How we made it in Africa’s Due Diligence series asks top players in Africa’s private equity industry about how they are mastering the art and science of profitable dealmaking and fundraising. Doing the due diligence on those who do due diligence for a living.

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In this first of what promises to be an insightful Q&A series, Michael Avery sat down with Richard Ngwenya, the founding principal of Nisela Capital.

Where did it all begin?

I started my career with Investec inside the Private Client and Investment Banking team. We serviced wealthy families with net asset values of R250m (US$21.4m) or more and managed both sides of their balance sheets.

I then ended up working in a niche looking after some of the bigger, well-known black families, who were involved in a lot of the black empowerment transactions in the early to mid-2000s.

From there I left to join Absa Wealth. At that point in time it was quite clear to me that I was sitting on the wrong side of the conversation with my clients. I had a strong enough track record and CV, and was quite young (29 in 2011), second child on the way, and thought there’s never going to be a ‘right time’ so let me just close my eyes and jump.

I founded Nisela Capital in 2011 and we focused on doing advisory work to high-net-worth individuals and family offices. We raised a relatively small amount of money initially just to get us going and we invested in a few opportunities in South Africa and some in Zimbabwe, mostly in the agri-processing and mining-processing fields.

Describe your greatest challenge in establishing Nisela capital.

The biggest issue we had was building up a track record.

What we found is that if you want to be successful in private equity in Africa you must have satellite offices and dedicate staff in-country. We were covering Zimbabwe, Zambia, Mozambique as well as South Africa. But we were a team of three and we weren’t able to do justice in any of those markets via remote control from South Africa.

I sold off the African piece of the business to two former partners. That was almost like a reset button and one of the smartest decisions I have made because from there the growth has been quite rapid. Luck has also played a part as many of my longstanding relationships came to the fore.

Tell us about your breakthrough moment.

Our breakthrough moment came in 2015 when the advisory side of the business started to gain critical mass, advising on transactions that had reasonable revenue of between R30m ($2.6m) to R50m ($4.3m), and being a very small team, we had some capital to bring in terms of our own contribution [to the fund].

Secondly, our private vehicle, the general partner, is 50% owned by ALUWANI, with the understanding that Nisela is the execution platform with the team and the staff with private equity experience, and ALUWANI is stronger on the distribution and fundraising side. That allowed us to come together and leverage our complimentary skill sets and launch our maiden R2bn ($171.4m) fund, which we’re publicly launching in about a week.

Who are you targeting with this fund?

We’re targeting the large pension fund clients. We found there was quite large overlap in who we were raising funds from and who had already invested in ALUWANI’s fixed income products: the PIC, Eskom Pension and Provident Fund, and Sentinel. We’re also going to be approaching the international development finance institutions, being CDC and Norsad. We’re not sure whether we would get any IFC or OPIC money at this time but we think they’d probably come in closer to the final close or even fund II.

What is it you look for in an investment?

We see the fund being supported by South African limited partners because it’s an SME-type fund targeting mid-size businesses, which are traditionally making about R50m ($4.3m) to R100m ($8.6m) EBITDA and looking for growth capital to springboard them to the next level.

We’re also looking to partner with other black-owned family offices or investment companies because we’re finding a lot of traditionally white-owned businesses sitting at level six or seven BEE ratings and now coming under pressure to transform quite rapidly. So we’re seeing that as a niche in the market where we can add significant growth capital, while simultaneously offering a transformational improvement in the firm’s BEE rating.

We’re finding that for all the opportunities that we’re targeting for investment within our sphere of influence we already know how we can take a particular business from R50m ($4.3m) EBITDA to R100m ($8.6m) EBITDA within two or three years by making simple interventions or by combining one or two opportunities strategically that we’ve got aligned. So we’re quite excited about this thesis.

What is the greatest investment lesson you’ve learnt?

The biggest investment lesson learnt so far is that you’ve got to have patience and be able to sit on something and see it through, which is something you gain with experience. You’ve got to see out all your investment opportunities to the end and have that focus and dedication to nurture them and take them through the cycle. Nisela means to grow or to nurture, and where we’ve achieved the best results is when we’ve demonstrated the most patience and stuck to our investment thesis.

Identify an untapped opportunity for private equity investors in Africa.

Untapped opportunities in South Africa and Africa lies in agri-processing, healthcare and financial services.