Lesson 1, Topic 1
In Progress

5.2. Alternative sources of equity are investigated for the new venture.

ryanrori January 7, 2021

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Equity finance would be more suitable than debt finance and is the one and only option for entrepreneurs without venture capital.

Industrial Development Corporation

The Industrial Development Corporation (IDC) is a self-financing national development finance institution (DFI). The IDC’s original objective was to contribute to economic

growth and industrial development but it now (since 2001) also has an empowerment objective in its financing activities. The IDC funds SMEs in two ways: directly, through Strategic Business Units focusing on specific sectors, and indirectly, through its Wholesale division which makes funds available to external fund managers and providing an SME-oriented mandate. Depending on the type of fund, the IDC’s funds

have different selection criteria ranging from growth objectives to sectoral development, job creation, empowerment and poverty alleviation (IDC Annual Report, 2002: 26). Most SME investments are targeted at job creation, empowerment and poverty alleviation though some (specifically the Wholesale business unit’s funds) are also aimed at high growth.

Khula

Khula Enterprise Finance Limited is an agency of the Department of Trade and Industry established in 1996 to facilitate access to credit for SMEs through delivery mechanisms including commercial banks, retail financial intermediaries (RFls) and micro credit outlets. Khula also provides mentorship services to guide and counsel entrepreneurs.

Khula has one equity fund in which it uses its own funds, and another fund in which Anglo American is a co-investor. Though it has a commercially-based mandate for its

equity funds, investments are also selected on job creation criteria (http://www.khula.org.za/index2.html).

National Empowerment Fund

The National Empowerment Fund (NEF) is a state-owned provider of empowerment finance. It was created in 1998 as part of the Department of Trade and Industry’s group of development finance agencies. NEF currently has one fund, namely NEF Ventures, which has committed capital of R200m. This fund is managed by the NEF and is jointly financed by the NEF and the IDC’s Wholesale Finance Unit. NEF Ventures’ mandate is to facilitate successful and sustainable black economic empowerment through finance and investment activities (http://www.nefcorp.co.za).

Umsobomvu

Umsobomvu is a government agency aimed at empowerment of youths (aged between 18 and 35). The organisation aims to provide opportunities for youths to become entrepreneurs and to improve their entrepreneurial skills. Umsobomvu has invested in the Progress fund managed by Enterprise Equity Partners, an equity fund that is managed in-house, and a youth franchise fund that is managed by Business Partners. The latter creates low-risk business opportunities by investing in franchise outlets to be owned and managed by the new entrepreneurs.

 (http://www.uyf.org.za/progs/index.asp?page=OI).

Business Partners

Business Partners is an unlisted specialist investment group, which provides debt and equity investment, mentorship and property management services for SMEs in South Africa. Business Partners Investments focuses on investing in enterprises requiring up to R15m for start-up, growth, franchise, management buy-out or  management buy-in purposes. Though it runs on commercial criteria, deal executives are incentivised on the empowerment deals that they finance and records are kept of jobs created as a result of investments. Business Partners has 22 offices servicing the SME sector nation-wide. The company also manages the R125m Business Partners Umsobomvu Franchise Fund launched in 2003 for investment in black youth in the franchising sector. Business Partners was started in Eighties with funding from DTI (www.businesspartners.co.za).

Enterprise Equity Partners

Launched in 2002, Enterprise Equity Partners is an initiative which aims to find ways to provide equity and/or quasi equity financing to enterprises. It manages the Progress Fund, which is part-funded by the First Rand Group, but the majority of the funds come from the Umsobomvu Youth Fund. Enterprise Equity Partners is a subsidiary of First National Bank. The central thrust of the fund’s investment strategy is to propel the growth of small to medium sized financially viable ‘going concerns’ that have (or are in a position to secure) a contract with a corporate, a parastatal enterprise, or an arm of government.

(http://www.sbp.org.za/sme.htm ).

