SA SME Fund is not aimed at venture capital sector, says CEO

South Africa’s R1.5-billion SA SME Fund is not aimed at boosting the country’s nascent venture capital (VC) sector, but rather at helping already profitable mid-sized companies to grow and create jobs, says the fund’s CEO Quinton Dicks.

“It’s not a venture capital fund – it’s not the SA Venture Capital Fund,” said Dicks (pictured above) in a call yesterday with Ventureburn.

In the call he revealed that the fund had commenced with screening funding partners and is likely by the end of this year to complete due diligence work on five funds it plans to co-invest with.

In a recent interaction with Dicks, tech entrepreneurs voiced their concern that the fund would not be targeting the VC sector.

“Guys were grumpy on the VentureTrain (an initiative of local tech advocacy group Simodisa) as they thought the fund was for themselves,” said Dicks.

The fund, he said, is not to centrally aimed at helping grow the country’s VC sector. “The main aim of the fund has always been to spur the SME space,” he pointed out, adding that the fund is looking to accredit fund managers aimed at “late VC to lower mid-capped space”.

Guys were grumpy on the VentureTrain as they thought the fund was for themselves, says SA SME Fund CEO

However in an interview last year with The Financial Mail, Discovery CEO Adrian Gore – who helped initiate the fund – said the fund would aim to support the creation of a VC sector in South Africa, in effect performing a similar role to how the Small Business Administration in the US used the Small Business Investment Company (SBIC) to help grow the VC sector.

However Dicks claimed that there had been “some confusing speak early on” and that the focus of the fund had only become clearer following the approval of the fund’s mandate a few months ago by the 48 big companies that have made financial commitments to the fund.

The focus of the fund he said is on “growth and employment”. “We are focusing on growth-stage companies across a wide range of sectors,” he added. “Scalable companies” that are already profitable will be targeted, he added.

Despite this, he admitted that some of the funds that the SA SME Fund is looking to accredit “do play in the VC space”.

In the VC space the funding would be in the form of late-stage funding aimed at addressing the challenge a large number of local VC-funded firms have of accessing follow-on rounds of finance.

Fund could help pump R7-billion into sector

The fund’s mandate is to commit as part of the initial R1.5-billion pool of funding pledged by 48 large companies, no more than 20% of the funds collected by each accredited fund manager.

Like this the SA SME Fund could help inject about R7-billion to R10-billion into fast growing mid-sized firms, he pointed out.

However, he said drawdowns would be dependent on each fund manager being able to close their respective capital raising round, he added.

He said the focus is therefore on trying to make the fund an evergreen fund as there are no new funding commitments in sight from the 48 companies that have made initial pledges to the fund.

Dicks added however that he and his team is in talks with getting institutional funders – including state pension funds such as the Public Investment Corporation (PIC) – to make fund commitments alongside the fund. He declined however to name who at this stage the fund is in talks with.

‘Delay down to concluding mandate, team’

The fund’s then interim CEO Lisa Klein said in September last year that the fund aimed to deploy the first monies in the first quarter of 2017. This, while venture capital Michael Jordaan bemoaned the long time it was talking to get the fund investing.

Read more: SA downgrade ‘nearly irrelevant’ to startups – Michael Jordaan

Dicks however said much of the delay in getting the fund ready to make investments has come down to getting the fund’s mandate approved and in putting a team together (both of which have since been concluded).

He added that it takes between three and nine months to conduct a due diligence on a fund. The actual deployment of the capital by the accredited funds is reliant on the fund having raised sufficient capital from other sources, he added. Like this, some fund closings, he added may only take place next year, he said.

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