An OTC market for small business is on its way – exciting platform for the investment landscape

There have been a lot of bad news grumblings about the South African economy this week. But there is always a silver lining and as any businessman knows, patience must be applied when dealing with the cycles of an economy. When taking a step back and looking at the landscape of business in South Africa it is encouraging to note, that despite challenges, the spirit of entrepreneurialism abounds. Africa is going to boom, and everyone wants a piece of it, with this interest comes the need for the gap between investors and entrepreneurs to be spanned. Two young entrepreneurs are looking to do just this by creating an OTC market for small businesses, allowing investors to tap into a market that is traditionally quite remote due to its size. Keep an eye out for Lante OTC, it could very well serve as a great way to gain equity in the growth environment that South Africans are looking to foster. – LF 

ALEC HOGG:  Takalani Madzhadzhi.  Gugu, you actually made me read that.

GUGULETHU MFUPHI:  I didn’t, Alec.

ALEC HOGG:  You did.

GUGULETHU MFUPHI:  You put your hand up and told the director ‘to me’.

ALEC HOGG:  Okay, Takalani I can get pretty easily.  Takalani Madzhadzhi is an actuary, one of only 27 black actuaries in South Africa, and actuarial specialist Emmanuel Luthuli (that’s very easy) are co-founders of a business called Lante OTC, and they’re looking to get into the stock exchange business.  It’s a fascinating story that the two of them have enlightened us with.  Emmanuel, you sent an email after you saw what the Financial Services Board is doing to the OTC market: changing the rules or changing its mind on that.  Why are you guys deciding that this is an opportunity for you to perhaps compete with the Johannesburg Stock Exchange?

EMMANUEL LUTHULI:  Okay.  Firstly, let’s set the story straight.  We are not competing with the JSE.

ALEC HOGG:  I said ‘perhaps competing’.

EMMANUEL LUTHULI:  We don’t want them to squash us too early.  What we’re doing is establishing a stock exchange or an over-the-counter trading platform for small businesses.  It’s not necessarily for all businesses, but only for small or select businesses.  It is unfortunate that we have to go through the exchange license with the same regulations as the big frameworks, hence, the costs etcetera.  We’re here to set the story straight that we are not competing in any way with the JSE.

ALEC HOGG:  But you’re going to apply for a license.

EMMANUEL LUTHULI:  Yes, we are going to apply for a stock exchange license.

ALEC HOGG:  Takalani, why…why are you going into a field where you really have a lot of regulation and a big brother sitting at the other end?

TAKALANI MADZHADZHI:  When we started off, the OTC market just emerging with the BEE shares that they mentioned.  The way the concept really started was Lante and I were just thinking about it; that small businesses have quite a lot of challenges in terms of growing big and becoming as successful or as big as they could be.  We did a study and we did some research that we’ve been doing for some time, on exactly what you need for a small business for example, Bakery XYZ on the corner, to actually make it big and increase its distribution across the country.  That’s where we came in.  A funding element is required there as well as other financial requirements, so you need proper audited statements.  You need proper matrices for that business to work, so that’s where we’d say ‘we’ll provide this platform, which will enable you as the business owner of Bakery XYZ to get the funding to grow, and we will support you with other additional services’, which I don’t think the JSE does provide for its constituents.  We would then provide additional services such as auditing and other administrative issues that are too many to mention.  What would then happen, is you’d grow the business, the man on the street can now actually invest in this company with the comfort that you have the backing of people who have experience and the knowledge of how to actually make sure that you don’t lose your money and that your money grows, as with any other existing exchange.

GUGULETHU MFUPHI:  Is the key focus with this – obviously, supporting small businesses, but also giving information out there to the man on the street – so is it a balance of both?

EMMANUEL LUTHULI:  Yes, definitely.

GUGULETHU MFUPHI:  Why that particular approach?

TAKALANI MADZHADZHI:  Why that particular approach?

