Grovest Venture Capital Company (Proprietary) Limited is a venture capital trust specialising in investing in startups, early stage pre and post revenue companies, series A, series B, growth capital, and mature companies.
Grovest is South Africa’s first Venture Capital Company (VCC) incorporated under Section 12J of the Income Tax Act. An investment in Grovest affords investors direct exposure to the rapidly developing VC sector in South Africa, whilst enabling them to write off up to 100% of their investment capital against their taxable income in the year in which the investment is made.
Grovest Venture Capital Company
Grovest’s investment strategy is to utilise the Section 12J Venture Capital Structure as a base to create individual funds that invest in high growth, sector specific verticals. This strategy allows the investor to leverage the tax incentive in order to achieve above average risk adjusted returns.
Grovest provides investee companies with the capital and management support they need to optimise their potential and generate value through improved strategic, operational and human resource capabilities.
Investment Criteria to obtain Grovest funding
It typically invests in high growth, scalable, low capex private companies. The fund seeks to invest in the disruptive digital technology sector in companies based in South Africa; between R0.5 million and R10 million in companies with net asset value less than R20 million.
It may co-invest along with other funds and seeks to invest in the form of equity and take a board seat on its portfolio companies.
Depending on the mandate of the fund the investment committee will generally invest in companies will with the following attributes:
- Business models with potential for rapid growth in revenues and profitability;
- Defensible market positions;
- Strong, balanced and well-motivated management teams that hold meaningful shareholdings in their companies;
- Attractive entry prices;
- Opportunities for Grovest to add value;
- The prospect of exiting with a meaningful investment surplus over a five year period.
It does not invest more than 10% of its capital in a single portfolio company; more than 20% of its capital in pre-revenue portfolio companies; more than 40% of its capital in post-revenue portfolio companies; and may invest an unlimited amount in growth capital investments. The fund does not invest in any trade carried on in respect of immovable property, financial service activities such as banking, insurance, finance, consultancy, money-lending and hire-purchase, financing; provision of financial or advisory services, including legal, tax advisory, stock broking; management consulting, auditing, or accounting; operating casino’s or other gambling related activities including any other games of chance; and manufacturing, buying or selling liquor, tobacco products or arms or ammunition.
Section 12J is subject to the provisions of the Income Tax Act No. 58 of 1962 (the Act). Section 12J was introduced to cater for the deductions in respect of expenditure incurred in exchange for the issue of venture capital company shares.
Qualifying Investors will invest in approved VCC’s in exchange for the issue of Venture Capital Shares and investor certificates. Investors can claim tax deductions in respect of their investments in an approved VCC. The approved VCC will, in turn, invest in qualifying investee companies in exchange for qualifying shares.
The company must satisfy the following requirements by the end of each year of assessment after the expiry of 36 months from the first date of issue of Venture Capital Shares:
- A minimum of 80% of the expenditure incurred by the VCC to acquire assets must be for qualifying shares, and each investee company must, immediately after the issuing of the qualifying shares, hold assets with a book value not exceeding: R500 million in any junior mining company; or R50 million in any other qualifying company
- The expenditure incurred by the VCC to acquire qualifying shares in any one qualifying company must not exceed 20% of any amounts received in respect of the issue of Venture Capital Shares.
An investor in Grovest will obtain a 41% tax break (for an individual tax payer at maximum marginal rate) at the time of investment. No recoupment of tax break at the time of realisation of investment in Grovest if the investment is held for a minimum period by the investor of 5 years.
At DTC we understand the complexities of the various funding agencies and the unique application criteria for each. We have assisted thousands of entrepreneurs through the application process to access funding for businesses, and we can assist you with the same.
Contact us for more information on funding through Grovest Venture Capital Company.