Two years on, Altvest expands into SME credit with R100m war chest and third listing
Altvest founder Warren Wheatley and chief investment officer Akshay Karan share the latest developments at the innovative financial disruptor, whose shares are now listed on the CTSE and A2x. They also take the wraps off the new Altvest Credit Opportunities Fund, which has R100m available for funding to SMEs and is in the process of becoming the third underlying listing in the group's stable. Wheatley surprised interviewer Alec Hogg with the offer of financing for BizNews Premium members – and that's not the only surprise in this fascinating discourse.
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Edited transcript of the Interview between Alec Hogg with Warren Wheatley and Akshay Karan of Altvest
Alec Hogg: Well, the BizNews Tribe has been following the story of Altvest with quite a lot of interest. It seems as though Warren Wheatley, whose brainchild Altvest was, has aged a little, as we can see him on screen with the George Clooney look now, Warren. Good to see you again. Akshay Karan with us as well, the Chief Investment Officer. We're going to be finding out more about what's going on at Altvest after the introduction there of Stafford Masie and GG Alcock as directors, Stafford, in fact, as the chair, and some very interesting developments as far as raising of capital is concerned. But maybe let's start at the very beginning, Warren. Stafford, has he made much of an impact as chairman?
Warren Wheatley: Absolutely, Alec. Stafford has brought a level of advanced thinking to the board. He's also made incredible connections. He loves the platform. And so he's been using his network to do very strategic introductions to companies that might very well, in fact, join us as strategic partners and help us scale up the business. So there's a number of very hot conversations happening right now with very key strategic big players from the SA economy. We can't say too much right now. We're still in the NDA, but watch the space carefully.
Alec Hogg: It is interesting when you bring in somebody with those connections, and that's what the world's about, isn't it? That we all know from the outside that Altvest is a very exciting proposition. We've said that many times here, but it's kind of getting the acceptance by the establishment in a way, or at least partnership with an establishment. And sometimes all it needs is an intro.
Warren Wheatley: Yeah, the platform and what we're doing are very novel and complex. And so it's difficult to get somebody to sit down and actually look at it properly. But what I can say is when people actually take the time to do that, they are blown away by what is possible with the platform. And, you know, that's where the connections and the introductions help, in that when it comes from someone of Stafford's caliber or GG's caliber, people actually take the time to take it seriously and sit down and look at it and think about it. And once that happens, the interest is overwhelming.
Alec Hogg: Akshay, from your perspective as the Chief Investment Officer, you need the ammo to be able to make the investments. How's that been going? Do you have it? Do you have a treasury?
Akshay Karan: Yeah, it's, I mean, you're absolutely correct. I think it's, you can only invest if you have capital to invest, right? And so it's been a process for us, and we've spent the lion's share of this year actually in very detailed capital-raising discussions, in due diligence. And so, you know, we're very proud to say that the first tranche of institutional capital has flowed into our flagship SME debt fund, the AltVest Credit Opportunities Fund. And so that is a standalone entity, a little bit different from AltVest Capital in the sense that it focuses almost entirely on providing affordable loans to SMEs. But the interest that we've received on that investment entity has been incredible. And we've received our first tranche of institutional capital to go out there and actually fund great businesses in South Africa.
Alec Hogg: That's interesting. We'll talk about that in a little more detail. But Warren, before we get into the nuts and bolts, you have also listed Altvest on A2X, the A2X exchange. Has that made much of a difference? And are shareholders now able to trade more aggressively, perhaps, than in the past? I mean, is there stock available to trade?
Warren Wheatley: The stock is still very tightly held. So we don't see much liquidity. Staff and management and most of the directors and some of our partners hold the stock very tight. So I would guess that maybe only 15% of our issued shares are actually free float. and services the institutional market. And, in fact, our institutional clients who have just entered the business have traded through A2X. But the liquidity hasn't been great. We are taking some serious steps to fix that and to resolve that problem. But that's news and an announcement for a new year.
Alec Hogg: So what are you focusing on right now? Actually, it's already given us a little hint there.
Warren Wheatley: Well, right now, we've raised 100 million from four institutional retirement funds. We want to deploy that capital as quickly, efficiently, and effectively as possible, but also as responsibly as possible. So the focus for the last three weeks has been to curate a list of SMEs that are going to move the same needles we want to move, and that's employment, women empowerment, growth, those kinds of things. So we've been searching for those kinds of SMEs.
Alec Hogg: I'm sure there'll be some of them in the BizNews community. Maybe actually you can give us a little more detail of what the qualifications are, and then indeed what the capital is gonna cost, or the loans are gonna cost those companies.
