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Equity Crowdfunding In SA Explained

Here’s a brief snapshot of what it is and how it could benefit your business.

Daniel Van Zuydam

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As an entrepreneur, finding the right funding for your specific start-up is hugely important.

With momentum around crowdfunding growing on a global scale, there is talk about equity crowdfunding becoming a viable option in South Africa. This is very good news indeed, as it has the potential to significantly boost economic growth.

Here’s a brief snapshot of what it is and how it could benefit your business.

Equity crowdfunding is a simple concept: Members of the public (the crowd) are offered equity (shares) in a company (generally a start-up) in exchange for funding. The company then uses that funding to kick start the business.

Related: Quick Shift Deva Kate Emmerson On Crowdfunding

Donations-based crowdfunding and rewards-based crowdfunding have started to gain some traction, with local players such as Thundafund (rewards based) and Backabuddy (donations based) leading the charge; however South Africa is still lagging behind much of the rest of the world, mostly due to the lack of precise legislation around crowdfunding.

The Financial Services Board are yet to decide how they will regulate crowdfunding in South Africa, and so interested parties have been hesitant to engage with crowdfunding, with no-one attempting equity crowdfunding to date.

Another major hurdle is that private companies are not allowed to offer their shares to the public, and the difficulty of registering as a public company is simply too great for a start-up to even bother with. The reason for such stringent requirements though, is to essentially stop fraudulent schemes. The last thing you would want to do is fund an extra round of piña coladas in Mauritius for the opportunistic con-man – the government is therefore right in trying to regulate this area.

Related: Kickstart Your Business Through Crowdfunding

Uprise.Africa

There is, however, light at the end of the crowdfunding tunnel – a new start-up Uprise.Africa aims to launch towards the end of this year. Uprise.Africa will be the first of its kind in South Africa in that it will offer the man on the street the ability to invest in a startup of his choosing and receive equity (shares) in exchange for that investment. This is great news for start-ups, as the public will have a vested interest in the success of the business.

Take the example of a microbrewery wanting to launch their brand and get off the ground: Instead of the public (crowd member) receiving a reward in the form of a case of beers for their contribution, they will receive shares.

They will (probably) order a case of beers from the microbrewery and tell their friends to order beer from the microbrewery, as they will get a financial benefit if the microbrewery succeeds. The microbrewery, as a result, receives funding three times over instead of once – which is a powerful tool for growth.

Essentially, the crowd will be a business partner with the start-up, and in so doing, the first customers of the start-up are already waiting in the wings.

Related: 6 Resources For Start-Ups Looking For Alternative Funding

The World Bank recently predicted that the market potential in Africa for crowdfunding will be up to $2.5 billion by 2025. Equity crowdfunding in South Africa will hopefully tap into that and unleash significant potential in the startups that are based here.

The hope is that the regulators, when they do eventually regulate crowdfunding, do it in such a way that it is not a death knell for the system that has the potential to significantly boost our economic growth.

About Daniel Van Zuydam: Daniel joined Dommisse Attorneys in 2017 as an associate in the Transactional Team. His areas of focus are corporate finance, mergers and acquisitions, and corporate restructuring. Having come from a background in commercial litigation, he has learnt the ins and outs of trust and company interrelated structures and has a passion for structuring enterprises in dynamic ways to suit the needs of each client.

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SAB Transforms Supply Chains

Supplier Development Programmes grow black-owned suppliers and create jobs.

South African Breweries (SAB)

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The South African Breweries (SAB) has invested more than R200 million into creating an inclusive supply chain that incorporates black-owned and black women-owned SMEs through its supplier development programmes, SAB Accelerator and SAB Thrive. In addition, more than 100 jobs have been created through these efforts.

SAB Accelerator and SAB Thrive aim to create a diversified and inclusive supply chain by supporting the growth of black-owned suppliers through business development support and funding. The programmes are two of four entrepreneurship development programmes run by SAB to help create 10 000 jobs in South Africa by 2022 — SAB KickStart, SAB Foundation, SAB Accelerator and SAB Thrive.

SAB’s agriculture programmes also contribute towards the aim to create jobs by growing emerging farmers.     

