PRETORIA – The U.S Government, through the United States Agency for International Development (USAID), recently awarded ‘catalytic’ funding to four innovative investment vehicles to drive inclusive economic growth in Southern Africa. The awards will mobilize an anticipated $24 million in private sector investment to support small and medium enterprises and emerging farmers in the region.
“With these awards, USAID is supporting private investment into businesses across Southern Africa. This will help connect investors to Southern Africa’s vibrant community of entrepreneurs, driving long-term investment and helping local businesses grow,” says Rebecca Krzywda, USAID Southern Africa’s Acting Mission Director.
The four investment vehicles include:
Creative CFO, which has launched the Creative Growth Capital Fund I to provide sustainable growth financing to impact-oriented Small Medium Enterprises (SMEs) in South Africa. The Fund’s vision is to create a more financially inclusive world where SMEs in the Southern Africa region can grow sustainably and succeed. USAID’s funding will lower the risk to commercial investors in the fund. The Creative Growth Capital Fund I will deploy a range of flexible financial instruments including debt, equity, and mezzanine structures, tailored to SMEs’ specific financing needs in support of their unique growth trajectories.
Endeavor South Africa, is a non-profit organization whose Harvest II Fund will invest in high-impact entrepreneurs in the region, alongside lead investors. The Fund will also provide ongoing tailored mentoring to these firms. Over the past two years, Endeavor SA’s portfolio of 25 firms collectively generated R2 billion in revenue and created over 4,600 jobs. The Harvest Fund II will build on this track record and invest in an expanded portfolio of high-impact firms in the region. USAID support has allowed Endeavor to waive capital raise fees and limit management fees, thus enabling more attractive investment terms for private investors and accelerating the establishment of the fund. Twenty percent of profits will be reinvested into Endeavour to help support the next set of entrepreneurs.
Linea Capital, which is launching a revenue-based financing investment vehicle targeting growth-stage firms in South Africa. USAID’s funding will improve commercial risk-adjusted returns and help crowd in private capital. Revenue-based financing provides a non-debt, non-equity source of financing and is especially important in emerging markets as limited access to financing at good terms often pushes high growth firms to take on onerous debt or dilute their ownership in the business through equity finance. Revenue-based finance ownership and the incentive to scale remain in the hands of the company’s founder.
ThirdWay Africa, which has established a permanent capital vehicle (PCV), the ThirdWay Africa Rural Development Corporation to invest in smallholder farmers and help them scale into independent mid-size commercial farms that can compete on the international market. A PCV is an investment structure that, unlike a traditional fund, operates for an unlimited period. USAID funding will help ThirdWay Africa develop Environmental, Social, and Governance policies, set impact measurements and conduct outreach to private investors to raise additional funds to catalyze market-deepening investments in Southern African agriculture.
USAID's support of these vehicles through its INVEST initiative reflects a growing consensus that private investment is critical to inclusive, sustainable development. These efforts will complement and support current USAID policies and priorities, including the USAID Private Sector Engagement Policy, the U.S. Government’s Africa strategy, and Prosper Africa.
“We look forward to working with our partners to build a more prosperous future for Southern Africa,” Rebecca Krzywda added.