Black investors in South Africa are by their very nature lazy and often absent from the rooms in which real investment deals are done. Many complain that they are unable to raise the capital to invest and those who do have access to Capital become involved in BEE deals, only to sit back, collect dividends and take no active role in the business.
As an aside, it must be stressed that BEE deals are NOT investments in the traditional sense, and will not lead to the creation of generational wealth. Gifting 26% of white business to some token black face, who have not had a hand in building anything related to the business, will not emancipate the man on the street from financial slavery.
The mistake that we often make is that we see FinTech businesses as tech businesses, which they are not. It is just the vehicle that clients use to bring their service or product to market.
Through being involved in FinTech businesses, we have identified the following challenges:
Poor due diligence Investigation
Through the MyGrowthFund we invested R500 000 in this venture without following a thorough due diligence process. Many of you that understand the world of investment will argue this action on its own is a classic venture capitalist mistake. Some may even further this argument by asking how we invest without the full picture. Allow me some liberty to explain that this investment was one where you are either in or out on a national broadcasting platform.
It took some time to own up to our mistakes, so today we make no excuses because we learnt the hard way – losing money, a lot of money. So, the point of departure for investing is a thorough due diligence process. Without this foundation, you are as good as a man collecting water with a leaking bucket. Bluntly put you are giving the businesses a longer rope to hang itself and die.
Technology competencies translating to growth
The year 2015 we had a technology buzz, it was apps, software’s and the list goes on. More and more businesses were moving towards paperless operating trends and connecting the businesses with the consumer. So, you can image our excitement that we too, were catching this moving train and in the process rolling to the bank. However, this was not the case. The latest tech in the business did not translate into financial upswing but rather into a more significant reach in the market.
Getting the latest technology means you have a good head start but how you stay ahead is the real uphill.
Weak management structure and controls
When there is no separation between the entrepreneur and the business purse, one is are doomed to fail. This experience has forced us to make it a requirement for our entrepreneurs to have strong management teams before joining our programs.
In this tech business, the management took some of the funds invested in growing the business to refund their salaries expenses that had accrued prior our participation in this deal. This, by the way, was done without the approval of the board of directors and this action was in contravention of the Companies Act. The picture painted in the early stages of this deal started unravelling with a whole lot of spider webs. Even when we brought in new talent, it failed to adequately account for the business dealing due to the weak controls that existed.
A stable structure and efficient control mechanism are the key drivers for growth and success.
Being lazy is not necessarily a bad thing, but when you are a black investor in South Africa, you must be willing to roll-up your sleeves and work for your money. There was a time when this tech business needed accounting competencies on a full-time basis, but none of our partners would come to the rescue. Instead, the majority of the partners opted to sit it out hoping things will fix themselves.
In Africa, we struggle to unlock an active investment philosophy because the thinking is still that of a piggy bank in the sense that you can just deposit funds expecting it to be sevenfold over a short period miraculously. Now that philosophy might work if you are trying to teach your four-year-old to save but to invest in business ventures you need to spend and stay actively closed to ensure that strategic forces are at work.
To sum it all up, the challenges we encountered here are all as a result of an imperfect due diligence process, and the rest were just contributory factors that emanated from that blunder. We have indeed paid our dues and are learning as a venture capitalist fund on this journey. We are definitely well on our way to being the biggest African owned and managed fund for entrepreneurs. We exist for the entrepreneurs.
“Technology will service the consumer- not service your growth!”
Vusi Thembekwayo Speaker. Investor. Disruptor