Related: SAB-Commissioned Research Shows SA Poised To Reap Entrepreneurship Rewards

“From rural entrepreneurs to big business, SAB has laid the foundation to support entrepreneurs and to contribute towards government’s efforts to grow the economy and reduce unemployment in the country,” says Ricardo Tadeu, Zone President, SAB and AB InBev Africa.

“We recognise that one of the major hurdles for SMEs in South Africa is the ability to gain entry into big business and form part of their supply chains. This requires a symbiotic relationship with big business working alongside smaller suppliers.”

SAB Accelerator and SAB Thrive cohesively solve the challenges of creating a healthy pipeline of suppliers that represent the demographics of the country. SAB Accelerator has piloted ten businesses that have created 29 permanent and 79 part-time jobs in a period of just six months, and is currently incubating 24 businesses as part of the official post-pilot intake. SAB Thrive has invested R100 million in seven businesses, which have created 46 new jobs. In addition, the programme has contributed R140 million in new B-BBEE preferential spend.

The SAB Accelerator is an in-house programme dedicated to developing black-owned and black women-owned suppliers. Geared towards fast-tracking participants’ growth, the programme employs ten highly experienced business coaches and ten engineers, offering both tailored business and deep technical coaching to the participants.

It has a three-phased approach consisting of:

  1. Diagnostic: Screening the business’s current situation and systematically identifying gaps and opportunities for growth.
  2. Catalyst: Proposing an intensive three-month coaching intervention addressing key business functional and technical areas of improvement or growth.
  3. Amplify: Providing additional business development to support graduates of the Catalyst Programme.

The SAB Accelerator strongly focuses on enhancing market visibility and access of its participants.

Eligibility criteria:

  • Existing black-owned or black woman-owned suppliers currently servicing SAB’s supply chain at the time of application.
  • Existing black-owned or black women-owned businesses that have potential to join the SAB supply chain based on their product or service.

The SAB Thrive fund is an enterprise and supplier development (E&SD) fund set up to transform the company’s supplier base. The fund was established in partnership with the Awethu Project, a black private equity fund manager and SME investment company. The aim is to invest in and transform SAB suppliers to represent our country’s demographics. SAB Thrive investees benefit from 100% black equity capital and business support.

Related: 6 SAB Entreprenurship Programmes That Provide Business Management And Support

The fund invests growth equity capital into SAB’s existing high-growth black-owned suppliers, furthering their profitable expansion into the SAB supply chain without diluting the black-ownership of these businesses.

Existing white-owned suppliers are provided equity capital to support the enhancement of their black ownership, while facilitating the introduction of black entrepreneurs to their business. The intention is to apprentice the individual to take over the business in the near future.

Eligibility criteria:

  • Black-owned suppliers in the SAB supply chain that want to grow their business through access to black-owned growth equity capital.
  • Existing white-owned suppliers in the SAB supply chain that want to transform their B-BBEE ownership.

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Alternative Finance – Filling The Gap

Alternative Finance is finance beyond the traditional – it is defined by the financiers’ area of specialisation – by what they specialise in, whom they serve, and how they provide their funding.

Spartan

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Alternative Finance is finance beyond the traditional – it is defined by the financiers’ area of specialisation – by what they specialise in, whom they serve, and how they provide their funding. It does not replace traditional finance but rather functions as a complementary and additional form of funding.

Alternative financers are specialists – they focus on a particular need and on a specific audience. As a result their ‘how’ is customised to deal with their chosen target market and for this targets unique needs. This applies to the funder’s processes and to their level of flexibility around things such as collateral. An example of this is that a SME may have an existing R1 million overdraft (their traditional finance) secured by R 1.5 million collateral but suddenly they need R5 million for some kind of contract or bridging finance – they need it fast and don’t have that extent of collateral.

The traditional funder cannot provide what they need, their process is too long and their flexibility is too low. An alternative financier providing bridging finance and specialising in SMEs is ideally positioned to fill this gap.

Related: 5 Key Questions To Answer For Raising Funding

One of the most significant differences between a traditional funder and an alternative financier is in their process. In the case of the alternative financier, they have often chosen to deal exclusively with a particular customer base, for example SMEs. As a result, this funder has both an affinity and contextually relevant empathy in working with SMEs.

Not only do they speak the same language the funder also has an appreciation for the time and material constraints of the SME and has developed their processes to cater to this market. This applies most notably to the turnaround time of the funding need and to the assessment aspect – where flexibility around things such as collateral is vital in making the finance happen for the SME.

