, and this was a story that Leonard Fine always tells me. Sorry, it might not be Leonard but some old timer from Schwartz Fine. He always went to Arnold Kane, who was the auditor and partner, and he went to Tiger Brands, (Tiger Oats as it was there) and put the bill down, I think, in front of Rudy Frankel. And Rudy Frankel looked at the bill and challenged it. He said, ‘Mr Frankel, if you don’t like it, we’ll resign.’ In other words, ‘that’s our bill. This is the work we did. We’re not going to horse trade with you.’ End of story. ‘If you want us to resign as auditors, we’ll resign.’ And that’s the kind of attitude you’ve got to do. In other words, ‘here you are, don’t challenge us. We’ve done the work. We’ve done what you wanted to do. Here’s our bill for work done.’ These are honourable people – if you’re going to horse trade or start to negotiate then we’re going and you’ve got to have that kind of attitude. They were prepared to lose the audit over that kind of conduct. It might not be a proper example but I’m saying they were honourable men. You don’t question what they did.

The system only works if they’re honourable, David. Capitalism only works if you have a moral underpin and that’s what Adam Smith wrote in ‘Wealth of Nations’ in 1776, for heaven’s sake, so it’s not like it was written yesterday. If you don’t have that moral undertone it doesn’t work and I’ll ask you though, let’s move onto something else. We had the Bitcoin collapse in the last few days. Now, I hope the people who listened to this podcast were taking careful attention of what you said last week because it reminded you of a bubble. If it walks like a duck, looks like a duck, and quacks like a duck then it usually is a duck.

It is a duck. You can create your own currency that’s all you had. If you had the software, you could create your own currency, it’s crazy. It’s absolutely insane but I think what it does highlight is just how, regardless of what we’ve gone through, whether it was the internet bubble, the subprime crisis, that if you dangle something in front of people that offers them quick money – they drop all kinds of rationality in the pursuit of quick money (greed), and it’s amazing how people fall for it and how they will authenticate or argue against you, in that respect. There are still people who believe in it and there are still people who want to do it. So, Jamie Dimon has come out, the Chinese Government have come out against it. Just leave it alone.

It’s too difficult. If it’s too hard to understand and if it looks too good to be true, it usually is but it’s easy to get sucked into those things, Dave.

Yes, well the pursuit of greed, the pursuit of quick money – everybody wants to move beyond the great un-rich. Everybody wants to get rich quickly and there’s no route, there’s no quick route. Even in investing – it’s a long pursuit and if you buy good companies and you just follow simple, rational rules you’ll do fine, you’ll do okay. But no, that’s not good enough for everyone. That’s not good enough for a vast number of the population. Everybody wants it to happen overnight. It doesn’t work that way.

Animal spirits.

Yes, but Bitcoin offered them that. Their friends have bought. One mate had bought and had suddenly made so many Dollars or so many thousand Dollars, then of course they also wanted to get rich but at the end of the day, you lose money. Trading is very difficult any kind of trading is very difficult. Alec, if you gave me money… Even if you gave it to me and said, ‘here, go and trade it.’ I would not do it. It is so difficult. It’s so volatile. It’s a lot easier in the movies when you watch these shows of people sitting on the desk and picking up phones and that. But in real life trading is very difficult to make money. In fact, you’ll see hedge funds starting and closing all the time and these are very clever men who run these hedge funds. Even there, the formulas just don’t work – stick to what you know.

Talk about trading, yes, stick to what you know, yes. The new Stock Exchange license that was issued this week to the old Equity Express. We’ve now got 3 Stock Exchange licenses, sorry 5 that have been issued. We’ve got A2X who are going to be coming into the game pretty soon as well, taking on the JSE directly. What do you think is going to happen to this market because surely SA is too small to be able to justify 5 Stock Exchanges?

Absolutely 100%, and that’s the worry. One of the things that I do on a day-to-day basis, whenever I look at the market at the end of the day I always check volumes and value trader. If we go into value trader it’s shrinking, and it’s shrinking all the time. I think the absence of SA Breweries has hit us in a big way. We’re trading less than R20bn a day. In fact, right at the end we see a kick-up in trade as people close positions because obviously, there’s a lot of high frequency traders or there’s a lot of traders on this market that give it the volume. But fundamentally, there’s not enough stock. There’s not enough tradable stock to make this Stock Exchange viable. If you look at the Stock Exchange results, the recent results that came out, you’ll start to see the fall in volumes.

We have no new listings. There’s not enough volatility to drive the derivative markets, or single stock markets – that’s all gone so, it’s a very small market and I think to have 5 Stock Exchanges is just insane. It’s hard enough to have one Stock Exchange and Nicky Newton-King will tell you that so, I don’t know how they’re going to survive because you can’t survive on a few trades. The investments that you make in infrastructure and in trading and, also the compliance costs of that – it’s enormous.

To be fair, you don’t need Stock Exchanges any more. You need one Stock Exchange. If you look at the adverts and I’m sure you follow them on different offerings, like a SAXO. We use UBS, or whatever. I can sit here at my desk, or I can go into Tasha’s where we used to be in Moneyweb studios, over there. I can sit down there…

In Rosebank.

Yes, order a plate of chips and trade globally on an iPad. All the money will be stored either in some guardian, or it could be at UBS. You don’t need to do anything. You don’t need to have a Stock Exchange anymore and it’s available to everyone and a lot of people are doing that so, why we need 5 Exchanges, I have no idea. I think the view of what an Exchange is and what’s out there, I think it’s exaggerated.

Well, we’ll see how that all develops but it certainly is a new world. Going back into the old world though. This week we had a huge event here for us, here at BizNews. We went to the Institute of Directors on Pall Mall. You don’t get more prestigious than that, and we had FW de Klerk in conversation and the transcript is up on BizNews now. We had 140 people, Natie Kirsh was there, Wendy Appelbaum, some other very heavy hitters, who happen to be either passing through or from London. There were quite a few ‘sirs’ and so on, who came along to see this statesman. This guy that they felt was a leader of the world, certainly at the time, and we forget about FW. It was within 6 months of his taking over that he changed SA forever. He unbanned the ANC, released Mandela – the things they’d been trying to do for decades.

You just get the feeling… David, it was so good sitting talking with him. I met with him in the afternoon beforehand, just to make sure that he was at ease, and he certainly was. The humility of the man shone through. That was the big thing for me. He’s achieved so much and he’s really reshaped a nation. We could have been Syria and yet there are people who knock him and people who don’t give him the rewards or the respect perhaps, that he demands but it was nice to have that opportunity with him.

Look, he was a very bold man and what that ushered in was a period where we really thought SA would be the shining beacon of Africa, and for a bit we believed it, and we were. Unfortunately, I think in the last few years, I think we’ve gone backwards and we’ve lost a lot of that momentum and it’s very difficult to recall that and to remember that. It’s sad because I think that SA… Everybody looked upon us as being a great nation. I don’t know how we get back that spirit of 1994. We need to go there, we need to go back to that and relook at those days.