Equity Africa

Established and funded by ABSA and Shanti Industrial, Equity Africa is both a fund and a fund management company. It invests in broad based black economic empowerment in the 5MB sector. (http://www.equityafrica.com/index.html)

Zimele

Zimele, Anglo American’s 5MB development arm, is a CSR initiative that aims to facilitate black economic empowerment, provide finance to black-owned emerging companies, assist in the development of entrepreneurship by providing business skills,

management and expertise. Anglo also aims to divert procurement spend to the companies in which Zimele invests, in order to improve the mining company’s

empowerment scorecard (http://www.zimele.co.za/about_zimele_o.asp).

Enablis

Enablis is a not-for-profit organisation formed in partnership with Accenture (UK), Hewlett-Packard (US) and Teleystem Ltd. (Canada) in 2003. It aims to drive economic development in Africa and to build self-sustaining businesses by supporting SMEs. Enablis will focus its efforts on enterprises that cross the digital divide and that drive economic growth in their communities (http://www.acdi-cida.gc.ca/cida).

REDI

The Rural Economic Development Initiative (REDI) is supported by the. Old Mutual Foundation, DflD and the Ford Foundation. REDI aims to improve skills in financial management and to provide seed capital for the establishment and expansion of new, viable businesses within 18 rural communities. It focuses on establishing new businesses and jobs that help the rural villages to become more self-sufficient (http://www.oldmutual.co.za/corporatecitizen/SocialInvest/Redi.asp?npage=2) .

Kagiso Trust Investment Company

Kagiso Trust Investment Company owns Kagiso Rural Fund, a developmental investment company funded by the Kellogg Foundation. The fund was started in late 2002, and hasn’t made an investment yet. The fund aims at empowerment, rural development and job creation.

Glenhove Fund Managers

Glenhove Fund Managers manage the Women’s Private Equity Fund. Women’s Private Equity Fund is funded by the Development Bank of Southern Africa, the IDC and Eskom Pension Fund. It will invest in companies managed by women entrepreneurs, or that have a “female-only focus.” (Rose: 2003).

HBD

HBD Venture Capital is a full service venture capital organisation that was founded in 2000 and is funded by private investor Mark Shuttleworth. It aims to invest in innovative technology projects, support entrepreneurs, promote “breakthrough” technology and develop global potential. The company invests in seed or start-up companies that are initiated from South Africa but have global markets and are not limited to one country or region. HBD Venture Capital has invested in seven projects since early 200 I

(http://www.hbd.co.za/venture capital/investments.php).

Catalyst Innovations

Catalyst Innovation invests in the health care, electronics and medical sectors providing finance and strategic, marketing, and project and operational management. On occasion Catalyst will invest in other sectors. This company targets high-growth investments. It provides seed capital and also finance for start-ups, management buy-ins and turnarounds ( www.catalystinnovations.com ).

New Business Finance

Started in 1998, New Business Finance finances companies ranging from start-up to established businesses, in all sectors of the market. The company’s products include working capital, bridging finance, micro business and transaction finance. It also offers consultancy and monitoring services. New Business Finance is commercially oriented, but considers its mandate partly developmental due to the businesses it funds (which are generally owned by black entrepreneurs.) The company began to offer equity finance in 2002.

Brait

Brait Private Equity is a subsidiary of listed Brait SA, an international financial services group listed on the JSE Securities Exchange, and the Luxembourg and London Stock Exchanges. Brait’s Private Equity invests in high growth potential enterprises, through a partnership with management of these enterprises. Its funds are invested in a range of business, from early to late stage.

Ethos

Ethos is a private equity company that was founded in 1998 to assume the business of

FirstCorp Capital Investors. Using the funds it manages, Ethos specialises in acquisitions that involve management participation. Ethos is a pure play private equity firm with controlling ownership by its executive management. Its operations cover management buy-outs and buy-ins of large companies, expansion capital to high growth entities and replacement capital.

Gensec Private Equity

Gensec Bank is an investment bank that provides derivative-based risk management products to the savings industry, arranges debt and equity finance for corporates and is a manager of private equity funds. Its private equity funds provide expansion capital to viable businesses and contribute strategic advice. Among Gensec’s funds are development funds Achway II and BioVentures, which are part-funded by the IDC.