A traditional funder is unable to meet the deadline of a bridging finance need, submitted on an urgent basis, where the finance is needed as soon as 2-3 days from time of application. A specialised or alternative funder is able to do exactly this. A traditional funder is also unable to find creative methods in solving the SMEs lack of high-value collateral in applying for finance.

This SME has generally already used their high-value collateral for traditional credit facilities but now needs funding for growth or resolution of a temporary cash flow challenge. An alternative financier is able to look at such an application in a different way, and has most likely already established alternative ways to make this happen for the SME.

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6 Money Management Tips For First-Time Entrepreneurs

That R25 coffee every morning isn’t taking you to the next level any faster than brewing a pot at the office.

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How many times have you been told that saving money is a good thing? Financial specialists recommend that you save a bit of money every month, but that’s easier said than done. After all, it’s not uncommon for people to live paycheck to pay cheque.

However, if you want to start a company, you’ll need to break away from this cycle and start budgeting and saving. At times, this will be a trying task, but it must be done if you want to invest in your future as an entrepreneur.

If you want to start managing your money more effectively and set yourself up to become an entrepreneur, follow the six tips below. With these techniques in your arsenal, you’ll start so see immediate changes, and you’ll set good behaviours in motion that’ll serve you throughout your career as an entrepreneur.

1. Prioritise organisation

When you are organised, you can track every facet of your finances. Record all of your financial information in one place so you can refer to it and keep track of your progress.

When you chronicle all of your financial information, you may want to try and organise it by category. For example, when you are recording your current costs, you can categorise them as “urgent” and “future.”

Not only will this system help you stay on top of your personal finances, but it’ll prepare you for entrepreneurial success because it’s a directly transferable skill.

Related: Smart Money For Small Businesses

2. Check your credit

According to a recent MoneyTips survey, nearly 30 percent of people don’t know their credit score. If you are among this group, it’s time to request a free credit report. Once you know your number, assuming money’s tight, feel free to use a few do-it-yourself credit repair techniques to quickly improve your score.

Understanding your credit score and improving it to the best of your ability is paramount when it comes to money management. A little-known fact among aspiring entrepreneurs is that the funding a new business receives is often dependent on the founder’s credit score.

3. Save where you can

People often cringe when they think about cutting back. Fortunately, there are several painless ways to save. Look at your daily habits and see if you have any spending trends. For example, if you spend $5 every day on lattes, you might consider cutting back and only having the expensive latte every other day. Slowly, you’ll get used to this new habit, and your bank account will reap the rewards.

Related: Time Is Money: Tips To Help You Use Yours Well

4. Search for additional information

The Penny Hoarder

Have you heard of The Penny Hoarder or Dough Roller? These are just two personal finance blogs that can help you better manage your money, but there’s a whole lot more out there.

Subscribe to websites and follow podcasts that offer advice on money management. Also, keep your eyes peeled for informative outlets that speak directly about entrepreneurial finances and follow them, too.

5. Set long- and short-term goals

Have you ever noticed that people want to reach their goals in as little time as possible? If you pick up almost any given health magazine, it’ll claim that it can help you achieve extreme results in little to no time.

Unfortunately, crash diets are often ineffective, and “get rich quick” money management techniques often lack substance.

It’s hard to accept that your goals will take time to accomplish, which is why you create short- and long-term goals. In either case, aim to make goals that are specific, measurable, attainable, relevant and time-based. Ideally, accomplishing your short-term goals will give you the positive feedback that you need to continue striving for your long-term goals.

Related: If You’re Trying To Raise Money, Doing Any Of These 9 Things May Scare Off Investors

6. Find a mentor

If you manage your personal finances and entrepreneurial finances, one thing is certain – at times, it will feel like you can’t keep up with everything. Financial planning can be difficult, and it’s not uncommon for it to feel overwhelming.

As an individual, you can seek out mentors that can help you with personal finances. As an entrepreneur, you can continue to work with these people or seek out more established financial consultants that provide you with guidance you need to run your business.

Managing your finances is a trying and rewarding experience. It will feel messy at times, but the more you practice, the more you’ll improve your personal finances and set yourself up for entrepreneurial money management success.

This article was originally posted here on Entrepreneur.com.

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