ENTREPRENEUR: Brendan Mullen, co-founder of Secha Capital
Investing for good: the team behind a young venture capital firm are setting out to create jobs, even in sectors that are in decline in SA, such as textiles
Making an impact is all that Duke MBA graduate Brendan Mullen wanted to do for the rest of his life after interacting early on in his career with a community of people who had a vision to transform Africa.
When he left the US for SA seven years ago, he met his partner, Nombuso Nkambule, and colleague-turned-friend, Rushil Vallabh. Mullen knew then that he’d found his match in two individuals who were just as destined to make an impact.
Impact investing has become a buzzword among investors. Every retirement industry conference, every asset management gathering now has a session dedicated to the subject.
In October last year, government unveiled SA’s own task force for impact investing led by former Public Investment Corp CEO Elias Masilela, a vocal proponent of inclusive growth.
Mullen, Nkambule and Vallabh have been in the business of impact investing for two years. They established Secha Capital in 2017, a venture capital and private equity boutique that’s invested in dry hair, shoe manufacturing and biltong businesses, to name a few.
While many venture capitalists, especially those using the section 12J tax incentive, invest in local businesses, it’s how Secha Capital is going about it that encouraged international wealth and asset manager Caleo Capital to back the venture.
"What we strive for is to have enough dots to make a line in the companies we invest in. To see that jobs are being created and that momentum is increasing," says Mullen.
In all of its investments — which include ethnic hair products, wigs and shoe manufacturers — Secha Capital is using its financial muscle to expand or create new manufacturing capacity.
"At the time of our investment, [shoe manufacturer] Geestep was importing most of its merchandise from China and we wanted to shift production locally to create jobs," says co-founder Vallabh, who shares the MD title with Mullen.
Vallabh says that with another shoe manufacturer in its portfolio, Equalization, it made sense to buy a factory where the two can produce shoes locally.
The Durban factory that Secha Capital is in the process of buying was in foreclosure and the company estimates that by shifting Geestep’s footwear manufacturing locally, production will increase substantially from 300 to 1,500 shoes a day. It will add new machinery and hire staff.
Geestep manufactures white and private label sneakers for retailers such Legit and Beaver Canoe, and Equalization is a supplier to retailers Mr Price and Shoprite. Shifting manufacturing locally and buying a factory instead of outsourcing is a bold move for Secha Capital in a country where the secondary sector is in decline.
In the first quarter of 2019, a drop in manufacturing led to a 7.4% contraction in the secondary sector, though it rebounded slightly with 1.5% growth in the second quarter. A study by Stats SA examining the state of manufacturing in 2016 showed that the textiles industry bled the most jobs in the decade to 2014 — 91,000 people were out of work — while the workforce in the manufacturing industry as a whole shrunk by 17% to 1.19-million people over the same period.
Vallabh says though the past may not inspire many businesses to try to revive SA’s manufacturing industry, the market for locally produced products is growing.
Secha Capital is doing the same for its other investments. Packed biltong manufacturer Stoffelberg Biltong already has an abattoir, so Secha Capital’s investment went towards adding more drying rooms and other facilities to increase production.
For Hair City, which is benefiting from the boom of the R8bn dry hair market in SA, Secha Capital has invested in a "wig factory". The company now imports hair bundles from Asia and Latin America to sew wigs and weaves locally. Healthy snacks producer Rush, and plant-based hair products brand Native Child, also have in-house manufacturing factories.