I asked him, Dave. I asked him, ‘how do we get back there?’ Because he remains optimistic and he says, ‘it’s all going to happen in the change in leadership.’ He also said some really good stuff. He said that when he was the leader of the party he tried to get strong people around him. He tried to get the very best he could. For instance, he used the example of Derek Keys, who he brought in as Finance Minister. Derek Keys was never a National Party member. However, he was a brilliant businessman. I think he came top of the year in his CA, when they wrote the CA so, it just shows he certainly had the brains and Derek Keys made a lot of difference to many people’s’ thinking. He made a huge impact, which again has not really been recognised. But that’s what FW says, ‘new leadership in SA.’ ‘The institutions have held, the civil society is coming at the bad guys, like in an almada of ships, and they’re crumbling.’ The bad guys are starting to waver and they’re on the backfoot, in other words. But with leadership, be it in December, be it through splitting of the ANC, be it whatever – will come a rejuvenation. He’s very excited and after listening to him I think it’s very hard not to be.

Leadership is one thing. The economy is another and I don’t want to throw cold water on what you’ve been saying but I’ll tell you what bothers me, and with new leadership has to come new thought, new economic thought. Alec, when I looked through Impala’s results yesterday and when you go through it, ‘mine-by-mine’ you realise how difficult conditions are here, how difficult economic conditions are. Mines that we knew, well we saw this earlier. Remember, we saw it earlier with AngloGold Ashanti, with the South African mines that should have been closed at the turn of the Century.

And suddenly we’re starting to see issues in platinum as well. It’s a very difficult place to make money and we’re beginning to question, not only platinum now but gold and other areas so, if we’re going to turn this economy around we’ve got to start laying the plans of a completely different way of making money. There’s still so much emphasis on hopes that mining is going to get us through and that shocked me – it shocked me to look at Impala’s results and to see the issues. Not only is it bad mining or old mining but also, you’re getting the threat today of electric cars after the announcement of Volkswagen.

So, I think leadership is one thing but I think you need a new economic order here as well, which has got to bring this economy in line with the kind of move that we’re seeing internationally. That, to me, remains (perhaps), our biggest threat. How are we going to address unemployment with what kind of economy is going to allow us to do that? It’s a very difficult challenge and we’re seeing also, some very poor results coming through as well, which point towards an economy that’s labouring a lot. We see that in traditional industries, and the confidence is very low here. It’s expressed in Sun International’s results. We’re expressing it in the fast food companies’ results and in all the retail results as well so, we need it urgently, we really do. I think from an economic point of view, I think there’s an imperative to look at this very carefully and the chaps who are in charge, at the moment, to be honest, they don’t give a damn.

David, it’s always darkest before the dawn, and it’s pretty dark right now.

It is, and unfortunately my job is we’re risk managers. We look at news. We look at company’s results and we have to decide on where to put client’s money. Where’s the best place? Look, SA, and we say it all the time, and it’s a magnificent country. We’re so blessed but we’ve got to go back to 1994. We’ve got to find that same spirit, and think of the chaps who were around the table at the time of CODESA. They all abandoned their posts for money and to me, that was the biggest tragedy.

Not all of them. Pravin, never abandoned his post for money.

No.

And there were others like him too. Anyway, David, let’s just leave it with that thought that it is always darkest before the dawn and FW, he’s lived 81 years, a little bit longer than you and a lot longer of me, of course. He says we’re going to get through it so, let’s just grit our teeth and look ahead. David Shapiro, in Johannesburg – with the Old Firm.

The post Old Firm: Running the rule through KPMG, Bitcoin collapse and FW appeared first on BizNews.com.

LONDON — After a 17 month wait, South Africa’s first black controlled stock exchange has been licensed by the Financial Services Board. Built using the once market dominant OTC platform, Equity Express, the exchange’s pre-funded trading structure opens up an entirely new avenue for SA companies keen on spreading ownership of their businesses to previously disadvantaged staffers and shareholders. Here’s the inside story from founder Anthony Wilmot. – Alec Hogg

Well, it’s a warm welcome to Anthony Wilmot who is in Johannesburg, and with some pretty good news for you, Anthony. It’s taken you a long time. You’ve had the Equity Express platform in the past but you now have been granted a Stock Exchange license. Did you guys celebrate deep into the night?

We did actually, 2 nights ago Alec, we were given the license on Tuesday but we could only get all the directors and the team together on Wednesday so, we did have a bit of a party on Wednesday night.

How long did you work on it for?

We submitted the license in March 2015, and were granted it some 17 months later.

Why so long?

It’s a very good question, Alec. The reason for that, I was told, that owing to the fact that there had been some lean challenges to other companies that acquired some licenses the Regulator wanted to make quite sure that they didn’t make any mistakes, that could result in a legal challenge, to the granting of our licenses. So they wanted to make sure that they did everything 100% right. I think it was really the learning that they took from the previous granting of licenses and that’s why it took so long.

How many licenses are there now?

Apparently there are 5. It’s quite difficult to believe that in an economy the size of ours we have so many but currently there is us, a company called ZAR X, a company called 4AX, a company ATX, and the JSE themselves so, that makes 5. There’s only one that has actually got listings and is trading at the moment, and that is ZAR X.

So, ZAR X is the only new one, you’ve got the JSE who is obviously the incumbent. Are you going to be going into either of those markets directly or where are you positioned?

Our sweet spots have the BEE schemes. Those were our biggest clients on our Equity Express trading platform. In fact, the company is called Equity Express Securities Exchange, so we’ve even tried to keep the branding the same so that our current client base are comfortable that the service provision will hardly change. So whilst legally the framework is completely different with the Stock Exchange license from the experience of the shareholders, buying and selling shares on the BEE Exchange, they should see the difference with respect to how they deal with the shares.

What the framework looks like, very simply, is the exchange of a separate entity with its own board and its own set of shareholders. The regulation demands that nobody may own more than 15% of exchange – we’ve adhered to all of those. So, we have 7 shareholders in the exchange, of which 55% are black shareholders so, we’re actually, (I think), one of the first black owned Exchanges. Then Singular will apply to be a broker to be the authorised user on the Exchange, and some of our other shareholders have businesses that are involved in trading and I’m sure they’ll become brokers on the Exchange as well so, that’s how one maintains independence in terms of the structure.

That’s a big deal being the first, black controlled Stock Exchange. Who exactly, are the shareholders?

Okay, the shareholders are effectively a company called Singular International, which is not Singular Systems but a related entity, where the shareholding of that company is similar to ours. They have 15%. The management of Singular, in their various individual capacities have another 15%. Investec has 15%, their BEE Trust has 15%, a company called PAPE is the name of the company, it’s a private equity firm run by an African investor, they have 15%. A ventures, that’s headed up by an Indian lady, they have 15%, and Legae Securities, which is the first black owned stockbroker registered on the JSE, or certainly one of the bigger ones and they have 15%. So, that’s the shareholding base.

So, the BEE trust from Investec plus PAPE, the Indian lady that you mentioned, and Legae between them they have?

They have 55%, so it’s 30 + 15 + 15 + 15 + 15 + 10.

And you’re the guy who actually put it all together, Equity Express has been around for quite a long time. Why would you do this? Why would you structure a business in this way that you give other people control?

That’s an extremely good question. The FMA ultimately demands it. Nobody is allowed to own more than 15% of market infrastructure so, to the extent that our other newly registered exchanges are not in that position. They will get there in time. The reason we decided is, there are 2 points. The one is you do all the work, and get the license and then attribute a value to your company because of the fact that you have a license and then try and sell off your shareholding? Or do you get everybody to invest in the beginning on the same basis, and everybody shares the upside, if one is to be granted a license? And that was the basis on which I wanted to do it.

I’m a chartered accountant who spent his life in IT, and I really am not an expert when it comes to regulations or matters to do with regulation so, having other investors gave us a lot of help with the entire license process, right from the beginning. So, it just made a lot of sense to share early rather than share late, if you understand what I’m saying?