EMMANUEL LUTHULI:  Picture, for instance, a guy in Midrand who has a bread manufacturing company and wants to break through the cultural barriers.  When we were young…growing up, if they sent us to buy a cold drink, we’d buy Coca Cola, just because traditionally, that was the drinking beverage.  Now that there are small businesses coming up and want to compete, and break those barriers, we thought that giving equity to an ordinary (or to the community/residents on the street); they have expressed interest in the product that’s being purchased.  Hence, they’ll purchase that particular small business product over the traditional Coca Cola thereby increasing the revenue as well as referrals…they could also refer other people to purchase that particular product.

ALEC HOGG:  It’s a good story, but you’re going through a big process in getting licensed with the FSB.  Isn’t that an expensive way?  Is crowdfunding an example you might have looked at as an alternative?

EMMANUEL LUTHULI:  You have to look at the disadvantages of crowdfunding.  With crowdfunding, you look at the fact that there is nothing that the investor can get back.  There is no leverage.  It’s not sustainable.  It’s more of a donation compared to an investor getting some sort of share or equity.  We’re trading preference here.  That means no harm is being done to the small business.  We’re trying to force the growth for businesses to move from Lante OTC onto the AltX, and then onto the JSE.

ALEC HOGG:  Just take us a little bit back then.  Now, what is the process?  Have you told the Financial Services Board – as you have to by the end of July – that you want a license?  The next process is then actually getting one.

EMMANUEL LUTHULI:  Yes, on the 2nd of April this year, we met with the FSB – the Capital Markets Department – and we’ve already started with the process of application.  I agree with you.  It is a harsh process and an expensive one; hence, we are also seeking some backing.  If there are well-wishers wishing to assist us, or to partner with us as a start, Takalani can touch on that.

ALEC HOGG:  You said you didn’t do an actuarial degree. 

EMMANUEL LUTHULI:   I did the actual degree, but you have to write the Board Exams to become a qualified actuary.

ALEC HOGG:  And you decided not to.

EMMANUEL LUTHULI:   I decided not to.  I actually dropped out to start the venture.

ALEC HOGG:  And Takalani.

EMMANUEL LUTHULI:  Takalani’s qualified.

ALEC HOGG:  Where did you qualify?

EMMANUEL LUTHULI:  Where?  In South Africa, with a South African Society of Actuaries (ASA).  I’m one of the fellows, basically.

ALEC HOGG:  This is interesting because that’s a very difficult qualification to get.  You can earn an enormous amount of money working in a corporate, particularly one of 27 black actuaries.  Why did you guys decide to go into business together?

TAKALANI MADZHADZHI:   I want to create a legacy.  Yes, I can earn quite a bit if I’m in corporate and I stay there, but it’s different.  You’ve been in corporate.  I want to create a legacy for myself, a legacy for the small businesses, and actually make a change.  I think we’re in the right time, because our President just announced the Ministry for SME’s, so in terms of the focus for the country, this is what the country needs to actually move forward.

GUGULETHU MFUPHI:  Just very quickly, there’s obviously a new-established Ministry focusing on Small Businesses, so I’m sure you’ll be liaising with government shortly.

TAKALANI MADZHADZHI:   We will be.

EMMANUEL LUTHULI:  Not exactly.  I think that’s a different platform altogether.  We’re actually excited that government realises the importance of small businesses, as I think that’s a step in the direction although I’m not too sure, how it will pan out in the long run.  It will take time for it to settle, to become established, and to gain traction, but we are happy with the whole establishment.

ALEC HOGG:  Maybe you can say to that new Minister ‘give us a break here.  Don’t charge us so much in the costs to establish’.  Well done, guys.  It sounds exciting.  We look forward to talking to you more about your progress.  That was Takalani Madzhadzhi, co-founder and actuary, and Emmanuel Luthuli, co-founder and actuarial specialist at Lante OTC.

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