Why there is a big ‘For Sale’ sign on SA’s tech industry
It takes a long time to become an overnight success, Striata CEO and founder Michael Wright says about the sale of the company to US-Canadian group Doxim.
Most South Africans know Striata as the gizmo you use to open your bank account statements but, much to my surprise, the company is much bigger and much more international than I realised. It was also founded a long time ago – 21 years ago, in fact – literally in a garage.
The trajectory of Striata tells you a lot about SA’s small but reasonably dynamic IT sector. And the fact that it has been sold now is also emblematic of our times and follows the sale of two other medium-sized tech companies, Luno and GetSmarter.
The Covid-19 crisis has accelerated the move to tech across the world and the result is that tech companies, from the very large to the medium-sized, have found their already puffy valuations explode further. That, in turn, has provided some companies with the capital to head out on the acquisition trail and the result has been an international mopping-up process of the small by the big, or at least the bigger.
For the existing players in SA’s tech industry with genuine international scalability, the result has been a huge financial bonsella and a set of simply irresistible offers. But the result will also be a loss of autonomy and a shift of skills and capital outside of the country, to the extent that these companies weren’t operating internationally already.
Striata is a great illustration of all these trends. Wright’s business trajectory began in the tech end of an accountancy firm, Coopers, which is no longer with us after it merged some time ago.
Wright developed communication solutions for banks at the time internet banking was on the rise, allowing banks to communicate with large numbers of people quickly. From there, the company developed products around internet security, also a growing need in an industry converting from postal to email distribution of account information.
Wright says his big break came as a consequence of a journalist – surely the first and last time that has happened. Renowned tech journalist and researcher Arthur Goldstuck used Wright’s email tool to deliver messages to his clients with accreditation to Wright’s original company. That gave him the credibility to pitch and later win big banking clients.
Next came the creation of Striata Reader, which is technically more complicated than it might seem. To encrypt a document, normally you would need a decrypter accessible to both the sender and the receiver. Striata is “pretty unique”, Wright says, because it’s a one-way symmetric encryption system. In other words, it’s decryptable by the receiver only, without reference to a key provided by the sender.
Armed with this tool, Wright says he began an international expansion process and moved to London to be closer to potential clients. The company now has clients in 20 countries and offices in SA, the UK, the US and elsewhere.
Expansion, says Wright, also allowed the company to enter new areas, because each region had its own requirements. And developing new products meant the ability to cross-sell them to other regions.
By this time Striata was popping up on the radar of the tech industry. “I was getting pinged once a week from potential buyers and investors.”
But the one Wright eventually chose – and which chose it – was Doxim, a company in more or less the same space, about three times the size of his company but with a different geographical footprint.
They met about three years ago, but consummated the deal during the coronavirus process without meeting once. The financial details have not been released, but it’s fairly well known in the industry it was a hefty chunk of change.
Wright will stay with the new company, Doxim-Striata, as senior vice-president, which is based in Indianapolis, in the US.
I asked Wright about what the deal meant, if anything, for South Africa, and he was unrelentingly positive. It was the “realisation of a dream” for himself and the staff. It was the culmination of everything they have been working towards for two decades and the company they had been bought by was a “hand in glove fit”, he said. The company had “created value” for SA.
This may all be true but, by their nature, mergers are risky. Often what the senior partner wants is not, in fact, the notional skills base and entrepreneurship of the junior. What they want is access to a wider client base to sell their own products, which they know and understand. And what they definitely don’t want is a whole bunch of new staff on their books talking with funny accents living in far-off countries.
But more generally, the lessons of Striata’s growth are well taken: operate in a growing industry, innovate intensely, develop unique skills or products, expand boldly and work fast. That’s what innovators do – and what governments tend to understand only in the broadest of brushstrokes. BM/DM
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