And the direct competitor, I presume that would be ZAR X, given that it was born out of a guy who actually worked for previously?

Yes, so the CEO of ZAR X used to work with me. We kind of got going with Equity Express in its early days and their model is probably, of all the Exchanges, is the most similar to ours and the reason I say that is they have got a prefunded model on the similar basis to what we have and they have a T plus nought settlement cycle, which means trade is settled the same day and we’re in the same position so, from that respect they are probably the closest to ours and I would say that they would be the closest competitor, in terms of the nature of their business and the way they’ve constructed themselves.

Just explain that, prefunded and T plus zero?

Okay so, on the JSE and all the other exchanges you can buy shares and pay for them later. In other words, the risk of settlement sits with the broker so, if a broker buys and sells a share and does not come up with the cash, (if they representing the buyer), then there could be a trade fail in the market and there are a number of insurance policies and procedures in place to ensure that never happens. Ultimately, a broker on the JSE has to have a balance sheet and give warranties to make sure that they never fail at trade.

In our market that is impossible because all the cash sits with the exchange itself and you’re not allowed to place an order on the market without it being backed by cash, sitting in a banking account. The bank account and the way we set up our market is all controlled by Nedbank. So, effectively you may not place a buy order in our market without that buy order being backed by cash so, there’s no risk of failure or default on the trade. What makes that even more exciting it means that your broker community that trades your shares on your exchange don’t have to have a balance sheet, which we hope will encourage smaller brokers to want to trade on our platform.

Are you going to let anybody trade, any broker come into pool?

To be a broker on our Exchange you need to be a FSP so, you have to be registered with the FSB and have a FSB license. That way we feel you have a minimum level of qualifications and you actually understand what’s going on, and you are regulated. The fact that you’re regulated by the same entity that regulates the Exchange really, is just a coincidence. We were trying to enforce a minimum level of ability, in terms of who would you allow to trade in your market? The JSE, for example, has quite onerous conditions for you to become a stockbroker on their market, and all the different Exchanges have their own rules.

So, it’s not necessarily just stockbrokers. It would be say, Magnus Haystek, he’s got Brenthurst Wealth, if he decided that he wanted to give an opportunity.

Yes, as long as the entity that was applying to buy and sell shares in our market was registered by the FSB and they have a FSB license which they say is registered, then he could trade. He could become a member. There are a few other qualifications, nothing which is too onerous but that’s the minimum level.

So, you’re expecting to get lots of applications?

I think it’s going to be driven more the other way around. What we’ve tried to focus on is making sure that issuers get what they want. If you bring in the quality listings to your Exchange we believe the brokering community will follow. So, it’s not that we’re not going to go and speak to brokers – of course we are but we don’t think that saying to them that these are the accounts that we currently have and these are the ones we hope to get, will be enough to move all of them. I think as the quality improves over time, so more and more will come. There is now quite a choice and I think the other thing that makes it interesting is that brokers have spent a lot of money developing software that interfaces directly with the JSE, to make their communication with their client base easy. Those sorts of interfaces still need to be built, in terms of making it fairly easy for a broker to trade in our market and, to the extent, try and help them interface any counters or issuers that are on our existing systems. So, that they’re not having to open lots of different trading systems to be able to trade.

Anthony so far, you’ve got 3 licenses. The JSE is the incumbent. Yourself and ZAR X, who are going to be trading in a different area, and we can go into those differences in a moment. But of the other 2 licenses that are still coming, are they also going to be competing with you or might one of them be taking the JSE?

No, my understanding and, please, I’m not an expert. I don’t spend my time studying all the other Exchanges but my understanding as a layman reading the press is that A2X are focussing on the duel-list environment so, on our Exchange you can’t dual list. But on A2X they are trying to get the high quality, high traded encounters of the JSE to also list on their Exchange. So, effectively, if Naspers were to list on A2X – it would be made for a Naspers’ share on A2X, separately and independently of the JSE so, they are high volume traders. 4AX – I’m not really familiar with that exchange and exactly who they’re going after but they’re also not following a pre-funded model. So, theirs is a model where you can buy and sell your shares and pay later.

So, it’s like what you used to do previously, in the OTC market.

Yes.

You are now regulated and you are now licensed, how are you different? For instance, you mentioned now that you won’t have dual listing so, if anybody who lists on your exchange they can’t list anywhere else?

Yes, that’s 100% right and the reason for that is our exchange actually has the full register sitting on it. So, the JSE nearly matches, and most of the brokers trade in an anomaly account basis. So, the JSE, at the time of matching, don’t know exactly who is buying and selling. It’s Deutsche Securities selling shares to the First National Bank, for example. In our exchange, we have the individual owners of the shares so, we have the full register sitting behind the exchange. Meaning the register is in fact setting it straight, it has to by law, but effectively the reason we need the entire register sitting on the exchange is we have the ability, from a software perspective, to enforce rules such as nobody may own more than X-percent of the shares. So, some of our biggest clients are restricted counters for example, only BEE shareholders may buy and sell shares in certain companies. Those types of rules can be actually enforced at the exchange level, which is very powerful because it means that our clients know that any rules, when I say, ‘our clients,’ I mean the issuers. Any rules that they enforce can be enforced at the exchange level so, the rules can never be broken. Whereas, certainly the other exchanges I’m not sure of all of them but I know for example, in the JSE environment, to the extent that you had a rule in your MOI, that said, ‘no shareholder can own more than 10% of the exchange.’ The only way to enforce that is to constantly monitor the register to see that nobody owns more than 10%. It can’t be enforced at the trading level, whereas in our world it can.

The other area that we’re quite proud of is we also have the ability to enforce investing rules. To the extent that you have to register and you’d have done the deal, and a lot of IT companies, for example, buy companies like this. You buy a company and you say to the company that we will issue stock in our company but you may not trade them for 3 years. So, there’s a restriction on when you can trade them. Those restriction rules we can place directly into our register as well and enforce them at the exchange level. So, the shareholders, whilst they own the common stock of that company, they cannot sell it until that date has passed and that’s all enforceable in our software.

Anthony, what happened to MTN? A lot of this all started at the time that MTN had its Black Economic Empowerment offering and it them started its own Exchange.

You are quite right. The first letter from the FSB so, the background was this. We approached the Financial Services Board, (FSB), and said to them, ‘are we allowed to trade these counters for these clients?’ And they said, ‘as long you maintain complete separation between them, and effectively, what you’re creating is an electronic exchange for that company shares only, that’s fine.’ What then happened is the MTN thing came and there was drama with that trading platform. Whether it was linked to what then subsequently transpired, I do not know but the problems were explained in November. Then they shut down over Christmas and they restarted in January, and everything pretty much got sorted out by February. But in January of that year, and if I remember correctly, I think it was 2014, it might have been 2013, I can’t remember exactly. That’s when the first letter came from FSB saying, ‘there’s proliferation in the legal exchanges,’ and they actually didn’t attack any of the people who were doing the work. So, we never even got a letter from the FSB, as Equity Express or Singular Systems. It was our clients that got the letter and said, ‘the basis on what your shares are being traded for your shareholders is no longer legal, please do 1 of 4 things.’ And the 4 choices they gave them was list and recognise an exchange, and the only recognised exchange at that point in time, was the JSE, cease all illegal activity, change the basis on which you trade your shares and lastly, apply for a Stock Exchange license. So, those were the 4 choices. All the companies chose, 2 of our clients that were trading on the old basis. We came up with a new base, which is called OTC Express, which was effectively a trading platform where people had matching to buy or sell shares and there was no matching. So, in consultation with the FSB it’s clear for everybody to understand that if there’s matching you must have an exchange license. If you want to set up an OTC market, you’re allowed to, as long as there’s no matching. So, our OTC Express, effectively, is like Gumtree on steroids. It allows buyers and sellers to find one another, negotiate a price and the quantity between themselves. Once they’ve done that then come to us and tell us what they’ve negotiated and then we will ensure that the shares are transferred between the buyer and the seller and the seller gets their money. So, we provide security around the process but we’re not involved with the negotiation or the price setting at all, and we don’t do any matching. So, that’s what it is, in essence. So, 2 of our clients chose to trade on an OTC basis. Some of our clients went to the JSE and the other clients continued trading on the old matching basis, which meant that they were allowed to do trading on that basis until they had been prevented to do so, by the FSB.

