R1bn SME fund takes shape as deal gets inked
An accessible, black-owned project
RAINFIN, a Somerset Westbased firm, is well on its way to achieving its target of building a R1-billion SME fund following the conclusion of a transaction with the Lebashe Investment Group.
The firm announced this week its transaction with the Lebashe group, which operates mainly in the financial services sector, would capitalise the business, partially exit the founding shareholders and thereby increase its stake to 75%.
Lebashe is 100% black-owned and managed, which results in RainFin’s direct black ownership increasing to over 75%.
Both RainFin and Lebashe believe this will have a profoundly positive effect on the ability to service the SME (small and medium enterprises) segment across South Africa and Africa.
Founded in 2012, RainFin has been a pioneer in the disruption of the debts markets in South Africa, as its credit marketplace technology has been utilised by companies to raise debt funding from both traditional and non-traditional sources.
The firm created two divisions earlier this year, one with a focus on corporate debt infrastructure and the other as a SME-funding ecosystem.
The Corporate Debt division has partnership with 4 Africa Exchange, one of the new licensed stock exchanges in South Africa, to provide technology and platform services to companies to raise debt directly from the market in the form of technology-led self-origination, cost-effective arranging, book-building and debt private placement.
The SME Credit Marketplace division has established its own fund, the RainFin SME fund, and will focus on providing services to funds that are SME-focused.
RainFin chief executive Sean Emery said as part of the initial Lebashe investment, the firm had successfully piloted a R40m SME fund, in its SME Credit marketplace division, called Texmex, and have identified opportunities to scale this fund with additional capital for various target segments of SMEs.
“In order to attract more capital into our SME funds, we need to increase our balance sheet to be at least 20% of the size of the funds we want to build. We are targeting to build a R1bn SME fund and,as such, we need to have in excess of R200m capitalisation on our own balance sheet. This transaction assists us in our path to achieving this. In addition, the transaction enhances RainFin’s capabilities for expansion, and will allow us to accelerate our growth strategy,” Emery said.
“We have always understood that building a fund in excess of R1bn would take time, and we are building up the amounts of capital available in two ways. The first is that the initial round of Lebashe capital allowed us to invest R40m in a pilot SME fund last year, that has created the legal and financial track record in a SME fund structure that we hope will give large, longterm development institutions and pension funds the ability to see the possibilities of positive returns from investing in the SME segment. We have seen evidence that this comfort leads to them investing larger amounts in a fund specifically designed to lead to the SME segment.”
Emery said the additional transaction with Lebashe would allow the firm to further enhance the ability to raise more capital for SME funding by enabling it to give investors additional confidence to invest alongside RainFin in the SME fund as it, in turn, used portions of the capital to increase its own investment in the fund.
“The long-term goals of building a SME funding balance sheet will be done in iterative steps in our mission to support job creation and SME development,” said Emery.
Warren Wheatley, executive director for The Lebashe Investment Group, said since the group’s initial investment into RainFin this past year, it had identified opportunities to significantly increase capital available for small and medium businesses across South Africa and beyond.
“To unlock these opportunities, RainFin needed to increase its operational capacity and scale its balance sheet. The Lebashe investment will allow the business to do this. We have got to know the RainFin team and confirmed the excellent strategic fit between its unique value proposition and potential to scale, and Lebashe’s vision to build a pre-eminent black-owned financial services business, which is accessible to all,” said Wheatley.