The investment-readiness gap holding back SA’s small businesses

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JIMMY MOYAHA: For many small businesses, access to funding is critical to ensuring the success of their business. For many of the businesses that look to access funding, they’re always told that the business isn’t ready for investment.

There’s a conversation around investment readiness that needs to be had, and we’re going to be having just that conversation with the head of investments at the Masisizane Fund within the Old Mutual Group, Thabang Hleza. He joins us on the line now to see what we make of this.

Thabang, lovely having you on the show, thanks so much for taking the time. When we talk about investment readiness in the context of small businesses, and particularly businesses looking to raise capital or raise financing, what do we mean?

THABANG HLEZA: Good afternoon, Jimmy, and good afternoon to the SAfm listeners. Maybe before I answer the question, let me just give an overview briefly on what Masisizane is.

We are an initiative of the Old Mutual Group and for the last 19 years, our mission has really been how to create lasting impact in the communities you are operating in by making a meaningful dent against poverty, inequality and unemployment through SME [small and medium-sized enterprise] development.

Practically, this says: How do we address the three main challenges that SMEs are facing – access to market, access to finance, which we’ll touch on shortly, and adequate capacity building. So our investment readiness programme, which we will double click on later, [addresses] these challenges and [endeavours to] make businesses more fundable.

So back to your question, and it’s very true, access to finance is one of the major stumbling blocks to SME growth.

You often hear of a funding gap of about R350 billion. This is not because there’s a shortage of capital to meet SME funding requirements or there’s a shortage of businesses seeking capital.

I think we have enough funding mandates and probably the most sophisticated financial system in the continent, yet we have very low approval rates.

So one of the recurring gaps we see in our business is not a shortage of good businesses, but a shortage of businesses ready to receive funding, and that’s the funding readiness element.

So what do I mean by that?

We see businesses with strong market traction, genuine growth potential, but very weak financial reporting gaps in governance.

So quite often there’s no operational succession plan. There are key-person dependencies. Or they don’t have the investor-ready documents that funders really look for.

So that’s really what funding readiness is about – are you ready to receive funding? Quite often most businesses are not.

These are some of the issues that renders them not fundable. That’s the gap our investment readiness programme aims to close.

JIMMY MOYAHA: Thabang, let’s take a look at that readiness programme in a bit more detail. From a programme perspective, how does that programme then fit into the skills and the knowledge you look to impart on those small businesses in an effort to prepare them for those readiness opportunities?

What makes this programme that much more important towards small businesses?

THABANG HLEZA: The programme is a 12-month pilot initiative for us, which is really designed to help high potential, majority black-owned businesses operating for at least three years, generating annual revenues between R1 million and R50 million.

It really aims to close those investment readiness gaps and ultimately prepare them to raise funding with Masisizane, which is between R1 million and R20 million, or any of the funding partners in the ecosystem.

It focuses on four key sectors: agribusiness, manufacturing, logistics and services.

And of course, the goal ultimately, Jimmy, is to help businesses become fundable, not just apply for funding. So maybe just to dig deeper on what does the programme look like.

Over the 12-month period, [in] the diagnostic-led programme – and I want to double click on that diagnostic-led part – we will work with SMEs on the fundamentals that really render them not fundable.

What is important is although the programme is for a 12-month period, not all businesses will be in the programme for 12 months, but rather it will be dependent on the gaps identified in the initial gap assessment.

So one of the issues that the programme will focus on is some of the financial gaps. Ensuring that your accounts, for example, are accurate and up to date, but more importantly that you are able to speak to them in a language that you understand and in the language that funders understand.

Work with the business owners to build budget financial models with realistic assumptions to support the funding request.

Number two, how do we then assist business to strengthen operations?

So we zoom in to understand what are some of the operational gaps in the businesses and how do we improve operational efficiencies.

So we look at understanding your sourcing strategy, your pricing strategy, your marketing, where are the leakages in this business so that if we close this we know we’re able to improve margins.

The other part is focusing on governance. I think, as indicated, many of the businesses do not have a clear operational succession plan or have key-person dependency.

So the mentors then will work with the business owners to understand the bench strength or the lack thereof, and as part of that growth plan, then clearly indicate what resources and skill set is required for what stage to close what gaps.

Finally, how do we make sure that we build the market readiness plan to address some of the customer concentration risk that is associated with early-stage businesses?

Because quite often businesses are dependent on one or two contracts, which constitutes at least 70% of the revenue, and if those contracts then fall flat, then business begins to struggle.

JIMMY MOYAHA: Thabang, before I let you go. Most importantly, how can small businesses get involved in this programme? Small businesses are a huge part of our show.

They often listen to these sorts of conversations. If a small business is out there wanting to be part of this readiness programme and wanting to benefit from this programme, how do businesses get involved here and which sorts of businesses should be applying at this stage?

THABANG HLEZA: So what we look for is businesses that are majority black-owned, businesses that have been operating at least for a period of three years, generating annual revenues between R1 million and R50 million, businesses that are operating in manufacturing, logistics and services.

The programme is implemented through two strategic partners:

Fetola, which is focusing on agribusiness and manufacturing. So businesses that fall within that sector that are interested to apply can go to www.fetola.co.za.

Then we’ve got 22 On Sloane, which focuses on logistics and services. Again, businesses that are interested, I urge them to go to www.22onsloane.co.za or to look at the Masisizane page, which will redirect them accordingly.

JIMMY MOYAHA: Making sure that small businesses are investment-ready when it is that they do seek out to that investment from the market and other financial institutions. We will leave the conversation on that note.

Head of investments at the Masisizane Fund at Old Mutual, Thabang Hleza, joining us to take a look at their investment readiness pilot initiative and how it is that they aim to roll that out.

Brought to you by Old Mutual Group Communications. 

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