- Players: Tshego Sefolo (founder and CEO) and Londeka Shezi
- Company: Agile Capital
- Launched: 2016
- Total investments to date: Agile Capital I is fully invested. Currently aggressively looking for investment opportunities for Agile Capital II and anticipate investing the remaining R400 million in the fund over the next 12 to 18 months.
- Accolades: Association of Black Investment and Securities Professionals (ABSIP): Private Equity Deal Maker of the Year 2012 (Tshego Sefolo)
- Visit: agilecapital.co.za
2015 was a watermark year for Tshego Sefolo. It was the year he went into the market to raise hundreds of millions in capital to launch his own private equity firm, Agile Capital. It took him and his business partner, Londeka Shezi, less than a year to secure the investment they needed for not one, but two private equity funds, proof that trust and integrity can go a long way.
At the time Sefolo was heading up Zico, an investment business with a private equity arm and an investment holding side. He’d been active in deploying Zico’s first private equity fund and was ready to focus on his dreams of launching his own firm.
The board and shareholders of Zico were open to the idea of Sefolo and Shezi pursuing the acquisition of Zico’s private equity business to launch their first fund. He just needed capital to do it. So how do you go into the market to ask for funding, and what ensures that investors not only say yes, but are willing to back you?
RMB Corvest are the primary backers of Agile Capital I (and the subsequent fund, Agile Capital II), but they were not the only contenders. Sefolo had a well-established relationship with RMB Corvest thanks to his time at Zico, and chose to continue working with a team he knew very well.
If you want to understand how a University of Natal-trained Chartered Accountant managed to raise more than R500 million in capital to invest, we need to look back to Sefolo’s early 20s, when he started laying the foundations for his entrepreneurial career in private equity.
Investing In Yourself
Sefolo began his career as a CA at Ernst & Young, where he ended up in the London office working in risk management. By 2004 he was preparing to return to South Africa and had his sights set on the private equity space.
“At the time, private equity in South Africa was still a fledgling industry, but it was playing a vital role in the post-sanctions unbundling of conglomerates,” he recalls.
Unable to compete on a global scale because of sanctions, corporate South Africa’s growth had been confined to purchasing other local businesses. The result was behemoths that had become holding companies of businesses that had no relevance to their core, which meant the likes of Anglo American and SAB had divergent interests outside of their core businesses.
With sanctions over for some time, and the advent of globalisation, these companies could compete on the global stage again, which meant it was time to sell off companies that did not represent their core, and to focus on what they were really good at. Enter private equity.
International investors were looking at South Africa, and local PE firms became the conduit for those funds. At the time, there were two big local players in the space: Ethos Private Equity and Brait Private Equity.
At the tender age of 25, Sefolo joined Ethos as a young, black transactor in a world of much older white men, with backgrounds in consulting and investment banking. “It was a big step for me,” he says.
“The traditional route into private equity is through investment banking or corporate finance, but I wanted to enter the industry as quickly as possible, and then put in the time. My focus was on learning the PE space from cradle to grave, which meant some steep learning curves.”
The first board meeting Sefolo walked into was dominated by men old enough to be his grandfather. Nevertheless, he had to exude confidence, particularly in any opinions he had concerning the businesses being discussed — and he was expected to have opinions.
“My experience in risk mitigation gave me an edge in the PE space. At Ernst & Young our role was to find blindspots and plot scenarios. There are always blind spots, so you want to find them, and either walk away from a deal, or prepare for them.” This was an invaluable skill set when evaluating potential businesses to invest in — and yet Sefolo knew he was in urgent need of upskilling.
Picture this: A 25 year-old male who’s just joined the prestigious private equity investment space. He’s single, has no family responsibilities, and is earning more money than he knows what to do with. But while some would ensconce themselves in a fancy Sandton flat, an equally flashy car, and a refined wardrobe, Sefolo invested his new-found money in something entirely different: an MBA from Wits Business School. It’s a dedication and focus that Sefolo has demonstrated throughout his 14-year career.
“This was no time to get complacent,” he says. “I was only at the beginning of my journey and a lot of people in that position — particularly with such a cushy salary — don’t think it’s important to stretch themselves. I’ve never bought into that mindset. We should always be pushing our limits and broadening our horizons. If you want to be successful and achieve your dreams, you have to be disciplined as well. There’s no substitute for hard work.”
The truth is that at 25, Sefolo already had aspirations of starting his own PE fund one day. “As a transactor you’re primarily a deal originator and executor,” he explains.
“My role was to identify opportunities for the business, but on a personal level I saw it as the start of my own foundations and networks. Investing is all about building and leveraging networks. Sustainable relationships allow you to identify and then tap into opportunities. Integrity is incredibly important in all business dealings, but it’s integral to the private equity space. It takes time to build up trust and integrity in the market place, so I knew that this was a long-term commitment. That was okay, I wasn’t in any rush. The right foundations have been fundamental to launching Agile Capital.”
Discipline has shaped everything Sefolo does, from building his personal brand, to choosing the right investments. “Private equity diverges from venture capitalism in that we tend to focus on more established businesses, and we are more risk averse,” he explains.
