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quinton-dicks

Exclusive: ‘Government won’t match private sector in R1.5bn SME fund’

The SA government has no immediate plans to match the R1.5-billion that 48 large companies have committed to the SA SME Fund, National Treasury Director-General Lungisa Fuzile told Ventureburn today.

Deputy President Cyril Ramaphosa pledged during the launch of the fund in May last year that the government would match any contribution made by the private sector.

However Fuzile, who sits on the fund’s board, said the government will instead look to improve coordination between the state and private sector, while stepping up its existing funding and business support to small businesses.

“It is not clear from a fiscal point of view that the immediate need is to add money,” he explained.

He stressed that the government’s decision not to invest at present in the fund had nothing to do with concern over whether the fund would prioritise investing in black entrepreneurs or not.

“It is not clear from a fiscal point of view that the immediate need is to add money”

While the fund’s interim CEO Lisa Klein said in September last year that the fund aimed to deploy the first monies in the first quarter of 2017, the fund has not accredited any fund managers yet.

SA SME Fund CEO Quinton Dicks, who was appointed in January, said the fund aims to begin accrediting fund managers from June, when his team is expected to begin work.

Dicks, who has 15 years’ experience in the private equity sector, said the board had given him the go ahead a few weeks ago to begin recruiting a team. He intends to initially put together a team of five who will begin work on 1 June.

The fund will invest in funds which will then invest in high-growth small and medium-sized enterprises.

Dicks said the deployment of funds would be dependent on deal flow from accredited funds. Some are expected to have a closing this year, he said.

While funding criteria is expected to be finalised only by June, he said the minimum contribution from funds themselves will be determined by the SA SME Fund and will depend on how each fund plans to deploy the monies. However he stressed that the the SME fund itself won’t interfere in how funds choose to source their investments.

In June last year the fund’s chairman, Adrian Gore, said the fund will forgo part of its share of the fund management fees and pass this on to fund managers as an incentive for them to finance black entrepreneurs.

Responding to a question on whether there will be any additional criteria to incentivise investment in black entrepreneurs, Dicks stressed the commercial intent of the fund.

“At the end of the day this is a commercial fund and the imperative is growth and if any entrepreneur reflects the attributes that will deliver growth these companies will be invested in,” he said.

While he admitted that the R1.5-billion in commitments was not a lot if one compared this to the annual amount spent by companies on enterprise development, it was still a sizeable amount when compared to what any agency disburses annually to SMEs.

Will startups be a focus?

He said the fund will focus on SMEs and what he describes as “midcaps” (medium-sized firms) that are already profitable and had demonstrated the ability to scale. “I don’t think the focus of the fund is (on) startups,” he added.

“We’re trying to leverage money as quickly as we can so therefore the focus is on those that can already scale,” he explained.

While many may initially have been led to believe that the fund would help grow the country’s nascent venture capital (VC) sector, he said the fund had not been set up to support the VC sector, but to rather to support existing scalable businesses to grow further.

The fund would initially not focus on 12J venture-capital companies as the tax incentive has certain anomalies that don’t make it investor friendly, he said.

Apart from Gore and Fuzile, the board is made up of Brian Joffe, Jabu Mabuza, Christo Wiese, Dolly Mokgatle, Judy Dlamini, Nigel Payne and the Public Investment Corporation’s Dan Matjila.

Featured image: SA SME Fund CEO Quinton Dicks (supplied)