CAPE TOWN: Secha Capital, an early-stage operations-focused private equity fund, on Monday announced that the first close of its second fund (Secha Capital Fund II) would invest up to R12 million into established southern African small businesses for significant minority equity stakes.
Announcing a R400m fund, Secha Capital said it aimed to not only invest in small and medium enterprises (SMEs), but also offer on-the-ground operational support to accelerate growth. Complementing growth capital with human capital, the impact investment model aims to solve key pain points and accelerate growth in the small business sector.
Small businesses in the country face significant barriers to growth, such as limited access to funding and resources, ineffective supply chain procedures and unfamiliarity with new technology.
SMEs contribute 66 percent to economy-wide employment, according to a study by the Small Enterprise Development Agency (Seda). Despite this, many South African SMEs are unable to recruit young, top achieving talent, cannot afford management support and are excluded from key-value chain relationships.
Secha Capital co-founder and managing director Rushil Vallabh said the first fund was always proof of concept.
“Can we complement growth capital with human capital to solve SME pain points and accelerate growth? Our portfolio data is a resounding yes. It is now time to replicate and scale this investment model across Africa. We need to grow the Secha team to help more SMEs.”
Vallabh said the organisation would find and fund SMEs that others did not.
“We write smaller, but more impactful checks and then get Africa’s best and brightest to actually join the SME team.
“Our first fund invested in a range of African businesses, from plant-based haircare brand, native child, to networking marketing company, WUKINA, which empowers women to start their own businesses selling high-quality wigs,” said Secha Capital co-founder, Nombuso Nkambule. “These companies have grown over 10-fold and created over 100 jobs since we invested.”
By working alongside entrepreneurs, the Secha team supported SMEs as operators, not investors.
“Our operator-investors join the business to offer operational support and strategic guidance. They work closely with the team to help businesses scale efficiently, and as a result, employ more people,” said fellow Secha Capital co-founder and managing director Brendan Mullen.
He said the Secha model was unique as its funds were smaller.
“Our team is younger. We invest in a deeper pipeline of established SMEs in large, ‘boring’, fragmented sectors founded by previously ignored entrepreneurs. We then provide operational support for execution, channel access and tech-enabled capabilities.”
Secha Capital II expects a final close in October 2021.
President Cyril Ramaphosa, when presenting the Economic Recovery Plan to Parliament recently, said that there were between 2.4 million and 3.5 million SMMEs (small, medium and micro enterprises) in the country, with the largest number in the informal and micro sectors.
The Economic Recovery Plan has a strong focus on the development of small businesses and job creation as well as the acceleration of economic reforms and growth. Ramaphosa said small businesses offered the greatest untapped potential for growth, employment and fundamental economic transformation.
Western Cape Finance and Economic Opportunities MEC David Maynier also recently announced the launch of a R27m relief fund to help small businesses hard-hit by Covid-19.
The fund will provide financial assistance in the form of a grant to businesses that can apply to either the formal or informal business category. | BUSINESS REPORT