But Anthony, what happened to MTN? Are they on the JSE now or, where are they?

MTN are listed on the JSE, after that letter came out that said, ‘you must regulate your affairs.’ Then the whole scheme came to an end, I think it was towards the end of last year. In other words, there was a termination date, their scheme unlocked so most schemes unlock. For example, Yebo Yethu scheme that one, (the Vodacom one) that unlocks in, I think, in 2018, and the Sasol and Inzalo scheme also unlocks in 2018. So, what it means is that those BEE shareholders will receive normal Sasol shares and those schemes will unwind and those companies will have to do another BEE scheme or do something else. In other words, that BEE structure ceases to exist. So, that MTN BEE structure ceased to exist (I think it was last year), and they’ve now done another one that is not yet being traded. So, they’ve issued new shares and their scheme, well I think they’ve used the same name, MTN Zakhele and that scheme is being administered by a bank, I think it’s Nedbank, I’m not sure exactly who does it but I think they look after the scheme for them but those shares are not being traded at the moment.

Did you manage to retain enough clients to make this Exchange viable or are you going to have to look for new ones?

I think so. Our biggest client has always been Multi-Choice. We’re still very close to Multi-Choice. We still run their scheme. They still trade on a matching basis on Equity Express, on permission granted by the FSB. Obviously, now that we have a license we will obviously talk to them actively to see if we can get them to list on our Exchange. Then we have one client, who’s expressed a great interest in moving from our OTC platform and becoming listed. So, definitely we think we’ll keep them. At our peak we looked after Vodacom, Sasol, and a few others and those were the ones we lost. Vodacom went to the JSE. TWK went to ZAR X, Sasol went to the JSE and Thembeka shut shop. Thembeka was the BEE partner for PSG. So, we have lost a few. Yes, it’s been difficult for us over the last few years because all I’ve seen is a trickle of clients leaving us but I am proud to say, I don’t think it’s been over our service levels. It’s strongly been around all of the uncertainty that’s been created so, the best news for us is this Exchange and it’s given us certainty to be able to provide an offering to our clients that they are currently used to, in a legal environment.

So, you’ll be looking for me in particular, BEE type schemes of major companies?

It’s just that we’ve got really quite good at that and the numbers are astronomical in terms of the numbers of shareholders. So, just what we’ve got left, if you included Sasol, they had 200,000 shareholders. MTN has 136,000 shareholders. I was at the Naspers AGM and then it was actually told to us that Naspers, that they’ve got 70,000 shareholders so, now that’s the most valuable company in SA. Well, Phuthuma Nathi their BEE scheme, has 89,00 shareholders, and Media24’s BEE scheme is short of 100,000 so, the numbers of people you’re dealing with is astronomical. The reason this would have been difficult for the JSE to deal with in their broker environment is the average broker has 5 – 10 thousand clients, max. When you suddenly say to them, ‘are you prepared to take on another 100 thousand?’ Then they say to you, ‘well we build a private client wealth base, what other investments have they got?’ And we say, ‘no, they are small investors in Phuthuma Nathi.’ Most of those brokers are just not interested in changing the infrastructure. So, in our Equity Express section of our business we’ve got 50 full time share dealers that deal with the needs of shareholders, taking telephone calls, and dealing with all the issues. So with a R2bn dividend – our call centre goes ballistic over dividend times because shareholders all want to know where their dividend is, when it’s going to be paid, how was it calculated? You can just imagine if you’ve got 89,000 shareholders what level of communication activity you deal with. It’s not only the telephone calls you also get an equal number of emails. So, it’s just as large administrative workload that comes onto your organisation when you try and support such a large shareholder base.

It’s very exciting though. You’re now legal. You’ll be able to allow people to do their trades. They’re all prepaid, you know who they are and there must be other applications, no doubt. When does it all begin?

I think so. We are very excited also about our shareholder base. We don’t believe they were to become shareholders in this company because they are philanthropic. We think they would like to make a return on their investment. I think we’re hoping that they will also bring us some new listings. The key part of the model is that not only does the exchange get the benefit of singular systems existing clients, we’re hoping to get new ones. So, I don’t have any new ones yet. It’s very early days for us and having so many exchanges now, I think the competition is going to be fierce but certainly, it’s new territory for me and it’s certainly very interesting.

So, when do you kick off?

We are not allowed to start trading until we’ve completely finished all this testing with Strate. I have got a confirmation from them that the earliest date that they can give us the final sign-off is the 28th November so, I will be delighted if we could get going early in December. Obviously, any later than that you must go through New Year but that’s where we are placed at the moment. I would like to get going quite quickly. We do have one client that is in a great hurry to get going so, I have a feeling that it’s going to happen quite quickly. Luckily on the software side we are completely ready. It really is just a question of getting the final sign-off from Strait.

And longer term, what do you see? How do you see this market developing because 5 Stock Exchanges for a country the size of SA sounds like a little over traded?

It’s become a fiercely competitive environment so, I don’t know. I just believe that if you focus on the needs of the issuers and one of the things that I always say to companies is, ‘who are the 4 most vested investments in your organisation?’ I think the answer is very simply, if a company fails the people that feel it are mostly the employees. Followed probably by the customers, and then the suppliers, and then the shareholders. Shareholders lose everything because they are always last in the queue but essentially, there isn’t really a huge amount of time spent by most SA corporates on actively trying to look after the interest of their shareholders from the point of view of communicating, and trying desperately to hold their hand. I’ve seen with the likes of the share schemes we’ve been looking after the model is a little different because what we’re effectively offering these companies is an ability for them to look after their shareholders directly. Whereas, in the JSE model the typical approach has been raise capital, list on our exchange, and the brokering community will look after you. Now, what happens if your shareholders aren’t experienced shareholders and they’ve never worked with stockbrokers? What happens if those stockbrokers don’t really want to deal with them? So, that’s the market that we’ve found that has worked well for us because effectively, we explain the issues why it’s in their interest to look after their shareholders, and for that we can charge a fee, and for that we can build the ability to service their shareholders in a manner that we feel that a lot of shareholders are not necessarily serviced. When there’s no connection between the issuer and who do the shareholders go to, to get help to trade their shares?

But want about rationalisation? I understand it completely but with 5 Exchanges do you expect there’ll be mergers?

