February 17, 2017

Naspers Ventures, a 101-year old South African-based venture capital firm, expanded into the United States in recent months, tapping VC veteran Mike Katz to spearhead the effort. With a pipeline of potential deals, and a strong balance sheet from which to invest with zero reliance on outside capital, Naspers, whose U.S. office is located in Silicon Valley, could back a trio or more of U.S.-based ag-tech startups in 2017.

The Naspers U.S. office, which is comprised of about eight people, is not even a year old yet, having debuted in May 2016, yet its history as an emerging markets investor precedes the firm. While Katz has met with many U.S.-based entrepreneurs since joining Naspers in June, it has become increasingly clear that startups are looking to now, or eventually gain, a foothold in emerging markets.

For instance, Katz points to the founder of a tech startup whose internet traffic from Brazil is about to double, yet the entrepreneur has never set foot in the country. Enter Naspers, who specializes in this type of challenge.

“That’s a perfectly crystalized example for us. That’s the void in the market that we’re largely attempting to fill,” Katz told GAI News. Farm data company FarmLogs, into which Naspers led an investment round in recent weeks, is similarly looking to expand beyond the United States.

“We will continue to invest in the far-flung regions around the world. But we’ve added to that strategy with our U.S. presence to invest in companies like FarmLogs. Although FarmLogs is very much an American company and selling to American farmers, you don’t have to squint to see a scenario where that same software suite is being sold to sugar cane growers in Brazil or rice growers in India, or wheat growers in Russia. That’s where being able to partner with somebody like Jesse [Vollmar] is really interesting for both entities,” Katz said.

History

Naspers was founded as a print media publishing company until about two decades ago when the firm evolved to capitalize on their emerging market expertise as investors (though the firm continues to operate its Internet and entertainment businesses). Originally the investment focus was strictly on the BRIC nations of Brazil, Russia, India and China, the latter of which led Naspers to back Internet phenomenon Tencent, which has since gone public and whose shares the VC firm continues to hold today.

“There weren’t a lot of other investors in those geographies, and that’s what we knew well,” said Katz, adding that Naspers continues to own 34 percent of Tencent today and “never sold a share.” In fact, that long-term investing strategy remains embedded deep in the culture of the firm today, including in its new U.S. investment arm.

Investment Pipeline

Katz expects that Naspers may make between five and 15 new investments per year with a median investment size of $15 million, however, this expectation is indeed flexible. “We’re under no mandate to make a certain number of investments. We can sit on our hands indefinitely if that were the most judicious use of the firm’s capital,” he said.

Nonetheless, the firm is actively scouting investment opportunities including ag-tech startups, where Naspers has no intention of making “competitive investments,” Katz noted. And while no corner of the United States is off limits, by nature of the industry, Katz expects the lion’s share of commitments to unfold in the Corn Belt.

“There are lots of opportunities in a sector as broad as agriculture. We have talked to companies that have sensors in soil all the way through to satellites flying overhead and  literally everything in between,” he said, adding that he could see the firm replicating the investment strategy Naspers used for education by making a trio of investments and then taking a pause to “catch our breath.” Then again, given the “exciting opportunities in agriculture,” Katz could also see the firm backing more than three ag-tech startups this year.

Katz, whose grandfather was a partner in a cattle ranch, said the farming community’s eagerness to adopt new technologies has been the greatest surprise to him and the Naspers investment team, and is largely why the firm is so enthusiastic about the U.S. market.

“That was one of our biggest concerns, frankly. We recognized big global trends, we did our research. And then we started talking to farmers, and that’s when we got really excited,” said Katz. “Even the very small growers, their sophistication level has grown leaps and bounds in the past five or 10 years. Their willingness to experiment and their recognition that those who are not experimenting and not embracing new technology will be overtaken by other farmers that may be in an adjacent field — that’s a real sort of friendly threat that the average farmer feels on a daily basis. And consequently, that in a very positive way is pushing growers to adopt these technologies.”

He adds that the way the U.S. goes is the way the world often goes as well. As a result, the Naspers team is confident that growers of any meaningful global scale will be readily adopting emerging technologies in the coming years.

In addition to agriculture, Naspers investment thesis extends to sectors including healthcare and education, where Katz said the macro-trends are interconnected.

-Gerelyn Terzo

Gerelyn is a regular contributor to GAI News. She has been writing about institutional investing and asset management for the majority of her career, and has developed a focus on agriculture given the global scale of the industry’s relevance and importance.