FBC has great news for local start-ups. The Banks now has a new strategic business unit which will act as its venture capital. The bank says this venture capital was brought about by the realization that loans don’t really provide room for small enterprises to grow since they will be busy repaying loans instead of reinvesting the money in the business. As reported by Newsday FBC Holdings Cheif Executive, John Mushayavanhu said:
We realised there was a missing link in terms of the capital requirements in terms of SMEs (small-to-medium enterprises) because the tendency is for people to think that when an SME starts a business they need loans. But, some of them need patient capital where you need money as equity over a period of time for the business to take off
and then when the business has taken off you are getting your money through profits, dividends and fees. After that, you can either divest through listing that company on the stock exchange or selling your equity so that is what we want to do.
This is a really great initiative by FBC. At the moment, most venture capital is provided by individuals in Zimbabwe. Seeing a traditional institution like a bank establishing a venture capital is unusual (in a very good way). Essentially, start-ups in Zimbabwe (and other small enterprises) have been needing a big local venture capitalist, who understands Zimbabwe, to turn to. Venture Capital is probably the major part of the local start-up ecosystem-puzzle that’s been missing.
Mr Mushayavanhu didn’t disclose how much money FBC will devote to its new business unit, instead, he said “this would be determined by demand.” At the moment we only have a few successful businessmen who claim to be venture capitalist but they are not as active in providing funding as the start-ups need them to be. So having FBC as a venture capitalist will probably stimulate the start-up ecosystem as the institution has the financial means to invest in many start-ups.
Good and Bad Thing
With venture capital, FBC will now be a shareholder (instead of a debtor) to start-ups that will get its funding. As you well know, cash/funding is the fuel of start-ups in the early stages. So having FBC as a shareholder is beneficial because chances are high that it will provide cash at the start-up’s call since it (FBC) will eventually partake the profits of the start-up. Obviously, that will depend on whether FBC has the money or not and if the start-up makes a convincing business case to its shareholder (s) of the need for more money.
However, shareholding also comes with something start-up founders are not fond of- interference. As a shareholder, FBC (or venture capitalist in general) will demand some answers from a start-ups founders on how the enterprise is being run. But being financed through loans (debtors), start-ups are left at their own devices- debtors dont interfere in the running of the business.
Enterprises that will access funding
By their nature, start-ups are high-risk and their mortality is not something that I should remind you about. The question is: will FBC be willing to invest in start-ups that are high-risk – banks are known to be quite risk-averse so the start-up world is not their playground?
That will leave FBC with the option of investing in proven business models that don’t deliver the kind of return and growth that start-ups deliver.
Suppose FBC’s decides to surprise us by wanting to invest in new (unproven) business models, will we have start-ups that deliver the kind of growth FBC or any other venture capitalist look for in start-ups so that FBC continues to pour money in them?