The investment climate in Africa remains challenging. In the third quarter of this year alone, African tech startups experienced a sharp 40% drop in funding activity compared to the same period in 2023. This decline reflects a broader global funding slowdown, as capital scarcity continues to weigh on the tech ecosystem. While equity funding has become increasingly difficult to secure, alternative capital sources are stepping in to fill the gap. Debt financing, in particular, is attracting more interest from businesses. In 2022, African startups raised 19 cents of debt for every dollar of equity. By 2023, this figure rose to 65 cents, with debt accounting for 38% of all funding raised, up from 16% the previous year. One company leading this shift is Old Mutual Limited. In an interview with Launch Base Africa, Nobesuthu Ndlovu, Executive Director (SME) at Old Mutual Corporate, discusses how the Johannesburg-based company has deployed over $96 million in recent years to support local businesses.

Launch Base Africa: Could you give a brief introduction to what you do with Old Mutual SME?

Nobesuthu Ndlovu: Old Mutual SME business is a unit, under the South Africa’s Old Mutual Limited, formulated to deliver meaningful value to South African SMEs by addressing their key pain points. We’ve structured our approach around three strategic pillars: funding, access to market, and efficient business operations. Each of these is realized through specific initiatives. For example, we have a funding partner that offers SME-specific funding solutions. We also provide digital platforms to help with funding, market access, and operational efficiency. Ultimately, our goal is to enable SMEs to become profitable, sustainable, and to create jobs, which benefits the wider economy.

Launch Base Africa: There’s been an increase in investment activity in South Africa’s startup scene, especially post-COVID. What role has Old Mutual SME played in meeting the funding needs of SMEs in this climate? What financial models or products are you offering to these SMEs?

Nobesuthu Ndlovu: The funding products we provide come through our business partner, Preference Capital. Interestingly, the SME unit was actually formed at the start of the COVID pandemic as a response to businesses struggling to access funding. The first capability we introduced was linking SMEs to multiple funding partners through a single application process. This significantly boosts the chances of acceptance since different funders look at different metrics. Preference Capital also offers tailored funding solutions for SMEs, including cash advances, business loans, supply chain finance, invoice discounting, and purchase order funding. My favorite is the purchase order financing — it uses transaction behavior to assess creditworthiness, which is quite innovative compared to the traditional balance sheet and income statement approach. So basically, Old Mutual doesn’t fund SMEs directly but works with financial partners that specialize in funding SMEs.

Launch Base Africa: What types of SMEs do you fund? Are there specific industries or criteria, like years in operation or a tech focus?

Nobesuthu Ndlovu: We fund all sectors, though we don’t typically fund early-stage startups. We prefer businesses that have been operating for at least six months and generate a minimum annual turnover of 500,000 ZAR ($28,276). Our focus is on sectors recovering well post-COVID, like manufacturing, trade, construction, technology, and retail services. We’re particularly active in these areas to help boost their performance in the economy.

Launch Base Africa: So, if a tech business is around three years old with a decent balance sheet, would it be eligible for funding?

Nobesuthu Ndlovu: When I say we don’t fund “startups,” I mean businesses that are just ideas on a spreadsheet. But if they’re operational, with some revenue, even within the first three years, we’ll consider the application.

Launch Base Africa: And what does your ticket size look like?

Nobesuthu Ndlovu: The funding ranges from about 200,000 ZAR up to 50 million ZAR, which is around 10,000 to roughly 2.8 million USD.

Launch Base Africa: Do you have a preference for a particular group of people you’re funding, or is it open to all businesses?

Nobesuthu Ndlovu: South Africa is quite diverse in the SME sector and the market itself, so we don’t focus on any particular demographic or gender. It’s definitely open to all businesses operating within South Africa specifically.

Launch Base Africa: In South Africa, we do have a lot of funding activity, but recently there’s been a reduction due to tightening funds. This decrease in funding could be attributed to a range of factors. What do you see as the cause of this funding shortage? And how is Old Mutual working to reduce barriers in this area?

Nobesuthu Ndlovu: I wouldn’t say it’s a shortage of funding, but there are definitely very few people who get accepted for funding, which I think is a systemic issue worldwide. At Old Mutual, we’re addressing this through our digital platform. We understand that to get funding approval, there are a few elements a business needs. First, your sales need to be consistent at a good rate. Second, your cost of sales and cost of doing business should be low enough to yield a sustainable net profit, which then feeds into a healthy balance sheet.

