PROFILE: The People’s Fund CEO Luyanda Jafta on capital solutions
Testing the water with a crowdfunding platform convinced Luyanda Jafta there isn't a shortage of capital and that finance is not set up for the growth of small businesses
The boy who was bored at school is now a man on a path to reimagine the way in which small businesses access capital and finance their operations. His mission is to make ordinary South Africans understand what it means to be financiers.
Luyanda Jafta is the CEO and co-founder of The People’s Fund (TPF) — a crowdfunding platform that seeks to address some of SA’s economic challenges. This includes access to capital, and has been operating for just under two years in SA, investing in the small and medium enterprise space.
"The People’s Fund is primarily a means to effect economic change, unlock capital from everyday people, and give them the benefits of growing the economy by doing it through small businesses."
Given the 60% poverty rate among black people, Jafta is passionate about addressing growing income inequality in SA, saying small businesses that require unskilled labour are the first step in shrinking the wealth gap. He goes so far as to say: "If you want to solve violence against women, then change income inequality."
Having taught himself how to use a calculator at the age of three, Jafta says he is naturally inclined to mathematics but found school unchallenging until he got to university. "I was supposed to be doing an economic science degree at Wits for fours years, majoring in applied mathematics and economics, but I ended up doing other things," he says. He did not get his degree, though he credits his time there for helping him to appreciate how finance works.
"One of the things I noticed is that finance is not set up for growth and development."
He says finance is set up to make fund managers a lot of money. Ordinary people who buy into stocks and shares on the JSE, for example, don’t affect anything in the running of the businesses they invest in except for the share price. It’s only those who would have invested before an IPO who tend to reap the real benefits.
"So we started a crowdfunding platform to see if people had the appetite to invest in small businesses. There was a resounding ‘yes’ from the crowd.
"The crazy thing is that this made us realise that there isn’t a shortage of capital. In fact, there is a shortage of good businesses."
Jafta says TPF wanted to make its platform accessible. Those who choose to participate in TPF’s funding campaigns can invest as little as R100. People can, for example, buy beehives from Native Nosi — a company specialising in honey and wax products — which will keep and harvest these hives, selling the produce to give a 36c dividend for every 1kg sold from one’s beehive.
The fund uses two main models to fund businesses. The first is asset-backed crowdfunding. "We look at an entrepreneur’s financials and evaluate opportunities to unlock value for growth. Usually this is in the cost of operations and cost of sales.
"For example: someone delivers water to a company and they have to outsource the manufacturing of their bottles. We would ask if bringing that manufacturing in-house would lower the cost and what sort of savings would that be for their cost of sales. Once solutions are implemented we may try to get 50% of that saving back to the crowd as their income. We’ve done that with eight campaigns."
When TPF first got involved with Just Laundry — a next-day laundry delivery service — the company was making R650,000 in revenue. By the end of 2018 it was making R1.3m.
After seven months of doing business, it found that a lot of people already have contracts with corporates or the government but not the upfront capital to fulfil those contracts.
This need for working capital led Jafta and his team to create a second funding model similar to trade finance, where TPF funds purchase orders for businesses that meet their criteria. Jafta says TPF has funded more than R2m in purchase orders.
In assessing deals, TPF’s main objective is to protect the crowd’s money; making a return is secondary; third is to develop the country.
Yolisa Jafta, TPF’s business administrator and Luyanda’s sister, says Luyanda was always "the smart one" and is pedantic about efficiency. "You have to work with people you can trust."
She credits part of TPF’s success to its transparency on both the positives and negatives. With over 1,000 members in the crowd, Yolisa says its low entry point of R100 has been attractive to many.
Having grown up in Benoni and Brakpan on Joburg’s East Rand, Luyanda Jafta’s first business was in high school where he would save his pocket money to offer lines of credit to his mother’s friends at interest rates of up to 50% — his point being that many older folk don’t understand finance (let alone the Usury Act).
At university, he went on to create a precursor to his current venture, Paybook, where he would earn money through online advertising.
An entrepreneur at heart, Jafta has never had a formal job and says he would make a bad employee.