Xineoh, a South African technology startup that developed a new type of machine learning recommendation engine, has secured $1.5 million (R20.6 million) in the second round of equity deals late 2018 and early 2019.
The company founded in Bloemfontein, South Africa, has attracted heavyweight investors.
The investors include seasoned investment banker Wade Flemons, a private equity managing director and entrepreneur from Vancouver, Canada.
Notably, the 2018/2019 round was oversubscribed within weeks, during a time when deal-flow has generally been quite slow, recording a post-money valuation of $15 million.
Xineoh gripped attention in 2017 when it raised $2 million in offshore venture capital as a small Bloemfontein-based start-up.
Xineoh chief executive officer, Vian Chinner, says South Africa has a small formal tech start-up scene and thin capital markets.
“It has been difficult for start-ups to acquire funding and to establish a Silicon Valley-type ecosystem in South Africa. To date, we’ve experienced a self-reinforcing cycle of limited venture capital and therefore limited startups, and vice versa.”
But this may be changing. In 2017, tech start-ups in South Africa attracted venture capital of about $14.7 million and in 2018, the sector concluded venture deals worth $89.3 million, signalling a positive shift in sentiment.
“I believe the interest from investors such as Flemons could open the floodgates for tech start-ups. We may be breaking new ground now and venture capital, which has been relatively risk averse in the past, may be more open to investing in local start-ups,” says Chinner.
Chinner says South Africa’s need for various tech services is growing.
“It is impractical to get everything out of Silicon Valley. Something like AI requires some degree of consultation with the client. It is difficult to get this type of service from an operation that is a 27-hour flight away.”
There are also intricacies in South Africa that US tech providers may not be able to address.
“A leading tech company such as Watson in the United States is a bit like an F-16 fighter plane. It is highly efficient, but it has to take off in near perfect conditions for it to succeed,” says Chinner.
“By comparison, a MiG can take off on a dirt road and doesn’t need continual maintenance. At Xineoh, we have built a software platform for companies that might have unstructured, unclean data. It’s more robust and flexible and therefore more suited to the local market,” he adds.
Xineoh has developed a platform for predicting consumer behaviour with AI that can be implemented by clients, quickly, cheaply and with minimum complexity. Companies can use the platform to out-predict their competition, maximising business efficiency and customer satisfaction.
Banker and investor Flemons states that he made the decision to invest in Xineoh because it displays key characteristics of an early stage business that can be successful in the high-growth AI sector. “Xineoh’s experienced executive and engineering teams, its cutting-edge technology and the astounding results achieved by its algorithm to date are the major differentiators that will drive the value growth for its clients and shareholders.”
Subsequent to the closing of the latest round of funding, Xineoh had both Hans Hawinkels, former CEO of Naspers interests in Asia, who played a pivotal role in Naspers’ hugely successful Tencent acquisition and Abdul Ismail, former CEO of MTN Zambia join its advisory team.
Hawinkels says he joined the advisory team for two principal reasons.
He says Xineoh offers a very efficient way of being able to help predict consumer behaviour and it has a great management team led by a very capable person in Vian.
“In addition, because Xineoh is able to analyse large quantities of data quickly and cost effectively, companies will benefit from such analysis and be able to better position their business or products and save costs in the process.”
Xineoh boss Chinner says Hawinkels has assisted the AI startup with building its team as well as highlighting potential clients for the company.
“We have appointed two new board members, Alan Keet, former CEO of Grand Parade Investments and Nolands South Africa and Xen Lategan, former chief technology officer of Newscorp in the United Kingdom, and are looking to expand our employee base significantly in 2019.”
He says 2018/9 is likely to be the last venture round for Xineoh.
“We are close to being cash-flow positive and aim to continue to grow value through our focus on building a leading team, the most prized solutions and ultimately the most valuable insights and predictions for our clients.”