Mark Shuttleworth's venture capital firm HBD has sold its 23% stake in Red Five Labs to Fedgroup, for R3.5 million. The sale amount is double the R1.7 million invested in the mobile technology start-up company to date.
In October 2005, Red Five Labs secured R4.5 million in funding from HBD and the Innovation Fund. Co-founder and company chief executive, Dusan Babich, says this funding was apportioned to various deliverables in the research and development of its mobile software platform.
"Co-founder Mike Welham and I had collaborated on an idea to develop a programme which would enable applications developed in Microsoft's .Net technology, to operate on the prevalent mobile phone operating system, Symbian OS. At first, it was a part-time endeavour, but with investment funding, we were able to bring on some of the people to help us make it work," he says.
To date, Red Five Labs has received approximately R2.5 million of the total funding, R1.7 million of which came from HBD. A Beta version was released to selected customers last year and the program is now available for free download.
Silly money
Fedgroup's group development manager Grant Field says the company has been aware of Red Five Labs since its inception.
"Babich wrote some software for Fedgroup before he went on to co-found Red Five Labs. Our interest and awareness in what Babich was doing continued; however, we are not a venture capital company and, at the outset, it was really just an idea that could go either way," explains Field.
A year-and-a-half later though, things have changed and Fedgroup believes the opportunity inherent in Red Five Labs is excellent.
"The worldwide mobile market is enormous and the beta version of Red Five Labs' software is already gaining international interest. For us it was a way to get silly returns on our investments," says Field.
HBD's portfolio and investment manager, Eben van Heerden, agrees: "We certainly weren't looking to exit from Red Five Labs. But everyone has their price and we felt it reasonable to ask for double our investment as a selling price. If Fedgroup hadn't been interested, then we would have backed out of the discussion and continued our relationship with Red Five Labs."
Babich and Field say the company's next step is to commercialise the programme. Red Five Labs has already begun discussions with Nokia, Sony Ericsson and Symbian, joining the latter's platform partner programme.
With cash in its pocket, HBD says it has several initiatives in the pipeline, which are being evaluated.
Van Heerden concludes: "There has been a lot of speculation about whether venture capital would work in SA. Our investment in Red Five Labs has shown that it can, and I'm just looking forward to what happens next."
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