Overcoming the Investment Readiness Gap in South Africa’s Small Businesses
You can also listen to this podcast on iono.fm here.
JIMMY MOYAHA: For countless small businesses, obtaining funding is vital for their long-term success. However, many of these businesses face the challenge of being told they are not ready for investment.
We need to engage in the important discussion about investment readiness, and today, we will be doing just that with Thabang Hleza, the head of investments at the Masisizane Fund within the Old Mutual Group. He is here with us now to share his insights.
Thabang, it’s a pleasure to have you on the show. Thank you for your time. When we refer to investment readiness in relation to small businesses, especially those seeking to raise capital, what exactly does that mean?
THABANG HLEZA: Good afternoon, Jimmy, and good afternoon to all SAfm listeners. Before I respond, let me briefly outline what Masisizane is.
We are an initiative under the Old Mutual Group, and for the past 19 years, our goal has been to create a lasting impact in the communities where we operate by effectively combating poverty, inequality, and unemployment through the development of small and medium-sized enterprises (SMEs).
In practical terms, this means addressing the three major challenges faced by SMEs: access to markets, access to finance—which we will discuss in a moment—and appropriate capacity building. Our investment readiness program, which we will delve into later, addresses these challenges, aiming to make businesses more appealing to potential funders.
To return to your question, access to finance remains one of the primary obstacles hindering SME growth.
It’s often cited that there is a funding gap of approximately R350 billion. This isn’t due to a lack of capital available to meet SME funding needs or businesses not seeking capital.
We have sufficient funding mandates and arguably the most sophisticated financial system on the continent, yet our approval rates remain alarmingly low.
One persistent issue we’ve identified is that it’s not inherent to the businesses, but rather the fact that many businesses aren’t prepared to accept funding, which brings us to the concept of funding readiness.
What do I mean by that?
We see many businesses with solid market traction and genuine growth potential, yet they struggle with inadequate financial reporting and governance.
For instance, there is often a lack of an operational succession plan, over-dependence on key individuals, or missing essential documents that investors commonly require.
This is the crux of funding readiness—are you prepared to receive funding? Often, the answer is no for many businesses.
These factors contribute to their lack of fundability, and that’s where our investment readiness program comes in.
JIMMY MOYAHA: Thabang, let’s dive deeper into the readiness program. From a programming standpoint, how does this initiative provide the skills and knowledge necessary for small businesses to prepare for funding opportunities?
What makes this program particularly significant for small businesses?
THABANG HLEZA: This program is a 12-month pilot initiative designed to assist high-potential, majority black-owned businesses that have been in operation for at least three years and generate annual revenues between R1 million and R50 million.
Its primary purpose is to bridge the investment readiness gaps and ultimately equip these businesses to secure funding with Masisizane, ranging from R1 million to R20 million, or from other funding partners in the ecosystem.
The initiative concentrates on four critical sectors: agribusiness, manufacturing, logistics, and services.
Ultimately, Jimmy, our goal is to empower businesses to be fundable, not just to apply for funding. To elaborate on the program’s structure, over the 12-month period—this diagnostic-led program—I want to emphasize that we will collaborate with SMEs on key fundamentals that hinder their fundability.
It’s important to note that while the program spans 12 months, not every business will participate for the full duration. The length will depend on the issues identified during the initial assessment.
One critical area of focus will be financial gaps. For example, ensuring that records are accurate and current, and that business owners can discuss their finances in a way that’s comprehensible to both themselves and potential funders.
We will assist business owners in developing financial models based on realistic assumptions to support their funding requests.
Secondly, how can we help businesses enhance their operations?
This involves evaluating operational inefficiencies and identifying ways to improve them.
We will analyze sourcing and pricing strategies, marketing approaches, and pinpoint any operational leakages to enhance profit margins.
The next area of focus is governance. Many businesses lack clear operational succession plans or are heavily reliant on specific individuals.
Our mentors will work with business owners to assess their organizational capacity and establish a growth strategy that clearly states the skills and resources essential to overcome identified gaps.
Finally, we need to ensure that a market readiness plan is in place to mitigate risks related to customer concentration, which early-stage businesses often face.
Many businesses rely on just one or two contracts that may account for up to 70% of their revenue, and the loss of these contracts can lead to significant struggles.
JIMMY MOYAHA: Before we wrap up, Thabang, how can small businesses participate in this program? Our audience consists largely of small business owners who pay close attention to these discussions. If a small business wants to join this readiness program, how should they proceed, and what types of businesses should consider applying?
THABANG HLEZA: We are looking for majority black-owned businesses that have been in operation for at least three years and are generating annual revenues between R1 million and R50 million. These businesses should be operating in the sectors of manufacturing, logistics, and services.
This program is facilitated through two strategic partners:
Fetola, which focuses on agribusiness and manufacturing. Interested businesses in that sector should visit www.fetola.co.za.
We also partner with 22 On Sloane, which specializes in logistics and services. I encourage businesses interested in that area to visit www.22onsloane.co.za or check the Masisizane page for further guidance.
JIMMY MOYAHA: It’s crucial that small businesses are investment-ready when approaching potential funders and financial institutions. We’ll conclude our discussion here.
Thabang Hleza, Head of Investments at the Masisizane Fund of Old Mutual, has joined us to discuss their investment readiness pilot initiative and their plans for implementation.
Brought to you by Old Mutual Group Communications.
Moneyweb does not endorse any product or service advertised in sponsored articles on our platform.