Michael Jordaan shares his successful investment strategy

Michael Jordaan is one of South Africa’s most revered businessmen, thanks to his exceptional work as FNB CEO and his achievements in the venture capital space.

Under his leadership, FNB showed exceptional growth and was named the world’s most innovative bank.

After Jordaan left FNB at the end of 2013, he founded Montegray Capital, a private investment firm focusing on early investments in disruptive technologies and business models.

Through Montegray Capital, Jordaan invested in 25 ventures, many of which are now household names in South Africa.

His most prominent investments include Rain, Herotel, Bank Zero, Compuscan, De Villiers Chocolate, and Valr.

Jordaan has already achieved a few profitable exits, including Compuscan, Herotel, VALR, and EasyCrypto.

• In 2019, London-listed information services company Experian acquired credit bureau, Compuscan, for R3.72 billion.

• In February 2022, Vumatel acquired a 45% stake in Herotel with plans to increase this stake to 100%.

• In March 2022, South African cryptocurrency exchange VALR raised $50 million (over R750 million) in Africa’s largest ever crypto funding round. It valued the company at $240 million (R3.7 billion).

• In April 2022, Purple Group acquired the remaining 49% shareholding in EasyCrypto from its founders, Earle Loxton and Michael Jordaan’s Montegray Capital, for R61.3 million.

These impressive exits established Jordaan as one of South Africa’s most successful venture capitalists.

However, many of Jordaan’s other investments – notably Rain and Bank Zero – hold even more potential.

Montegray Capital has a sizeable shareholding in Rain, which is currently valued at R16.6 billion.

Bank Zero, although still new, has built a strong brand in the digital banking market and has the potential to be a force in years to come.

“I’m very happy with the investment in Rain given their dominance in 5G and the popularity of unlimited data,” Jordaan told Daily Investor.

“Bank Zero is much smaller than the other Neobanks but also has low overheads and the ability to quickly churn out new innovative functionality on its own tech stack.”

“All-in-all it has been a great portfolio performance by 25+ counters where I have exposure.”

Michael Jordaan’s investment strategy

Jordaan told Daily Investor that his investment strategy is to back exceptional people who solve worthwhile problems. It is usually done with the help of technology.

“I place great value on a track record of successful execution. It stops me from falling in love with a smart idea only,” Jordaan said.

He likes simple capital structures where the funds go straight into the business – not off the table – with management having significant skin in the game.

“It’s best to provide incremental funding as the business grows and reaches certain milestones,” Jordaan said.

“I have a bias for frugality and prefer industries where modest capital still enables the entrepreneurial team to take on large companies and solve big problems.”

Montegray Capital’s investments are mostly startup capital in privately held businesses. In crypto, he backed VALR and EasyCrypto.

All the businesses Jordaan invested in are South African, although many are expanding across borders. “It is important to first win the home games,” he said.

“The fun in venture capital is working with great people and solving problems,” he said. “I strongly recommend it to anyone who has capital, likes entrepreneurship, and sees business as the most sustainable way of improving the world.”

Venture Capital investing is hard

Jordaan said while venture capital investing is fun and rewarding, it is not easy.

“Most startups fail, and failure isn’t fun. The investments are also illiquid and have long time horizons,” he said.

Another challenge is the large amount of work required, which ranges from due diligence to legal documentation and strategy.

“The work is the same for small and large companies, but with smaller absolute returns – at least initially – for smaller investments.”

What makes it worthwhile is that some startups succeed spectacularly and compensate for the failures in a portfolio.

Holding equities longer also eliminates trading costs and rewards longer-term thinking. It also establishes sound principles around strategy and governance from the start.

Sadly for new startups, Jordaan is currently fully invested and cannot look at new investment opportunities until he has more large exits.