Locomute eyes $5m boost
Start-up is off to Silicon Valley to court venture capitalists to fund its dream of expanding the business Patel makes monopoly capital criminal
South African mobility start-up Locomute would this month visit Silicon Valley in California in an attempt raise $5 million (R75 million) in equity to allow the company to expand, said Locomute chief financial officer Ntando Kubheka.
Locomute, which employs 18 permanent staff, operated from a house in Centurion and was a “garage start-up”, Kubheka said during an interview.
“We are a technology innovation business. We are African pioneers in this space. Our customers live innovation,” he said.
Locomute will be part of a California trip organised by Investec’s En-novate, together with about 20 South African entrepreneurs.
Kubheka said that Locomute was going to Silicon Valley because there was no appetite for venture capital in South Africa.
Investec confirmed that Locomute was part of a one-week exploratory business trip to Silicon Valley later this month.
“The tech entrepreneurs will meet with venture capital funds, angel investors, intellectual property lawyers and Stanford University academics,” Investec said.
Locomute started in June 2015 and had its genesis as an MBA assignment that Kubheka and Tumisang Marope, Locomute CEO, worked on in 2014 as part of their course at the Nelson Mandela Metropolitan University in Port Elizabeth.
The company is owned by the four directors of the company, Kubheka, Marope, Locomute executive chairman Sibusiso Xaba and Vuyisile Majola, the company’s chief operations officer.
When Locomute started, the company had six vehicles. Today it has 364, mainly Fiats.
Locomute chose Fiat because it gave the company a discount and Fiat cars are less prone to being hijacked. Since the company started, it has had three break-ins in their cars, but none was stolen.
Locomute subscribed to Apple founder Steve Jobs’ mantra that “human beings are inherently good”, Kubheka said.
The business consists of car rentals either on a daily or hourly basis, which the company calls “car-sharing” and they can be booked via the company’s internet app.
Of 364 cars in Locomute’s stable, 70% are rental cars and 30% are used for car-share.
Upfront costs include a one-off R199 that provides a lifetime membership. Using the car-share option, Locomute charges R1.80 a minute and R3 a kilometre, if you hire a car for up to four hours, and the first 20km travelled every hour is free.
When you book cars with Locomute using the car-sharing option, you don’t pay for petrol, insurance, e-toll or parking costs.
Locomute’s cars are parked all over the cities where the company operates so, if you are a registered member, you can use those cars as long as you make your way to where the cars are located. If you want a car delivered to you, there is an extra charge.
You locate the cars using Locomute’s internet app. Once you are done with the car, you park it, lock the car and leave it.
Locomute operates in Johannesburg, Cape Town, Pretoria, Durban and Ekurhuleni, and is looking to expand into Port Elizabeth and East London. The company is also looking to expand into Kenya, Nigeria and Ghana.
International examples of companies like Locomute include European care-sharing company DriveNow, which is partly owned by BMW, Car2Go, which is owned by Daimler, and ZipCar, which is owned by Avis Budget in the US.
Kubheka said Locomute was largely growing via the exposure the company is getting via its partners like Diners Club and AA. Locomute has 15 000 registered members.
The founders of Locomute are also working on setting up a food app called Convivial. This app would turn every table into a diner and everyone’s home could become a restaurant, Kubheka said.
“Convivial will be to cooking what Airbnb is to accommodation. You can offer meals in your home or set up a pop-up restaurant in a parking lot,” Kubheka said.
Airbnb is a US start-up that consists of a website for people to list, find and rent lodging.
The Convivial food app would allow people to earn extra money by creating an event, becoming a host and then inviting people to book, Kubheka said.
As of this month, it is a criminal offence to engage in cartel conduct, leaving corporate executives and managers open to personal fines and even prison sentences for fixing prices, dividing markets or colluding on tenders.
This is a massive departure from the old situation, where it was only the company that got fined or slapped with an administrative penalty.
The maximum penalty that bosses could now face is, however, unclear.
It could be a relatively paltry fine of up to R2 000 or six months in jail.
Or it could be completely up to the National Prosecuting Authority to take on these prosecutions.
President Jacob Zuma signed a proclamation last month that brings into effect parts of the 2009 Competition Amendment Act that have been lying dormant.
The 2009 amendment allowed for individual penalties to shoot up to 10 years in jail or a fine up to R500 000, but that part is still being kept inactive, causing the uncertainty.
Before now, the Competition Act did provide for imprisonment, but mostly for offences related to undermining the competition authorities, not for actual competition offences.
The extreme 10-year sentence and/or R500 000 fine was already in place, but only for people who ignored the orders of the commission or tribunal – a mechanism to ensure enforcement of penalties against companies.
According to the statistics provided by the Competition Tribunal, there have been just more than 200 consent orders and settlements for cartel conduct at the competition authorities since 2004.
Minister of Economic Development Ebrahim Patel announced the criminalisation during his departmental budget vote in Parliament last month.
According to him, the time is right because the competition authorities have prosecuted enough cartels to make it certain what is, and what isn’t, illegal. Some major law firms disagree. Tamara Dini, a partner at Bowman Gilfillan Africa Group, said that the move “seems to be premature”.
According to her, there were still aspects of the competition law that have not been fully interpreted by the competition authorities.
This left companies at risk of accidentally committing an offence, said Dini.
Webber Wentzel put out a notice saying other parts of the amendment that were still dormant would cause constitutional issues.
Zuma’s proclamation also left out a controversial rule that finding a company guilty of cartel conduct automatically provides prima facie evidence that managers are guilty.
This creates a “reverse onus” when that manager ends up in a criminal court – undermining the presumption that people are innocent until proven guilty.
The new criminalisation could also potentially cause a headache for the Competition Commission by neutering one of its best weapons.
Jennifer Finnigan, partner at Shepstone & Wylie Attorneys, warned it could have a chilling effect on companies coming forward and confessing to get leniency.
That leniency wouldn’t necessarily help bosses in criminal court.
“The bottom line in any firm which applies for leniency exposes its directors and managers to criminal charges for cartel conduct,” she wrote in a note for law website Lexology.
The higher stakes are, however, having an effect on corporate conduct.
Media24, owner of City Press, responded this week by canning its “early settlement discount or agency commission” – a long-standing practice that in essence amounted to a 16.5% payment to media agencies that bring clients’ ads to Media24 titles.
According to the company, this is standard industry practice.
“Having assessed its exposure, and without acknowledging any wrongdoing, Media24 has decided to take these precautionary measures to create certainty, and avoid any regulatory and legal risk,” the company said in a notice to clients.
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