Will SV Capital’s lobola fund, fractional investing in cattle be the next big thing?

Johannesburg based SV Capital wants to give traditional large investment houses a run for their money — by allowing the working class and professionals to invest as little as R500 in a herd of cattle.

On top of this the startup claims to have developed the first fund of its kind that allows those looking to get married who must pay traditional lobola — to invest in cattle, in a separate fund.

With returns averaging 18.2% a year, over the last three years for its general fund, according to SV Capital co-founder Kagiso Tloubatla (pictured above, right with co-founder Ayanda Majola), it’s clear to see why investors — including those from South Africa’s big investment houses — are knocking on the startup’s door.

With the demand for beef expected to grow as the country develops, and with the current under-supply on the local market, investing in cattle seems a sure bet.

SV Capital’s lobola fund, factional investing in cattle has grabbed the attention of SA’s big investment houses

Over the last 10 years the cattle price has been fairly stable, even with the odd outbreak of diseases like food-and-mouth, points out Tloubatla, who founded the company in 2017 with Ayanda Majola. Both are former investment bankers from Investec Bank and Deutsche Bank, respectively.

Currently the company’s team consists of just three members — Tloubatla, Majola and an intern, but they’re already making a mark.

Their startup was selected in 2018 as one of 45 companies for the Orange Corner incubation programme, an initiative by the Netherlands in partnership with Shell, Philips, Royal Haskoning DHV and Vopak.

It was also a runner-up at the 2018 African Investment Forum in the category top tech startups in Africa.

SV Capital’s investment product, like a similar one offered by fellow Joburg-based startup Livestock Wealth, allows investors to invest in fractional ownership of cattle.

Buying part of a cow

Rather than having to buy an entire cow, which could set you back R15 000, SV Capital’s offering allows investors to take part in an investment pool, for as little as R500.

Whatever amount is raised by the pool is then invested in a herd, with each investor’s returns calculated from the percentage equity stake they held in the pool when the cattle were acquired.

To benefit from the offering, an investor must be part of an investment pool, which SV Capital opens every two months. Once the money is raised the company works with agents of beef cattle company Beefcor who then seek out auctions to purchase the cattle.

The cattle are then raised at a feedlot by Beefcor (SV Capital doesn’t own any farms), and fattened up for four months, after which they are sold to abattoirs. SV Capital uses the proceeds from each sale to fund the purchase of a new set of cattle. After 12 months investors are able to take their investment out or reinvest it.

Tloubatla says it means that in a 12-month period SV Capital is able to roll over investors’ funds at least three times. “So, from a risk perspective we have reduced the risk by having regular liquidity events,” he adds.

While the startup’s main partner currently is Beefcor, the company has also invested in two other farms.

Tloubatla says since 2017 the number of platform users have increase from 20 to over 1100 from across a number of countries, including Botswana and Namibia and even the US.

SV Capital’s current portfolio is R4.5-million on its general fund, while it has a further R1.8-million under investment from 15 investors in its iLobola Fund.

Those who invest in the general fund must stay invested for a minimum of 12 months, while for those who invest in the iLobola Fund, the minimum investment period is 18 months.

iLobola Fund

Investors that take part in the iLobola Fund must invest a minimum of R15 000.

Tloubatla said the idea for the lobola fund came about after requests from numerous friends who were getting married, for a product such as this.

Most of the 15 investors who have invested so far in the lobola fund are men (mostly in their twenties) who have opted to invest now for when they decide to get married at a later stage.

Two of the investors are women and Tloubatla pointed out that the women, including future brides, are increasingly stepping in to help pay for a share of the lobola.

Section 12J opportunity

SV Capital is also targeting another of its offerings at high net worth individuals who invest in Section 12J fund Fundamental VCC.

The VC tax incentive, set up under Section 12J of the Income Tax Act, allows investors who make investments in approved VCCs — that then invest in qualifying small companies — a tax deduction.

SV Capital is one of several that the Section 12J fund is expected to invest in. The fund is projected to raise R100-million which will be used to purchase cattle.

Tloubatla said the Section 12J fund has yet to start investing, as it was only launched in December last year. He said Fundamental VCC is aiming to raise R10-million by the end of this tax year, which ends on 28 February.

‘Different from Livestock Wealth’

So, how then does the startup differ from Livestock Wealth?

“We are quite different from Livestock Wealth, SV Capital owns no farms and we partner with established farmers to be able to provide this investment,” says Tloubatla, adding that unlike their competitor, SV Capital’s cattle are fed by feedlot instead of grass fed.

Initially Livestock Wealth did not allow clients to invest in only part of a cow, but Tloubatla says more recently their competitor has also introduced the option of fractional investing.

As an alternative asset class, the startup’s investment product is of “moderate risk”, he says. Ideally any investor should use their fund as just one of a number of other options (such as shares and property) when diversifying their own investment portfolio.

With the investment structured to appeal to the traditional African concepts of value, Tloubatla reckons SV Capital is perfectly positioned to capture market share with consumers who may usually avoid the complex investment instruments managed by predominately conventional fund managers.

The question now is, will there be beef with traditional investors?

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Featured image: SV Capital founders Ayanda Majola and Kagiso Tloubatla (Supplied)