Voices from the USAID Finance and Investment Network: Creative CFO
Creative CFO is a South African business management advisory firm turned first-time fund manager supporting a range of entrepreneurs across sectors. In this interview, Jacobus de Nysschen, Chief Executive Officer of Creative Growth Capital, managed by Creative CFO, discusses the challenges and opportunities facing SMEs and investors in South Africa and why offering a diverse variety of funding instruments may be the key to creating a more sustainable ecosystem of SMEs throughout the region.
By Carolanne Chanik, INVEST Communications Coordinator, and Matthew Mitchell, INVEST Senior Partnership Specialist
Creative CFO has a simple yet lofty goal: to create a world where more small and medium-sized enterprises succeed. “Small and medium-sized enterprises, or SMEs, are the backbone and support structures of our communities in South Africa. They are the source of economic and employment growth,” says Jacobus de Nysschen, an Executive Director at Creative CFO and CEO of Creative Growth Capital. SMEs account for approximately 98.5 percent of formal businesses and 47 percent of employment in South Africa, but historically they have lacked access to the capital they need to grow. Capital that is more accessible will provide entrepreneurs and high-growth businesses with the opportunity to achieve their full potential. A thriving SME ecosystem will create sustainable, well-paying jobs and skill-building opportunities for workers across the region.
Over the past eight years, Creative CFO has supported more than 500 SMEs in improving and growing their businesses. With the launch of its first fund, Creative Growth Capital Fund I (“the Fund”), Creative CFO is exploring new ways to meaningfully support South African enterprises. The Fund will offer a variety of financial products that go beyond traditional debt or equity funding, and that are tailored to meet the diverse needs and growth trajectories of SMEs.
“In our experience, the demand for financing for SMEs far outweighs the supply. The scales are weighted in large, established businesses’ favor,” states de Nysschen. “Most traditional banks restrict SME participation with rigid investment processes and credit checks, and alternative financiers often require high interest rates to mitigate perceived risks. It’s just not viable for smaller businesses.”
Creative CFO aims to invest in a portfolio of 10 SMEs for its $1.3 million fund. To enable these SMEs to grow, Creative Growth Capital will offer a diverse range of flexible funding solutions aimed at matching the deal structures to the cash flows of the portfolio companies. Such funding solutions include debt, mezzanine, quasi-debt instruments, and equity or quasi-equity instruments. The array of innovative funding options that are generally less accessible in emerging markets makes it easier for Creative CFO to support companies that are in a high-growth phase. “By providing an array of financial products to them, combined with catalytic capital support from USAID, we’re hoping to make our portfolio more attractive to investors,” explains de Nysschen.
The fundraise has begun. The Southern Africa Regional Mission’s support enabled Creative CFO to build a first-loss layer into its vehicle. Creative CFO also provided a second-loss investment. Combined, these two layers will significantly de-risk investments and improve the risk-return profile for commercial investors.
Creative CFO will focus on building long-term partnerships and administering technical assistance to its portfolio of SMEs. Through its holistic approach to funding, Creative CFO aims to create new, well-paying jobs and promote inclusive business practices for marginalized groups within South Africa. “As the African proverb goes, it takes a village to raise a child,” says de Nysschen, “And this really means that an entire community of role players needs to come together to partner and support these SMEs across Southern Africa in order to create a sustainable and healthy environment and unlock a prosperous future for us all.”
To hear more from de Nysschen about the risks and opportunities around supporting SMEs to spur economic prosperity in South Africa, watch the video below.
