Bulls n Bears Entrepreneurship Zone :: Due Diligence: How Nisela Capital’s founder made the moves that mattered

Tue Apr 3 08:39:39 CAT 2018

 <mailto:info at bulls.co.zw> 

How we made it in Africa’s Due Diligence series asks top players in
Africa’s private equity industry about how they are mastering the art and
science of profitable dealmaking and fundraising. Doing the due diligence on
those who do due diligence for a living.

***

In this first of what promises to be an insightful Q&A series, Michael
Avery sat down with Richard Ngwenya, the founding principal of Nisela
Capital.

Where did it all begin?

I started my career with Investec inside the Private Client and Investment
Banking team. We serviced wealthy families with net asset values of R250m
(US$21.4m) or more and managed both sides of their balance sheets.

I then ended up working in a niche looking after some of the bigger,
well-known black families, who were involved in a lot of the black
empowerment transactions in the early to mid-2000s.

>From there I left to join Absa Wealth. At that point in time it was quite
clear to me that I was sitting on the wrong side of the conversation with my
clients. I had a strong enough track record and CV, and was quite young (29
in 2011), second child on the way, and thought there’s never going to be a
‘right time’ so let me just close my eyes and jump.

I founded Nisela Capital in 2011 and we focused on doing advisory work to
high-net-worth individuals and family offices. We raised a relatively small
amount of money initially just to get us going and we invested in a few
opportunities in South Africa and some in Zimbabwe, mostly in the
agri-processing and mining-processing fields.

Describe your greatest challenge in establishing Nisela capital.

The biggest issue we had was building up a track record.

What we found is that if you want to be successful in private equity in
Africa you must have satellite offices and dedicate staff in-country. We
were covering Zimbabwe, Zambia, Mozambique as well as South Africa. But we
were a team of three and we weren’t able to do justice in any of those
markets via remote control from South Africa.

I sold off the African piece of the business to two former partners. That
was almost like a reset button and one of the smartest decisions I have made
because from there the growth has been quite rapid. Luck has also played a
part as many of my longstanding relationships came to the fore.

Tell us about your breakthrough moment.

Our breakthrough moment came in 2015 when the advisory side of the business
started to gain critical mass, advising on transactions that had reasonable
revenue of between R30m ($2.6m) to R50m ($4.3m), and being a very small
team, we had some capital to bring in terms of our own contribution [to the
fund].

Secondly, our private vehicle, the general partner, is 50% owned by
ALUWANI, with the understanding that Nisela is the execution platform with
the team and the staff with private equity experience, and ALUWANI is
stronger on the distribution and fundraising side. That allowed us to come
together and leverage our complimentary skill sets and launch our maiden
R2bn ($171.4m) fund, which we’re publicly launching in about a week.

Who are you targeting with this fund?

We’re targeting the large pension fund clients. We found there was quite
large overlap in who we were raising funds from and who had already invested
in ALUWANI’s fixed income products: the PIC, Eskom Pension and Provident
Fund, and Sentinel. We’re also going to be approaching the international
development finance institutions, being CDC and Norsad. We’re not sure
whether we would get any IFC or OPIC money at this time but we think they’d
probably come in closer to the final close or even fund II.

What is it you look for in an investment?

We see the fund being supported by South African limited partners because
it’s an SME-type fund targeting mid-size businesses, which are traditionally
making about R50m ($4.3m) to R100m ($8.6m) EBITDA and looking for growth
capital to springboard them to the next level.

We’re also looking to partner with other black-owned family offices or
investment companies because we’re finding a lot of traditionally
white-owned businesses sitting at level six or seven BEE ratings and now
coming under pressure to transform quite rapidly. So we’re seeing that as a
niche in the market where we can add significant growth capital, while
simultaneously offering a transformational improvement in the firm’s BEE
rating.

We’re finding that for all the opportunities that we’re targeting for
investment within our sphere of influence we already know how we can take a
particular business from R50m ($4.3m) EBITDA to R100m ($8.6m) EBITDA within
two or three years by making simple interventions or by combining one or two
opportunities strategically that we’ve got aligned. So we’re quite excited
about this thesis.

What is the greatest investment lesson you’ve learnt?

The biggest investment lesson learnt so far is that you’ve got to have
patience and be able to sit on something and see it through, which is
something you gain with experience. You’ve got to see out all your
investment opportunities to the end and have that focus and dedication to
nurture them and take them through the cycle. Nisela means to grow or to
nurture, and where we’ve achieved the best results is when we’ve
demonstrated the most patience and stuck to our investment thesis.

Identify an untapped opportunity for private equity investors in Africa.

Untapped opportunities in South Africa and Africa lies in agri-processing,
healthcare and financial services.—Howwemadeitinafrica 

Invest Wisely!

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