Ethos Ai Fund I

ETHOS AI FUND I INVESTMENT CRITERIA

VINTAGE YEAR:
2018
CAPITAL RAISED:
TARGET: R1 billion (first close R600 million committed)
FUND STATUS:
Capital raising & currently investing
The Ethos AI Fund I was launched in 2018, with a successful first close of R600 million, and a final target size of R1 billion.  The Fund is actively investing.

Our AI Fund identifies and invests in businesses that can benefit disproportionately from artificial intelligence. The core capability and competitive advantage of the Fund is working with companies to transform the company through the use of artificial intelligence. This capability is comprehensive and includes working with organisational design, strategic planning, resourcing, use of data, technology, analytics, incentives, culture, execution, change management, and people management.

The primary type of Artificial Intelligence the Fund focuses on is algorithmic decision making. These algorithms typically help organisations make high frequency decisions in multiple places in its value chain. These decisions are not suited to human capabilities, typically due to computational complexity and breadth of data utilised. This in turn allows humans to focus on decisions not suitable for machines, such as creativity, relationships, strategy or communication.

The Fund seeks to invest 80% of its capital in growth equity, investing between R100 million and R200 million in each opportunity, often as co-investments with other Ethos-managed Funds. Target companies are established businesses with strong prospects, low business model risk, established profitability and, ideally, positive cash-flows.

The Fund also seeks to invest 20% of its capital in earlier-stage growth equity – businesses promising strong revenue growth, usually in existence for more than three years, potentially not profitable yet, with some business model risk.

Geographically the Fund is targeted in sub-Saharan Africa.

The Ethos AI Fund I partners are Nic Kohler and Roger Grobler.
ChannelVas
TymeBank
Vertice MedTech Group
  • Control or join control
  • Minority growth capital
  • Co-investment on acquisition of companies by primarily other Ethos Funds, with enterprise values of c.R500 million to c.R3 billion
  • Earlier stage growth equity investments into businesses with enterprise values of R100 million or more

Digitisation and Big Data
The rate of change in the world is accelerating at an accelerating rate, fueled by exponential technologies. This rate of change is creating large new corporations faster than ever before, while at the same time decimating organisations that fail to cross the divide from old and new, or that are simply trapped in a business model.

There are a number of exponential technologies at various levels of maturity and impact, and many of them intersect and correlate in impact. At the heart of most, if not all of it, is the digitisation of information, and the resultant data analytics and artificial intelligence that it enables.

Multiplicative value chain
Certain companies have a “multiplicative value chain” from an artificial intelligence perspective. That means that incremental improvements in the different parts of the value chain multiply out to create an exponential improvement in the lifetime value of individual clients, which in turn substantially increases the intrinsic value of the business.

By improving multiple parts of the value chain incrementally, the intrinsic value of the company can be increased materially, even exponentially.

Investment thesis
Targeting companies with a multiplicative value chain and implementing a disciplined, strategic artificial intelligence program using globally best-in-class artificial intelligence has the potential to deliver attractive private equity returns. Agreeing an implementation program with management in advance of the investment, while making sure the program is appropriately funded and resourced is key to unlocking value from artificial intelligence.

Ideal target companies for this kind of investment have a combination of characteristics: Multiplicative value chain, unsophisticated competition from an artificial intelligence perspective, access or potential access to rich and big data, and the ability to develop and utlise hyper decisioning.