Akshay Karan: Yeah, sure. Our mandate is pretty broad. We could do close to anything as it relates to debt financing, but there are a few pillars that we've decided to focus on at the start. The largest pillar is working capital, short-term funding solutions to businesses to finance their growth—trading stock, strategic expenses, reducing cash flow challenges, helping them take on new contracts. That's going to be the lion's share of the capital we deploy. Additionally, we're going to do some asset finance, slightly longer-tenured than working capital, secured by an asset. This will help businesses inject some rocket fuel into their operations, invest in new production capacity, buy new assets, and we want to partner with businesses on that growth journey.
The third pillar, admittedly the smallest at the start, will be water and energy solutions. This subset of asset finance aims to assist businesses negatively impacted by energy and water insecurity to continue operating. Whether it's investing in a generator, solar power, or water tankers, we want to be part of that journey. In terms of pricing, unfortunately, the SME landscape in South Africa is risky, so we have to price for risk. We'll be more expensive than a traditional bank, aiming to partner with clients struggling to access traditional banking. However, we believe there's room to give SMEs a good deal in South Africa—sometimes better than what they're currently getting from SME funding providers. So slightly more expensive than a bank, but slightly cheaper than SME lenders in the market.
Alec Hogg: Such an interesting point that you've made there. I had a chat earlier this week with Kobus Verster from ArcelorMittal, and as a direct result of Eskom, they had to close down their Newcastle plant, and they had to retrench about 2000 people. I'm going to have jobs anymore. And he was explaining, and in a micro scale, I'm sure this is relevant. He was explaining that because of load shedding, they had to cut down the operations or stop the operations at times that obviously hadn't been planned. And as a consequence of that, restarting it was costing them an absolute fortune. On the other hand, they also weren't getting deliveries. In one instance, the iron ore didn't arrive, couldn't arrive because Transnet didn't have the capacity to do that. So they had to stop the business as well. And he said, eventually, they've lost 500 million Rand. They just had to close it. And you can imagine, Warren, from your side that these kind of challenges for smaller businesses must be even more extreme.
Warren Wheatley: Yeah, I like how our research has shown that it's actually, the word I'd use is devastating. You know, for a butchery or a baker, you know, butchery is with refrigeration requirements. Bakers with ovens and that kind of stuff. You know, and you don't really get solar-powered ovens. You need high-intensity electricity to run an oven. It's similar to the ArcelorMittal ovens that melt the iron. So we want to be able to borrow or lend to SMEs that want to get off the grid. And we foresee water becoming a major issue as well, where similarly, you need a constant water supply to run a business effectively. That's going to be a definitive part of our offering where you can come to us, and we'll fund the acquisition of generators, solar power, digging a borehole perhaps, or whatever the case may be to get you off the grid. So it's a definitive vertical, and we hope to launch that real soon. Right now, we're open for business for all three, but we are taking a very curated approach and we'd like to invite a premium set of BizNews subscribers. If they have needs in any of those areas, please reach us. Alec, I don't know if there's a mechanism we could use to filter them slightly and to ensure that they are BizNews premium subscribers in good standing. We'll happily chat with them about their financing needs.
Alec Hogg: Good. Well, we will do that. I'll make sure to communicate with our premium members and maybe we'll give them a different email address or something like that to channel it through. But it's a very interesting approach that you have on that side. In other words, on the financing side. It seems to me though that the demand could be endless, given the challenges that many businesses are going through at the moment. Are you hoping to be a lender of last resort in some instances, or are you hoping to actually take away some of the businesses that might be with the banks?
Akshay Karan: So I think the answer is neither. I think the pool is so large of businesses that require financing that on just the structurally underbanked or unbanked alone, there are billions of rands worth of prospective financing opportunities. I think one of the realities of living in South Africa is that there are these unique challenges, but what we've realised very quickly spending time sitting with businesses is that there are so many pockets of excellence. There are so many incredible businesses that have built anti-fragile business models, that have built resiliency, and they just either have chronic lack of access to financing or in some cases they are debt free. They have no financing. And what we want to do is help those businesses scale and partner on their growth journeys. Now, of course, along the way there will be businesses that already have funding solutions, in some cases with banks, in some cases with the non-banks. And there it's about doing right by that business, doing right by that client, finding what's the best solution for them. And in truth, if a bank is going to give them better terms, then that's not the battleground that we fight on. We're not going to try and push a more expensive debt product if they are getting a better deal, but where they aren't getting a better deal or where they need more flexibility, that's where we're gonna play. And that's our sweet spot.
Alec Hogg: Warren, what about the other side of Altvest, the original side of Altvest, the investing in smaller companies, bringing them to the market? I see they listed now also on A2X, the Umganu Game Lodge, Bambanani. That had a lot of promise. How's that developing?
