SERVICES | Risk capital

 

The strategic intent for ECDC’s Risk Capital facility is to increase investment in catalytic initiatives that unlock the economic potential of low income areas through innovation, local beneficiation and new product development.

Emphasis is placed on unlocking investment in the former Ciskei and Transkei.

It is envisaged that this increased investment will lead to the establishment of new viable enterprises, expansion of existing enterprises, creation and savings of jobs, and creation of sustainable economic growth in the province.

This work requires ECDC to invest in a portfolio of projects that are still at conceptual stages and therefore would not ordinarily be fundable by commercial banks.

In so doing, ECDC takes a relatively high risk in partnering with project drivers/initiators during the exploratory stages of their ventures.

However, ECDC takes on such projects with a medium-to-long term view of converting its contribution into equity once the feasibility results are positive or the project has reached its commercial stage.

This instrument, although risky, provides ECDC with a unique ability to crowd in private sector investment and leverage third party funding from partners such as municipalities, national departments and other development finance institutions.

 

Objectives

The unit recognises that business ideas need to be nurtured in order to become viable.

Advice is given on how to go about establishing projects and consideration is given to funding various business-related studies in the form of business plans, feasibility studies and environmental  impact assessments.

The unit supports investment in projects with potential to achieve long term capital appreciation through equity inspired investments in a diversified portfolio that create business opportunity for the ECDC;

Preference is to convert the ECDC’s risk capital contribution into equity upon successful commercialisation of a project.

The unit targets projects with potentially high levels of return in the medium to long term whilst achieving Eastern Cape’s socio-economic objective of generating sustainable development.

The unit has helped businesses establish pilot projects that are of a strategic nature, are sustainable and will serve to generate economic activity.

The unit recognises that business ideas need to be nurtured in order to become viable.

 

Target sectors

Our priority sectors include:

  • Agriculture
  • Agro-processing (including medicinal, aromatic and pharmaceutical plant processing)
  • Renewable energy
  • Aquaculture
  • Infrastructure development
  • ICT
  • Mining (aggregate, clay and titanium)
  • Manufacturing
  • Forestry and timber industries
  • Chemicals and petrochemicals
  • Tourism
  • Property development.

Generally, most projects are of a greenfield nature and include primary production.

However, we consider turnaround strategies for existing businesses wishing to diversify, expand or seek growth opportunities.

Viable ideas supported by a business plan are more readily supported.

 

Services

The Risk Capital unit offers the necessary support by:

  • Providing innovative business advice on how to go about establishing projects
  • Providing funding for various business-related studies in the form of business plans, feasibility studies, environmental impact assessments and pilot projects
  • Assisting with the facilitation of the project by linking people with other service providers, funders, government departments and municipalities

Projects will benefit from the unit’s willingness to explore entrepreneurial ideas, take calculated risks on new ideas, to conduct investigations and in-house professional services.

 

Other activities

  • Feasibility investigation and business plan development
  • Regulatory compliance costs (for example, EIAs, water licence applications and town planning)
  • Product development and testing including prototype development
  • Trials and costs of running a pilot
  • Costs of registering intellectual property and patents
  • Costs of doing site development plans (for example, land surveys, architectural designs and bills of quantities)
  • Costs of licencing.

 

Project selection/assessment criteria

Criteria for assessing a project include:

  • The viability and sustainability of a project
  • Findings of a due diligence report
  • Strong business case where founding shareholders are committed to full-time involvement in operations
  • Management team with requisite competencies for success project implementation
  • Business case reflect bias towards:
    • High job creation and/or retention potential
    • Promote achievement of BBBEE targets
    • Lead to value added goods and/or services
    • Yield to increased export income
    • New development
    • Contribute to rural/township development
    • Target import substitution
    • Availability of a market and support of the project by the relevant municipality.

 

How to access these services

Applicants will be required to provide a business plan or at least a concept document to the unit in order for the team to make a proper assessment of the project.

This should include:

  • Organogram detailing members of the management team and competencies
  • Undertaking to make own contribution of between 10% to 25% of risk capital funds applied for
  • Copy of land use agreement where land belongs to a third party or copy of title deed where land belongs to the applicant
  • Signed commitments from partners where partners are involved
  • Signed commitments target markets if already secured; ≈
  • Signed undertaking by founding shareholders’ of their full time involvement in project operations.

Once the concept document is received, the Risk Capital unit conducts a preliminary analysis:

  • If a concept document is not yet in place, the unit will assist the applicant to draw one up. Thereafter the unit, the applicant or a third party or any combination of these parties will develop a business plan.
  • If the business plan indicates the concept is not viable, no further action is taken.
  • If the concept indicates viability, funding will be considered by relevant municipality. ECDC through its projects committee. The unit may also assist the applicant in accessing third party funding.
  • If ECDC funding is approved, the contractual elements will applicants will be required to provide a business plan or at be discussed and formulated through a funding agreement least a concept document to the unit in order for the team to and SR partnership agreement
  • Once these contractual arrangements are in place, ECDC funds will be advanced.

Costs

  • Loans are interest-bearing.
  • Repayment schedule is based on project cash flow
  • Structuring into cash management fees are levied.

 

 

CONTACT US 

Phakamisa George

Telephone +27 (0) 43 704 5600

Email pgeorge@ecdc.co.za