“We’re investing much higher sums of money. Where a VC might invest R10 million in a greenfields business and take a chance on achieving a 10x return, we’re investing R100 million, and expect to see slower but steadier growth. Partnerships are long-term, and we want to be heavily involved in the business.”
Getting this right takes a lot of legwork. “First you identify an industry, decide if it’s worth investing in, and then look for growth opportunities. Once you’ve established who the players are, you can narrow down the key businesses you want to look at. Where is the opportunity? Where is my entry point? You then start cold calling or find someone with an existing relationship who can facilitate an introduction. PE capital should fund growth, so we need to see that scalability as well.”
Making The Move
By 2015 Sefolo had put 13 dedicated years into the industry. He had joined Zico in 2010 with the latitude to manage the business as his own, and an understanding that he would eventually leave to launch his own business in the space.
It was during his tenure at Zico that Sefolo met Londeka Shezi in 2011 and identified her potential as a transactor. Shezi was also interested in the private equity space, although at the time she was following the more traditional path to private equity through investment banking.
“I was first introduced to the PE space while I was doing my articles at PwC,” she says. “We audited RMB Corvest and I fell in love with what they did. Every day was different. They were involved in so many exciting businesses and spaces. It looked like an incredibly fulfilling space to be.”
Even though the recommendation was to spend at least two years in investment banking as a proper grounding before entering the PE space, when Sefolo offered her a job, she jumped at the opportunity.
“Sometimes you have to seize the moment,” she says. “I love a smaller team — you’re in the deep end, but you can take in as much as you can. The onus was on me to learn as much as I could.” Over the course of the next four years a strong mentor-mentee relationship developed. “Tshego was my entry into Zico, and then he became a mentor. I’ve been learning the best of the trade from him. He raises my development points and has open, honest discussions with me about where I need to focus.”
When Sefolo made the decision to finally launch Agile Capital, Shezi was the obvious choice for a partner in the business. Together, they raised the capital necessary to buy Zico’s PE portfolio. Parallel to that, they started working on a second fund, raising another R500 million for Agile Capital II. By mid-2016 they had R600 million invested across two funds, and Agile Capital was launched.
Becoming An Entrepreneur
Of course, 14 years is a long time to wait until you can realise your dream. “It’s all about timing,” says Sefolo.
“I needed to be comfortable that I had developed the necessary credibility and a track record to launch a strong and sustainable brand.” R1 billion is not small change, and with that level of funding comes a lot of trust, particularly when you won’t always get an investment right.
“Building a track record takes time in the market. You need to prove yourself over and over again, and in between that you’re making a few bad investments, so how you handle those is critical.” One example during his time at Zico was a business in the meat processing space.
“As a team we thought we’d done our homework until the deal was signed and everything fell apart. We had to place the business in business rescue.
“Looking back we could see that the red flags were there if we’d just asked the right questions. Instead, we took everything at face value, and believed what we were told.” It was an important lesson for Sefolo, first because he realised that when you start winning again and again, and doing things by rote, you get complacent.
“We took the owner at his word, trusted we knew what we were doing, and overlooked the little things,” he says. The second big lesson was the disappointment in being deceived by someone they trusted. “We made a big commitment based on that trust, and so the realisation that we had been deliberately misled was painful.”
In these cases, it’s incredibly important to do an introspection. “We needed to evaluate where we went wrong, and determine where the blind spots were that we missed. You can never stop learning. All opportunities are different.” Because of this, Sefolo and his team didn’t look at the deal as a failure, but as a lesson in how to spot blind spots going forward.
“You can’t hide your head in the sand when a deal goes wrong. We had to proactively correct its course and get the business back on track. How you handle a bad deal is far more important than whether you made a bad investment or not. Everyone accepts that bad deals happen. We try to avoid them as much as possible, but there will always be constraints: Time restraints, a limit on how much information you receive or how much you have to take at face value, and other competitors closing in. You don’t always have the luxury of having all the time you need to do a complete due diligence, and so it comes down to gut and experience. In these cases, the team’s ability to turn a business around is incredibly important.”
In Sefolo’s view, this starts with the ability to accept that a mistake was made, and dissect why it happened. Once this is done, steps can be taken to build the business back up.
“In the PE space, things are done as a team, but ultimately someone has to take responsibility. This is the leader’s role, and it speaks volumes to integrity. If you can’t take responsibility for all of your decisions — good or bad — then you will never lead your business to greatness.”
An Eye On The Future
Despite his careful approach over the last decade to build a strong reputation in the PE space, Sefolo is now looking firmly to the future.
“Our goal is to build a significant investment company with interests in diversified sectors. We want to partner with strong management teams for long-term growth. That’s where our interests lie. We’re long-term. Ours is patient capital that needs a return.”
Sefolo is also focused on the larger role that Agile Capital can play in a South African growth context. “Empowerment in South Africa is maturing, and I see our role as an enabler: How do we make sure across each business we partner with that we are empowering South Africans? In the procurement space, we need to create ten more Bidvests. We’re in a space where we can make a real difference by creating and supporting growth opportunities.
“Ultimately, we want to broaden the cake by getting more people actively involved in the economy. That means that there need to be more employers. Developing businesses and people doesn’t mean others will lose jobs. It means a greater percentage of the population becoming economically active and that’s good for everyone.”