Kholo Capital, a South African investment firm, has announced the final close of its inaugural Mezzanine Debt Fund I, securing R1.4 billion ($76 million) to provide crucial growth capital to small and medium-sized enterprises (SMEs) across Southern Africa. The fund aims to bridge a critical financing gap while delivering measurable social impact in a region grappling with economic challenges and deep-seated inequalities.
The Johannesburg-based firm will deploy mezzanine debt, a form of financing that sits between senior debt and equity, offering a flexible and less dilutive alternative to traditional equity raises. This type of financing is particularly attractive to family-owned businesses and Black Economic Empowerment (BEE) companies, which are central to South Africa’s transformation agenda, as it allows them to access growth capital without significantly diluting ownership.
Kholo Capital will target investments ranging from R70 million to R200 million ( $3.8 million to $10.9 million USD) in SMEs demonstrating a minimum EBITDA of R25 million ($1.4 million USD). These sectors include social housing, healthcare, education, renewable energy, food security, information and communication technology (ICT), financial technology (fintech), and infrastructure.
Mokgome Mogoba, Founder and Managing Partner, expressed optimism about the region’s prospects. “We are bullish about South Africa and the wider Southern African region,” he stated. “We see immense resilience and potential here. Our aim is to provide businesses not just with capital, but with tailored financial solutions that support their growth ambitions while generating positive social and environmental outcomes.”
The fund’s investment thesis rests on the conviction that mezzanine debt can effectively address a critical funding gap in the Southern African SME landscape. As traditional banks become increasingly risk-averse in the face of stricter regulatory environments, access to capital for SMEs has become constrained. Mezzanine debt offers a potentially more palatable option for both lenders and borrowers. For businesses, it provides flexibility in debt servicing and avoids the equity dilution associated with venture capital, a significant concern for many entrepreneurs in the region. For investors, it can offer attractive risk-adjusted returns.
Zaheer Cassim, fellow Founder and Managing Partner, highlighted the appeal of this approach. “Mezzanine debt is inherently non-dilutive, making it an ideal instrument for businesses seeking growth without sacrificing equity,” he explained. “In a market where bank lending to SMEs is contracting, we believe there is a significant opportunity to deploy flexible mezzanine structures to fuel expansion and development.”
Kholo Capital’s fund has garnered commitments from leading South African institutional investors, signaling confidence in the firm’s strategy and the potential of the Southern African SME sector. While the names of these investors remain undisclosed, their participation underscores the growing appetite for impact-focused investments within the region.
The fund managers have set ambitious impact targets. Kholo Capital aims to create over 500 new jobs across its portfolio, with a target of at least 40 net jobs per investment. Furthermore, they have committed to allocating over 50% of the fund to black empowered companies, directly contributing to South Africa’s ongoing efforts to redress historical economic imbalances.
Beyond job creation and BEE advancement, the fund emphasizes broader Environmental, Social, and Governance (ESG) considerations, aligning with SDGs related to decent work and economic growth, reduced inequalities, gender equality, affordable and clean energy, sustainable cities and communities, and climate action. This holistic approach reflects a growing trend in global finance, where investors are increasingly scrutinizing not just financial returns, but also the broader societal impact of their capital.
However, challenges remain. Southern Africa faces persistent economic headwinds, including fluctuating commodity prices, infrastructure deficits, and political uncertainties in some nations. The successful deployment of capital and achievement of targeted social impact will depend on Kholo Capital’s ability to navigate these complexities and identify robust businesses capable of weathering economic volatility.
Furthermore, the mezzanine debt market in Southern Africa is still relatively nascent compared to more developed economies. Educating SMEs about the benefits and suitability of this financing instrument will be crucial for Kholo Capital to build a strong deal pipeline and effectively deploy its capital.
Despite these challenges, Kholo Capital’s launch represents a significant development for the Southern African financial landscape. By focusing on mezzanine debt for SMEs with a strong social impact mandate, the fund is positioned to play a meaningful role in driving inclusive economic growth and transformation across the region. Its success will be closely watched by investors and policymakers alike, as Southern Africa seeks innovative solutions to unlock its economic potential and address pressing social needs.