FNB yesterday launched its latest enterprise development fund, Vumela 4, with R200 million in the kitty to support entrepreneurs and small to medium-sized enterprises (SME).
The bank said the fund aimed to benefit 150 businesses and create more than 1000 jobs.
FNB’s Vumela 1 and 2 have come to term, while Vumela 3 remains active, with R75m in deployable capital remaining
Gordon Little, FNB Commercial CEO, introducing the fund said, “Our vision for Vumela was to build a sustainable model that would strengthen South Africa one SME at a time. By providing SMEs with contextual funding and growth support relevant to their specific size and stage of business and funding need, we can catalyse growth and provide ongoing support in the scaling journey, which is not an easy one.”
Little said FNB had seen a significant over-subscription to Vumela.
“Historically there has been a lot of take out in terms of the new programmes,” he said.
Heather Lowe, the head of SME Development at FNB, said the SME segment was critical to South Africa.
“We think we can get behind these businesses and enable their growth, and unlock their growth potential. These businesses in turn then contribute to economic growth and they create jobs amid incredibly high unemployment rates. So we really need to support this segment as catalysts for growth in our country,” Lowe said.
She said FNB didn’t like generic interventions, “all our interventions are designed to actually solve a business problem or focus on a specific area where the SMEs are constrained and the intervention is designed with support and funding specifically to address those.”
The Vumela Enterprise Development Fund was established in 2009 by FNB Commercial and Edge Growth to create an innovative model to finance and support black-owned “missing-middle” SMEs, unlocking their potential for sustainable growth and subsequent job creation.
“Missing-middle SMEs are those that do not fit into the traditional funding continuum provided by traditional financiers. They are too large for microfinance, don't meet traditional credit criteria in terms of collateral and balance-sheet requirements, are too small or early stage for private equity, and don't yet generate the exceptional returns that venture capital seeks,” FNB said.
The bank said the Vumela 4 offering was designed to address two specific gaps prevalent in the SME sector, firstly, accelerating early-stage businesses and, secondly, keeping South African scale-ups in their owners’ hands.
– Accelerating early-stage businesses
The first gap is amongst early or seed-stage SMEs, who cannot access funding due to their lack of investment readiness and/or performance risk within their operations. Vumela has designed the Accelerate Loan in response: rapidly accessible, low-cost funding for capital expenditure, working capital or operational expenditure. This loan has an added incentive in that SMEs can receive all interest payments back if they honour repayment and governance obligations, essentially rendering it a zero-cost funding.
The Accelerate Loan comes with higher risk, and as such, it will initially be piloted within the ecosystem of participants in Edge Growth and FNB Business Development Support Programmes. The vision is for Vumela to accredit other programme providers in the market to expand this offering to more SMEs in a future phase of the rollout.
– Keeping South African scale-ups in their owners’ hands
The second gap speaks more to tech-enabled South African scale-ups. These businesses, relative to international counterparts, take longer to raise Series A and B funding rounds and receive lower valuations. Because lower valuations follow them through successive funding rounds, the cumulative dilution of founder shareholding can mean that entrepreneurs who do manage to secure funding end up with excessively diminished stakes in their businesses.
Vumela has therefore designed an innovative Venture Debt product aimed at supporting businesses with significant potential without diluting founder equity. Venture Debt is a non-dilutive loan extended to fast-growing, venture-capital-backed tech-enabled scale-ups raising Series A or B rounds.
When a business is growing quickly or burning through cash at a higher rate, Venture Debt lowers the average cost of borrowing to support operations. Additionally, it offers flexibility because venture debt can be used as a cash reserve for unforeseen capital requirements or fundraising setbacks.
BUSINESS REPORT