I don’t know. I think all 5 could survive fine, if we had a growing, healthy SA environment economy. I think right now our situation is a very tough one. So, I think it’s really going to be a function of the patience that shareholders have with the investments that they’ve made on these different trading platforms and what negotiations take place as different Exchanges find that the economic model hasn’t translated into what they hoped it would be so, I don’t know. I have not been approached by anybody in terms of this process because we haven’t had an exchange license. Now that we have one, maybe there will be some approaches. At the moment, our strategy will be one of looking after the interest of our customers and our client base and just establishing ourselves. It’s too early. We obviously, haven’t travelled a long enough road to know about the viability of the thing in total but we are very hopeful. We’ve certainly done our numbers on the basis that we believe it will pan out for us but yes, you’re right, I think 5 is a lot.

Anthony Wilmot from Singular Systems, the proprietor behind Equity Express, which now has a Stock Exchange license. Congratulations Anthony, we look forward to your progress.

The post Licensed to trade: SA’s first black controlled stock exchange gets green light appeared first on BizNews.com.

JOHANNESBURG — Long before the Bitcoin hype began to bite in recent months, a Stellenbosch outfit called Custos was already looking at how to tap the so-called ‘Blockchain’ to catch out content pirates. Custos essentially quietly deposits Bitcoin into digital files of new film or ebook releases. The deposited Bitcoin then gives ‘bounty hunters’ a unique way of anonymously earning the cryptocurrency by unlocking the coins if a movie or ebook finds its way onto a content piracy platform or website. It’s an interesting business model that highlights how the underlying Blockchain technologies of cryptocurrencies could actually have the potential to disrupt an entire set of industries across the globe. What’s more interesting is that it is South Africans who are starting to lead the way in this regard as well. – Gareth van Zyl

With me on the line from Stellenbosch is G-J van Rooyen, the CEO of a Bitcoin Blockchain company called Custos. G-J, it’s great to catch up with you, it’s been some time since you and I last chatted.

Yes, it’s been a couple of years. Last time we spoke, we were just kicking off the business.

Let’s just get into what your business does. Obviously before the Bitcoin hype, you guys were already getting into Bitcoin, Blockchain technologies to help clamp down on content piracy. Can you tell us a bit more.

That’s right — we were a spinoff from Stellenbosch University. We became interested in alternative uses of Blockchain tech. A couple of years back in 2013 we started experimenting with ways that we could use the Blockchain that’s not directly related to Fintech because at that stage everyone was looking at ways to reinvent banking and reinvent finance using Bitcoin and its derivatives. But at that stage we were doing quite a lot of work in media tech, we did a lot of work with Naspers in the Naspers-sponsored MIH Media Lab around things like content protection, video broadcasting, next generation network and that kind of thing. We stumbled upon this concept that we could use Bitcoin and Blockchain as an anti-piracy mechanism; and in a nutshell, what we do is; we pay pirates to rat on each other.

How we do that is a bit more sophisticated. We use a few tricks that really are only possible with Bitcoin and cryptocurrency; it’s where we literally embed a little bit of cash, a tiny deposit inside the media that is issued to recipients. Say, for example, you’re a movie reviewer: you get a pre-release copy of a movie to review, it’s only playing in the cinemas in two weeks’ time. Our clients then want to make sure that that company of the movie screening stays firmly inside the control of the intended recipient, of the reviewer. If it leaks out prior to box office release, it costs them a lot of money.

Piracy is an extremely damaging phenomenon in the media world and what we then do is we put a tiny bit of a (Bitcoin) deposit inside that copy that the reviewer receives. It’s tied to his or her identity and it’s really a sort of a fidelity guarantee that that copy of the movie is still inside the control of the recipient because if the movie should leak, we make it very easy for anyone else there, anyone inside the file sharing community to anonymously pocket the reward, to claim it as a bounty and the moment that happens we can see (on the blockchain) that a particular copy has leaked and we use that to inform our clients. Now I use movies as an example, but it’s pretty much applicable to any type of media and more recently, we’ve had some good business developments on ebook protection as well.

This makes it quite an interesting venture for bounty hunters to earn Bitcoin essentially.

That’s why in the bigger scheme of things, in sort of the cryptocurrency ecosystem, we think that’s important. Because if you look at Bitcoin and the hype around other cryptocurrencies, it’s usually around trading and investing. There are a number of other ways in which people can apply cryptocurrency and for many of our bounty hunters; it’s the first Bitcoin that they receive when they claim the bounty. However, they earn cryptocurrency directly for performing a useful service. Essentially, we’re outsourcing the search for pirated content, which is a difficult thing to do directly into the piracy communities, and rewarding the participants for doing that directly in cryptocurrency.

What has the take up been like, can you give us an idea of what content studios have used your services, and perhaps even the number of bounty hunters out there?

On the business side, on the media science side, we’ve focused very heavily on the movie market originally. Back when we spoke in 2013, early 2014 our market analysis indicated that piracy in the film industry was on a very strong upswing, that there’s a very definite need for more sophisticated ways of cracking the sources of piracy. So we’ve focused quite heavily there. Our core product is a web service or API (application programming interface) software as a service where a client can connect directly to our system and mark and crack media copies using our technology. On top of that, we built a platform for independent movie studios, for the small movie studios where they can very easily send out screener copies of movies to recipients and that’s been quite popular among our early users.

We piloted that with a couple of local South African producers and distributors of movies and quite a large proportion of the local productions go through our system now during the pre-release distribution of screeners. Then about a year and a half ago we were approached by a company in the UK that does ebook distribution or serves ebook solutions for the large publishers, Erudition Digital, and they were interested in adding our tech as a value add to their ebook platforms. Therefore, we integrated directly with their distribution system, so when Erudition puts an ebook for retail, we serve that watermarked copy of the ebook. At the moment our biggest movie-producing client is in Japan, so we’re working with a company there that distributes about 300 new movies per month directly to DVD shops. We’re helping them to secure their distribution network there.

Regarding your question about the number of bounty hunters out there, the easy answer is, we don’t exactly know because they can be completely anonymous. But we’ve been doing a very controlled release of our extraction tool that the bounty hunters have used so far. As a kind of double-sided business with media clients on the one side and bounty hunters on the other side, we need to be very careful that we don’t over-scale on a number of bounty hunters before we have enough media out there in the wild to keep the bounty hunters interested and to have marked and pirated media for them to find. We try to keep our number of bounty hunters fairly small and very focused on the content that our clients release. We know that we have bounty hunters across four continents at the moment, but these are tiny numbers. There are dozens of bounty hunters, strategically placed within the file sharing communities where we know our clients’ content leaks or is likely to leak.

Getting back to the types of content that you’re protecting: is content piracy a bigger problem for the film industry or the ebook industry. Because you’re now playing in both fields essentially?

That’s actually a very interesting question because the harm around piracy relates directly to the type of media. I often hear people say something like, “The film industry should just relax about piracy, look, do what the music industry did, just evolve your business models around that”. But it’s very difficult to do for the type of media that’s intended to be consumed once by a recipient. For a music track, for example, you have multiple opportunities to sell that music track to the consumer. They might hear it the first time on a piracy streaming site, but music is something that, if you like it, you want to listen to it again and again. You’re likely to have another opportunity to sell that track and to recoup costs in producing the content from the recipient at some stage. Music is significantly cheaper to produce than a feature film for example, so there are lower costs that need to be recouped.

