Kalon Capital to sell Ozow stake as tax benefits arrive

MyBroadband has learned that Kalon Venture Partners, one of Ozow’s original investors, is seeking a buyer for its stake in the South African fintech business.

Kalon operates as a Section 12J venture capital company, which affords it certain tax benefits for holding on to investments for at least five years. It invested in Ozow twice: once in a 2017 seed round, and five years ago as Series A funding in 2019.

According to Kalon’s website, it identifies a clear exit strategy before investing in any company.

“Even though the exit comes last, the exit strategy is built into the structure of the company from when we make the initial investment. We ensure that the company founders and board are aligned on the exit strategy,” it says.

Word that Kalon is seeking to exit its stake comes as founder Clive Butkow stepped down as CEO in November 2023.

Following his resignation, Butkow launched Conducive Capital with Ozow cofounder Mitchan Adams.

Originally founded as i-Pay in 2014 by Thomas Pays, Mitchan Adams, and Lyle Eckstein, Ozow has become a familiar option on e-commerce sites offering instant EFT payments, now called “pay-by-bank”.

The company hit R10 billion in transactions processed in March 2020 and continued to grow and scale rapidly despite initially facing headwinds from local banks.

In November 2021, Ozow raised $48 million (then R748.8 million) in a Series B funding round led by Tencent, which included Endeavour Catalyst and Endeavour Harvest Fund.

At the time, Ozow said it was processing over R1.5 billion in monthly transaction volumes across a network of thousands of merchants.

It also reported that 120,000 new users joined the platform every month.

Ozow said it would use its Series B funding to continue growing with new products and expand into Africa.

Pays specifically highlighted Namibia as the country where plans were the furthest advanced.

He also said they were in the preliminary stages elsewhere in SADC, and wanted to expand to Nigeria, Ghana, and Kenya.

Although Ozow’s plans to expand to the rest of the continent have slowed, it has launched several new products.

These include peer-to-peer payments system and mobile wallet Ozow.Me, and open banking interface integrations with Absa, Capitec Pay, and Nedbank Direct EFT.

Ozow’s product strategy appears to have been successful. In November 2023, the company reported having over 8 million users on its platform.

The company also told MyBroadband that its pay-by-bank transaction count has surged by 248%, with an average year-on-year growth of 83%. Its processing value of pay-by-bank transactions has also soared by 180%.

“Ozow’s success extends beyond its pay-by-bank offerings, with payout transactions witnessing a 250% year-on-year increase and transaction processing value growing by 141% annually,” Ozow said.

“The company attracts an average of 100,000 new unique users every month just on the pay-by-bank product.”

Ozow also revealed that it plans to integrate card payments this year, transforming it into a full-service payment provider.

“Ozow’s active merchant base has experienced significant growth, with a 100% year-on-year increase in payouts, reflecting its ability to attract and support a wide range of businesses,” it said.

“Looking ahead, Ozow is on the cusp of completing and launching its integration with PayShap,” it added.

“The company’s participation in the IFWG Sandbox further demonstrates its commitment to shaping the future of fintech in South Africa.”

MyBroadband contacted Kalon Venture Partners for comment, but it did not provide feedback by publication.

A phone call to the number on its website also revealed that it had vacated its premises in Glenhove Square, Houghton.