Warren Wheatley: Alec, so Altvest, the Credit Opportunities Fund is actually an investable fund and is our third listing. We mentioned that we have fallen behind in terms of what we promised to the market, but just today if you receive our newsletter you'll see that portal for equity support from Altvest Capital is now open. So any companies who want to access public markets through the Altvest platform are welcome to apply. So we've now got a fully-fledged equity product, and the public is, of course, invited to apply. Our website has just launched this morning, where anyone who wants to bring their business the same way Bambanani did or Umganu did is able to. We are aiming to do between six and eight of those per annum and still bring those to the market quite aggressively. We've got a deep pipeline. We've just got an IC approval for our next project. And it's an amazing asset class that exposure is just unavailable to all South Africans, even institutions right now. So we'll be launching that early in the new year. We give them all the regulatory hurdles dealt with the side of the December break and we have to launch the new product early in December. But ACOF or AltVest Career Opportunities Fund, it's a private credit or private debt fund, whatever you want to call it. But South Africans can now invest in this asset class for as little as three grand per share on the JSC, sorry, on the CTSC or A2X, and that's available. There are, of course, other private credit opportunities available, but those require minimum investments of up to 500,000 per individual. So we've brought private credit as an asset class to ordinary South Africans and made it available in an easy way to institutions. So we received almost 26 million in the equity component of our fund and 80 million as part of the debt component. So we are off.
Alec Hogg: So you're still on the vision of democratising the old private equity markets.
Akshay Karan: Yeah, and maybe, yeah, and just to add to it, I think it's worth spending a minute or two on our reflections and our growth as a business over the last two years. We are extremely proud of the impact that we've had on the businesses that we've partnered with. For both Bambanani and Umganu, these businesses have soared since we've been involved, and that's a great source of pride for us. One of the important realisations, spending time on the ground with SMEs, is that private equity or equity type investing is not always the right solution for all businesses. In many cases, their financing needs are not well suited to private equity and what they need is an affordable short-term working capital solution or they need a loan. So what we've spent the better part of this year doing is developing the solution to that big problem. So where Altvest capital is sitting now is we've got this core equity franchise where it makes sense to do so. We come in as a private equity investor and democratise access to that business. But where it doesn't make sense to do so, or where the business is not ready for that yet, we can still help those SMEs with a debt solution. So there's debt and equity in our toolkit now, and I think we're a lot stronger for it.
Alec Hogg: Oh, it's so interesting to see how you've learned as you're going forward. Just to close off with before we go, your stock tech competition, first time out was very successful. You're offering very good prizes, 50,000 to the winner, 30,000, 20,000, second and third, how does that work and is there still time to enter?
Warren Wheatley: Unfortunately, entries closed. So it's quite difficult for a company with a market cap below a billion to get any analysts to have a detailed look. So we've invited students, professionals, and anyone who considers themselves an investor to have a crack at doing an analysis. We've got an internal team that looks at the various reports. We had over almost 80 entries. There's about, yeah. And so we choose the top 10. And then those go to professional judges, who then will select the top five. And then it goes to the public, who select the top three. It's incredible. We get lots of interaction with the finance community. And we get prize discovery. So for. That's not a secret. Anyone can figure out what the agenda is for spending $100,000. We end up with hopefully 10 or more professional valuations on our business that should help other investors make a decision as to whether to invest or not. Alec, one more minute. I want to talk about a partnership that we've developed that's been quite incredible for the business. We spent the whole of Monday in Cape Town with the JSC and the Western Cape Department of Economics, where the Western Cape government facilitated a matching event, a capital matching event, between a range of SMEs. I think there were over 500 applicants and capital providers. So Altvest Capital was one of the capital providers. And in a dragon den or shark tank style, we had 14 SMEs pitched to us for different funding requirements. I'm thrilled to announce that the project was incredibly successful. The caliber of SMEs and entrepreneurs in the country is mind-blowing. And we left their feet on an absolute high, feeling very positive about the country and about the prospects of funding these SMEs. We're not talking about guys who have developed anything fancy. We're talking on the ground businesses that retail. We saw a peanut butter manufacturer. We saw a lady who was producing almost a million samosas per annum. We saw printers, car wash guys, a whole range of real economy. and guys who are really struggling to make it work, but have built incredible, resilient businesses. So we partnered with the JSE, and we're gonna be traveling around the country to become a strategic partner in offering SMEs this kind of business. Akshay, I don't know if you wanna add anything to that.
Akshay Karan: Yeah, just that. I mean, it was incredibly exciting. It's also humbling to see just how innovative and how enterprising South Africans really are. And in many cases, you had a business that was doing a very simple thing, baking cookies or making peanut butter, employing 40, 50 people full-time. stimulating the local economy, building strategic relationships with big suppliers, really building robust serious businesses and all they needed was just a little bit of an injection of capital. They had the track record, they had the cash generation, they had the strategic partners, they ticked all the boxes. All they need is capital and capital is the easiest part of that conundrum. They've solved all the much harder problems. We get to come in and solve one of the easiest ones in my opinion and that's really exciting.
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