"Can an army of #bitcoin 'bounty hunters' deter online #piracy?" asks @torrentfreak in new op-ed on @CustosTech https://t.co/aQYMRJaVgs pic.twitter.com/TAQEboDW3w

— Custos Media Tech (@CustosTech) September 18, 2017

For a movie, you’re dealing with something that could cost tens of millions of dollars to produce. You have one opportunity to sell a movie to a recipient. If they watch it on the piracy site first, if you have a pre-release leak of the movie due to a screener copy being leaked, you’ve lost that sale and Hollywood is landing in a situation where there’s tremendous risk around not being able to recoup the costs for producing a large blockbuster. For ebooks, you have something similar. You usually purchase a book because you want to read it once, particularly ebooks that aren’t items that you’re going to display on your shelves and become part of the furniture. An ebook is something that people purchase to read once and if they are paying that first to a piracy site or by Googling for the ebook and getting a copy for free you’ve lost that opportunity to make a sale. So, ebooks turned out to be a particularly attractive market for new anti-piracy technology.

Is content piracy still a big thing, especially with the emergence of legal streaming services like Netflix, Showmax etc? I know that in the ebook department, there could still be a huge problem, but specifically when it comes to video, it seems like customers today have more options on the table. That is, they don’t have to go out and illegally download something anymore.

Yes, the CEO of Netflix used to say that when Netflix moved into a new territory, piracy rates dropped by 50% and I think you touched on something very important there: that the piracy isn’t simply a criminal phenomenon, that people don’t want to pay for content, therefore they steal it. It’s quite often an access problem where people want to have access to the content they want to watch, the books they want to read, or the music they want to listen to, but they’re unable to find it at all or at a price point that makes sense for the local market or the specific demographic in which that consumer would be. It’s certainly still a big problem for the film industry. I think Netflix has found some piracy has changed quite a bit since those early days where they were just redistributing other content owners’ content on an easier-to-use distribution channel.

Custos startup uses bitcoin bounties to make pirates rat on one another — Quartz https://t.co/FK0eRSCvU9

— CHSeaton (@COSseaton) July 23, 2017

Netflix has started focusing very heavily on producing their own content and they place themselves in a market position where the type of content they can produce is tailored directly to their distribution network and since their business model has evolved in that way, they’ve taken a much more prominent stance on piracy and they do have an internal team focusing on preventing that. But as we’ve seen with the recent leak of (Netflix produced) Orange Is the New Black: when you get a pre-release leak of a new series, it’s damaging to a company like Netflix. It’s more difficult to quantify because Netflix uses their original content as a way of acquiring new customers and retaining existing customers, so it’s very difficult to quantify the damage to the bottom-line that a leak like Orange Is the New Black does. But there’s no doubt that it’s harmful to them.

You run Custos out of Stellenbosch, what is your background and why is Custos being run from that part of the Cape? You guys also had a relationship previously with the University of Stellenbosch?

That’s right. I happen to be a rehabilitated academic. I used to be an associate professor at the Department of Electronic Engineering and my own research focused heavily on telecommunications and signal processing and particularly content protection and content distribution. And it’s in this environment that the idea of using Bitcoin for content protection spun out. It was one of those inventions that literally was made one morning around the coffee machine and in the Media Lab. My now two co-founders were chatting about ways of combining our research on digital rights management with Bitcoin and stumbled upon this idea that you could use a Bitcoin private key as a way of placing imposed vulnerability on the recipient of a media item to give them skin in the game to protect that.

We immediately wrote up our disclosure to patent it and in the Media Lab we worked very closely with the technology transfer office at Stellenbosch University. We then immediately went into the patenting process and started our market research, and we discovered that, a) it looks like a viable idea, and b) there seems to be a good market for this. We then incorporated the company and got some early investment. Our first year we ran off a seed grant from the Technology Innovation Agency and during that period we also raise our first seed grant/seed round of investment and as it emerged that the business concept seemed to be viable, I started spending more of my time with the company and eventually elected to move to the company full-time.

What do you make of the current Bitcoin hype because last time that I chatted to you, Bitcoin was still very much a fringe thing? It now looks like a bubble, doesn’t it?

Yes, it’s absolutely fascinating to see how the discourse around Blockchain and Bitcoin has developed. Back when we spoke last, it was this emerging phenomenon that was the kind of thing that tech geeks got very excited about. Back then, you could bore people within long conversations about it and the stuff that we were working on certainly looked like very blue sky tech. Yet now, it’s gone completely mainstream. We’ve had so many bull runs and proclaimed deaths of Bitcoin in the last couple of years, I’ve lost count. It’s certainly something that’s grabbed the public’s imagination now.

Blockchain technologies have been experimented with in an enormous variety of different application. It’s been applied to currencies like Bitcoin and Ether and several of the other new cryptocurrencies, such as Zcash which have also become popular. People have started to consider cryptocurrency more seriously as a potential investment, something to stick a little bit of money into and see what happens. But we’ve also seen phenomenons that definitely look like bubbles. The one that personally I’m sceptical about at the moment is the enormous hype around what’s called, “Initial Coin Offerings” or ICOs, which is a very novel way of doing fundraising for a business.

The idea is basically that you issue a cryptocurrency, issue your own type of Ether or Bitcoin that’s tied to your business operations and you sell off these coins or tokens to anyone in the world who’s willing to put down money to buy one in the hope that they’ll share in the profits of the company. We’ve seen companies raise millions and millions of dollars within 30 minutes using these ICOs. There has been an enormous rush for companies with often little more than a white paper on what they plan to do.

I personally don’t think that’s something that’s sustainable and several governments across the world have started talking or issuing regulation around the management of these ICOs. This is because ICOs could provide a way of issuing securities and bypassing the existing securities legislation, which is a dangerous thing for small investors out there. So, that’s certainly something that I think is in a bit of a bubble at the moment. As for the Bitcoin price and whether it’s a good investment, I must say, I’m quite bullish about Bitcoin as a cryptocurrency. I think it’s proven itself as a security over the past eight years and there’s an increasing demand for something that is fundamentally a scarce digital asset.

JPMorgan’s Chief Executive Officer recently hit out at Bitcoin, he basically called it a stupid fad without substance. What’s your take on his comments?

His words, if I recall correctly was that it’s a fraud. My comment on that is that I think it’s very difficult for something to be fraudulent if it’s completely open so that anyone can see how it is built and what the principles behind the concept is. And in terms of the security behind how it works and how it interacts and how it’s traded, we’ve had eight years of Bitcoin being actively traded and actively attacked by outsiders or people trying to get access to other people’s money through the system and the system has withstood that. So I think calling it fraudulent is inaccurate. I think what people sometimes misunderstand is that there’s nobody building Bitcoin and selling it to other people or where you have something like a Ponzi scheme where somebody is issuing tokens, shares, or participation in something that doesn’t have an underlying business supporting it.

In the case of Bitcoin, you simply have a scarce digital asset scarce digital commodity that people trade with each other paying Dollars or Rands to do it and in that sense; it’s a bit like gold. It’s artificially scarce on its own; it’s not necessarily something that has utility. Due to its scarceness and the fact that it would present a tradeable thing that you can sell for a local currency anywhere in the world, it’s become like gold in terms of investment: something that you can buy a little bit of and if you need to change it into Dollars, Pounds, or Euros. You can do so wherever you are.

Things that matter for bitcoin:
Mining
Consensus
Core development
Adoption

Things that don't matter:
Banks
Government
Jamie Dimon's opinion

— Jeremy Gardner (@Disruptepreneur) September 13, 2017

Do you think that the Blockchain and Bitcoin are here to stay then?

I certainly think so. I think it’s already moved out of the domain of the tech geeks who initially were dazzled by the cleverness of the technology. It’s been used to do crazy things. There are companies using it to crack the prominence of diamonds, there are companies using Blockchain to crack the ownership of security and make sure that there’s a more technically sound way of managing complex databases of ownership. It’s been used for music rights management tracking which artists are owed how much royalties due to a rework of a specific track of music.