Through our digital platform, we’re creating a marketplace where businesses can sell their products, increasing their sales. We also provide tools for business operations — such as HR, financial management, and documents like invoicing, quotes, statements of accounts, and inventory management — all designed to reduce the cost of doing business and improve efficiency for SMEs. With these tools, we hope to enable businesses to achieve a healthier net profit over time, making them more eligible for funding. This is the systemic challenge we’re trying to address.

Launch Base Africa: You mentioned partnerships with other organizations to fund startups. Could you talk about the nature of these partnerships? 

Nobesuthu Ndlovu: Our partnership with Preference Capital involves a minority stake, enabling Old Mutual to participate in providing real SME lending solutions tailored to SMEs. For customers, this means they have access to funding, assurance, advice, and support, all through one engagement with Preference Capital and Old Mutual. That’s how the product comes to life for them. As for the lending products, these include supply chain finance and purchase order finance, among others. The key point is that we’re offering lending solutions specifically tailored to SMEs.

Launch Base Africa One quick follow-up: we assume you’ve worked with these partners for quite some time, as investors often come with specific expectations. Investor alignment with businesses is crucial. How does Old Mutual ensure these investors have the founders’ best interests in mind?

Nobesuthu Ndlovu: What we’re enabling funders with is that, for businesses approved through the platform, they can view almost real-time performance data related to that specific business. So, you know, there are different types of funders — some provide grant funding, while others provide loan-based funding. 

If a funder wants a blended view, where it’s a mix of grant funding and traditional loan products, we can provide them with a view of how the business is performing, its potential, and its repayment ability over time. This data essentially gives a sense of whether the business can perform as expected and meet repayment terms. So, in a roundabout way, I’m saying that we can provide data for funders to help them understand the performance of the businesses they’re backing.

Launch Base Africa: Could you give some perspective on the size of your loan portfolio so far? 

Nobesuthu Ndlovu: It’s still early days for our funding proposition. But, through SMEgo, our digital platform, we’ve approved over 118 million rand ($6.6M) in funding. Through our lending partner, Preference Capital, we’ve grown the loan book to 1.7 billion rand ($96M). So, there are two sides to it: funding approved by the digital platform and funding approved through our partner, Preference Capital.

Launch Base Africa: Is there any particularly remarkable story that stands out among the companies in your portfolio?

Nobesuthu Ndlovu: One business in our portfolio, for example, supplies one of South Africa’s largest retailers, Clicks. This business owner used the funding to expand her product reach, and now her products are in over 150 stores nationwide. That’s a remarkable story to me, as it speaks to our goal of enabling growth for business owners on our platform. They’re creating relevant products, especially considering that 80% of South Africa’s population is Black, so natural hair products, for instance, are in high demand here.

Launch Base Africa: considering the SME trends you’ve observed in South Africa, what role do you envision Old Mutual playing in this sector over the next five years?

Nobesuthu Ndlovu: I see SMEs as a key part of solving our unemployment challenge. With South Africa’s unemployment rate at around 32%, propositions like ours empower SMEs, which I believe will play a big role in addressing this issue. SMEs are positioned to become a major catalyst for job creation.

Launch Base Africa: And regarding the SMEs you support, what kind of due diligence do you conduct? Do you go through credit scoring, or is there other paperwork involved?

Nobesuthu Ndlovu: Yes, we check their credit ratings. On our digital platform, SMEgo, we use TransUnion credit scores and review management accounts, like income statements and balance sheets. We also look at their bank statements. It really depends on the type of product they’re looking for. For instance, if they’re seeking asset finance, we might require collateral, but typically, we don’t.

Launch Base Africa: Given the tough funding climate right now, especially for new founders, what advice would you give to African founders just starting out? Are there best practices they should follow to improve their chances of securing funding?

Nobesuthu Ndlovu: I’d say the main thing businesses need to focus on is their transactions and sales trajectory. Funders want to invest in businesses with growth potential, and more importantly, repayment capability. By focusing on sales as a key metric and managing expenses, founders can position themselves positively when they seek funding. So, I’d say focus on growing your client base, increasing sales, and managing expenses.

Launch Base Africa: Thank you for your time Nobesuthu Ndlovu

Nobesuthu Ndlovu: Thank you so much. It was a pleasure.