The fifth session of this week’s Virtual African Utility Week and POWERGEN Africa live webinar series gathered a young expert panel comprising two investment managers, an entrepreneur and an innovation expert to discuss the question of “How to attract investment opportunities for South African SMMEs working in the green economy?”
Moderator: Tine Fisker Henriksen, Innovative Finance Lead, UCT GSB Bertha Centre, South Africa Confirmed
Greg McDonald, Head: Financial Sector Funds, Edge Growth Ventures, South Africa
Mark van Wyk, Head: Unlisted Investments, Portfolio Manager, Mergence, South Africa
Emile Fourie, Founder, YWaste, South Africa
Moderator Henriksen explained more about the recently launched Green Outcomes Fund of which the UCT GSB’s Bertha Centre for Social Innovation is the primary knowledge partner. “It is a partnership between National Treasury and Green Cape and has been in the making for quite a while. It has a fund of funds structure which means it does not directly invest in SMMEs. It is an outcomes based structure that operates through fund managers.”
She added: “Ultimately what we are trying to create here is an intervention that builds the whole market by enabling access to capital for SMMEs, potentially even lowering the cost of capital where possible. And for fund managers, we are incentivising investments which otherwise might not have been considered before, it might have been viewed as being too risky or outside the particular expertise of fund managers or team.”
Investing in green SMMEs
According to McDonald about 10% of Edge Growth Ventures’ three flagship funds are invested in the green space and “we are really excited about the partnership with the Bertha Centre, Green Cape and the Green Outcomes Fund which will allow us to focus a lot more attention and time on supporting and growing businesses in this space.”
Regarding the criteria fund managers used before investing he said: “We tend to invest in smaller businesses, usually with revenues of less than R10-million and lower, which means they are at an early stage and truly in the S stage of the SMME space and then we are looking for good management accounts and see what the financial future of the business could look like and understand what our money will be used for.”
The more information and the better quality the information the easier it is for us to make an investment decision, McDonald said, adding that “it helps if the team knows the space that their business is operating in and if there is diversity, so different skills sets so that they complement each other. Impact returns are also important, for example job creation and green or environmental outcomes.”
The panel fielded various questions from viewers during the live webinar and Mark van Wyk of Mergence was asked what he would define as a ‘green business’, replying: “any business that can assist in the carbon emission abatement process, water purification systems or water conservation and to a certain extent, energy efficiency, if it can be measured as an outcome. Our preference is to back projects that use tried and tested technologies.”
Blue print for other entrepreneurs
Fourie said as an SMME in the green economy, he wanted to share a kind of blue print for other entrepreneurs to sell themselves better and to get access to much needed investment quicker: “I’ve been an entrepreneur in the green economy for the last 10 years and the journey has been extremely interesting and challenging.”
He added: “the Green Outcomes Fund is an amazing opportunity with some exciting new ways to leverage assets and money that can really help you grow and develop your business in a very short space of time.”
How can SMMEs become investment ready? Fourie’s advice included having a proven business model, an experienced team, good administration, governance, compliance, budgets and the well-defined projected impacts and SDGs (sustainability development goals).
“An important exercise that forms part of this is to value your business, once you are up and running as a start-up and have built a track record. There are various ways but one is to look at discounted cash flow and discounting your earnings over a 3-5 year period,” he said.
This session was sponsored by Initiate!, the perfect platform for start-ups, SMMEs, students, young professionals and established professionals to share ideas, innovations and make bold moves. It is part of African Utility Week and POWERGEN Africa that is taking place from 24-26 November at the CTICC in Cape Town.
Listen to the full recording of thisà‚ webinar here.