These are all use-cases that were difficult or impossible or prior to the invention of Blockchain. I think we’re only starting to scratch the surface round what we can do with this technology. Bitcoin is the granddaddy of Blockchain applications; it’s the “Hello World” application of the Blockchain, which is simply building a digital currency that runs in a completely distributed way where nobody controls how it is issued or how the ownership of the money is tracked.

G-J, you’ve given us some of your views on the ICOs out there, but would the Custos ever consider launching an ICO, considering that you could probably create your own token and use it to trade on your own platform?

I’d be lying if I said we hadn’t toyed with the idea before, but it’s not something we’re seriously considering right now. It’s technically possible. At the moment we’re paying our bounty hunters in Bitcoin. But it’s completely feasible issuing a token or currency that’s called the ‘Gold Baboons’ or whatever and issue those as rewards to bounty hunters participating in the system. The idea behind an ICO would then be that you create this currency to be part of the ecosystem, the currency in which rewards are received and you allow people to repurchase some of these to participate in the growth in the value of this alternative currency. But it’s not something that we’re considering as a fundraising mechanism at the moment. We’re building our business in the more traditional way, raising funding rounds by pitching to investors and by getting feedback from business, from clients, from investors on what seems viable and what seems the right direction for us as a business. That’s most likely the route we will continue on.

G-J, it’s been an absolute pleasure talking to you today, thanks very much for taking the time to chat to me.

Thank you.

The post Bitcoin bounty hunters: Stellenbosch tech firm cracks down on content pirates appeared first on BizNews.com.

JOHANNESBURG — Walmart seems to have got one over it’s rival Amazon after it agreed to buy a controlling stake in Flipkart, India’s biggest online retailer. Both were embroiled in a bidding war as the battle for e-commerce supremacy goes global. Walmart acquired a 77 percent holding in Flipkart for $16bn. And as part of the deal JSE-listed Naspers sold its 11.18% stake. Cumulatively the group had invested $616m, with the stake now valued at $2.2bn. Another feather in the cap of those running the Naspers ship. – Stuart Lowman

Naspers media release

South Africa-based global internet and entertainment group, Naspers Limited today announced the sale of its 11.18% stake in Indian ecommerce company Flipkart, to US-based retailer Walmart for $2.2bn, representing an IRR of approximately 32%.

Launched in October 2007, Flipkart is India’s largest ecommerce marketplace. Naspers initially invested in August 2012 and its cumulative investment to the point of sale amounts to US$616m.

The proceeds will be used to reinforce Naspers’ balance sheet and will be invested over time to accelerate the growth of Naspers’ classifieds, online food delivery and fintech businesses globally, and to pursue other exciting growth opportunities when they arise.

Flipkart is one of several leading businesses that Naspers has invested in or built in India. Following the sale of its stake in Flipkart, in India, Naspers retains OLX, the leading online classifieds business, PayU, a leading provider of payment and fintech services, and its investments in Swiggy, the leading online food delivery company, and MakeMyTrip, the leading online travel business.

Bob van Dijk, Group CEO, Naspers, said: “India is one of the most exciting markets in the world. We are proud to back Indian entrepreneurs whom we believe have what it takes to build outstanding and long-lasting businesses, and Flipkart is a great example of this. Our decision to sell is consistent with our strategy to realise value from the businesses we help to build. The time has come for us to wish the team well for the next chapter of their story, and we are excited about the future of OLX, PayU, Swiggy and MakeMyTrip.”

Oliver Rippel, CEO of B2C ecommerce at Naspers, said: “We initially invested in Flipkart in August 2012, and we’re proud to have been part of the journey to build the leading ecommerce player in India. We wish the team well as they continue their journey.”

The transaction is subject to regulatory approval and is expected to close later in the year.

Naspers Scores! South African Company Notches Flipkart Win

by John Bowker and Loni Prinsloo

(Bloomberg) – Africa’s largest company just chalked up another major investment coup.

By Alec Hogg

As Naspers accounts for over 20% of South African equity portfolios, some analysts have raised concerns that the national savings pot is too heavily exposed to a single company. Which is fair comment, even if it has worked out unbelievable well so far, primarily because its $30m investment in Tencent is today worth $161bn – equal to roughly half SA’s GDP.

The Cape Town-headquartered company‘s management is trying hard to close a 40% discount between its own market cap and the value of the shares it owns in Tencent (which means shareholders gets Tencent at near half price and the rest of Naspers’ assets for free). Yesterday’s biggest ever retail acquisition, Walmart’s purchase of 77% of India’s Flipkart for $16bn, will surely help its cause.

Just like with Tencent, Naspers was an early stage investor in ecommerce company Flipkart, injecting a cumulative $616m into the business for just under 12% of the shares. It will bank $2,2bn after yesterday’s deal. CEO Bob van Dijk says the group decided to sell because with Walmart running the show it will have little influence in future “and we’re not a financial investor”.

It’s an approach that’s served the group rather well. Perhaps those “financial investors” who rule the capital markets will now start to realise Naspers ain’t no one trick pony.

JOHANNESBURG — Backed by the likes of Naspers and Rand Merchant Investment Holdings, South African linked cryptocurrency exchange Luno – which started in the Cape – has expanded rapidly over the past few years. Previously called ‘BitX’, Luno now operates in more than 40 countries with its headquarters based in London. The company is also nearing the 2 million customer mark, according to Luno’s South African country manager Marius Reitz. In this interview, Reitz also tells me about the company recently winning a top award in the UK. – Gareth van Zyl

It’s a pleasure to welcome Marius Reitz, who is the South African country manager of what is the country’s best-known cryptocurrency exchange, Luno. Marius, Luno, which was previously known as BitX, started in Cape Town, but it is now a global operation. Can you tell us more about its background and where Luno is based around the world currently?

Hi Gareth, yes, thanks for having me – it’s nice being on your show. We started as a B2B company and we built the first fully integrated Bitcoin system for a major multinational bank, that was way back in 2013. But we quickly realised that the banks were, and still are to some extent, too slow to bring this technology to the world. So, we decided to build a bank, a digital currency bank, where you can store, send, receive, buy, and sell your digital currency. Then in early 2017, we underwent a rebranding from BitX to Luno. Most Bitcoin companies have rather technical names and BitX was no different. We wanted our brand to be friendly and accessible for everyone, not just to techies and people on the technical front. We wanted a name that has positive connotations as well as showcasing the potential of the industry and its ecosystem. Right now, our goal is simply to be the easiest place to buy, sell, and learn about digital currencies like Bitcoin and Ethereum.

And you’re now based all over the world? It’s not just SA only – you’re in Europe, in Indonesia, Nigeria, all across the globe?

We’re operating in more than 40 countries spread across three continents, but we’re always looking for new countries to launch our product in, as long as the customers demand it. But our back-office is based in Cape Town, and it hosts all our core functions. Then we have country offices in Nigeria, Indonesia, Malaysia, Singapore and also in London/Europe.

So, is your biggest office then still your Cape Town office or have some of the other offices overtaken Cape Town?

Definitely our biggest office is Cape Town. As I said, we have all our core teams based in Cape Town, our customer support, engineering teams, finance – all the core functions. We have other country teams based in the respected countries that I’ve just mentioned.

Just coming back to your SA operation. Luno has some big SA investors behind it. You’ve got the likes of Naspers, and even Rand Merchant Investment Holdings. Can you tell us more about who’s backed Luno?

We are very fortunate to have a few heavyweights like Rand Merchant Investment Holdings and Naspers as our investors. Naspers was our series-A investment round, that was in 2015. Then last year, around August/September, we announced our series-B investment round. That included Rand Merchant Investment Holdings, but it was also led by Balderton Capital, an investor in the UK. We’re very fortunate to have a investors whom we can leverage from and they’ve been very helpful over the past few years in helping us launch our business across 40 countries.

Do some of the members from those companies then sit on your board? Do they have a say in how thing operate and work?

To some extent, yes – I would say, more as technical advisors. We definitely have some of the investors sitting on our board. But, as I said, they are there more from a technical perspective, to help us with strategies in some of the emerging market countries we operate in and to provide us with insights into building a start-up company.

Marius, interestingly Luno was named the UK’s fastest growing startup in what is dubbed the ‘Tech 5’ competition. You are now in the final round of the competition to compete for the title of the fastest growing tech company in Europe. Can you tell us more?

Yes, it’s a fantastic way to acknowledge the hard work that the team has put in over the last few years, and to see that come alive with an award like this. We’re really proud to see that the hard work is paying-off and it really ignites our purpose by validating our role in the future of money. We’re really excited for this next round of growth ahead and we’re really happy with this award.

You must be making some serious waves in Europe to get an accolade like that?

Yes, I think coming back to our investors such as Balderton Capital in Europe: they really helped us with our operations in the UK and in Europe. I think the big driving force behind this and the hard work was building a real customer centric and user-friendly product. I think that’s one of the most important driving factors behind this, especially with all the uncertainty around crypto. Customers want to know that when they deposit money into Luno that their money is safe and we really do our part to educate customers and build our products in a user-friendly way. That has been the driving force behind our success in Europe.

Just in terms of the cryptocurrencies that you currently sell on your platform. So, it’s Bitcoin and Ethereum, but would you be looking to introduce more down the line, potentially?

We’re always on the lookout but we won’t be adding for the time being. I think having extensive experience and working closely with many of the other currencies – we haven’t been overly impressed with the majority of them. Our concerns range from limited use cases and also, market adoption. Also, there’s concerns around a lack of proper security and many of them being actually just outright scams. So, for the time being, we’ve decided to focus on Bitcoin and Ethereum, and to perfect our offering around those two currencies. Maybe in the future we’ll look at additions, but we also need to be careful not to have too many as there are many cryptocurrencies that are either scams or going nowhere. It’s important for us then to give our customers the right products and services, and to protect them from scams. So, everything depends on our customers at the end of the day. We look at demand and we then assess if it makes sense and ultimately we do what will make them happy.

Just talking about demand, obviously, the Bitcoin and the Ethereum market prices have taken quite a knock since December. It seems to have levelled out somewhat now, but has this affected demand for your service in any way, the cooling off of these cryptocurrency prices?

Not really. We’re currently approaching 2 million customers globally, and the growth continues to be exponential. There’s really so much potential and a huge amount to achieve for Luno and the industry as a whole, over the next few month and years. I would say, in terms of trading volumes, yes, we’re seeing a slowdown. But in terms of new customers signing up for our platform and general interest across the industry – there is absolutely no slowdown on that front.

You mentioned that you’ve got 2 million customers, which is a massive number. So, what’s driving this demand for your service? What factors out there are prompting people to download the Luno app and buy some cryptocurrency?

Gareth, I think we’ve seen a massive spike in interest, especially interest in individual currencies globally. We believe this is as a result of customers re-evaluating their options and reimagining their financial potential. So, we want to upgrade them to that world where money is cheaper, faster, safer, and, also, where transactions are private but yet transparent. We’re giving our customers a vehicle to reach that future world and tools to enable their financial freedom. At the end of the day, that is what’s driving this spike. People seeking new ways to use their money that is cheaper, faster and safer.

Obviously, the SA Reserve Bank recently said that it’s taking a closer look at cryptocurrencies and SARS said that it’s also taking a closer look. So, have you had any regulators in the country asking you certain questions or making certain visits at your offices perhaps?

We are very actively working with a number of central banks and regulators across the globe actually. In terms of local regulators, we attended the inaugural intergovernmental FinTech workgroup, and that was at the end of April where SARB and a few other government institutions facilitated the first workgroup. It didn’t only focus on cryptos. It also focused on financial inclusion, and technology innovation, and we participated in the discussions as a first round to help SARB formulate their position around regulation regarding the FinTech industry at large, and not specifically just cryptos. But all in all, we welcome regulation. We believe it can have a very positive impact. Ultimately, it brings clarity to businesses and consumers. It helps to keep out fraudsters, and other operators who have low regard or capabilities in keeping customer information and customer’s money safe.

Obviously, Luno uses the likes of Know Your Customer (KYC) type technologies as well, which I guess puts you in line with any possible regulation that could make its way into the market?

Yes, definitely. We follow an approach of self-regulation. So, as you know, the industry currently is unregulated. So, since day-one we’ve followed the self-regulatory approach. We make use of technologies to assist us with customer onboarding, the KYC of customers and, also, on the anti-money laundering front to help us to submit suspicious transaction reports to the regulators. But really, from our side, we are doing our best on a KYC and on the anti-money laundering front to comply with existing regulations.

Marius, looking forward. What are Luno’s plans for the next 3 to 5 years? Are you going to be expanding a lot more, like you have been doing over the last few years?

Yes, definitely. I think we are always looking to launch in new countries. We’ll definitely be bringing Bitcoin and Ethereum, or digital currencies at large, to new countries and new regions. Currently, I think our vision is to upgrade the world to a new financial system but that is our long-term plan. We believe that decentralised digital currencies, like Bitcoin, will fundamentally change how the world views and uses money. We are further busy building the product and that user experience that will give people access to the same financial system, no matter where they are or where they are from. So, at this point, we are focusing on perfecting our current offering and making the product as easy as possible to use, and as safe as possible. But, yes, we’re also looking to launch in new countries in the future, if our customers demand it.

Marius, thank you so much for taking the time to chat to me today.

Thanks, Gareth. I appreciate it.

By Alec Hogg

Investment pundits are digesting Walmart’s record breaking deal last week when it acquired control of India’s ecommerce leader Flipkart. In South Africa, too, where fund managers are debating the decision by the JSE’s biggest stock, media group Naspers, to cash in its Flipkart chips. Not all believe it did the right thing by banking a $1.6bn profit (and a 257% return).

I’d urge those critics to invest in the latest edition of The Economist whose cover features a picture of the founder of Japan’s SoftBank Masayoshi Son, under the headline “The $100 billion bet.” This refers to the new Vision Fund created by Son’s company which invested $28bn with the Saudi and AbuDhabi sovereign wealth entities kicking in another $60bn. Other contributors include Apple Inc.

This $100bn Vision Fund is targeting Silicon Valley, aiming to buy into young companies that operate in “frontier technologies” ranging from robotics to the Internet of Things (IoT). Son’s new venture intends competing with Google, Facebook and Amazon, which until now have been the most popular sales options for successful startups.

So what has this to do with the Naspers decision to cash in its Flipkart stake? Well, the only other major investor to sell out was SoftBank. And with so much of Son’s money looking for new homes, there was surely a good reason for tech’s hottest investor to exit its $2.5bn Flipkart stake (banking $4bn). At the very least, Naspers is in good company.