Seek investors that are engaged, involved and supportive, says Retail Capital founder
If you want to build a successful, scalable business and gain access to a healthy ecosystem of potential partners and collaborators, the investors you choose – and their approach to engaging with challenges and opportunities – is critical.
This is the view of Karl Westvig, founder of Retail Capital, a leading South African provider of alternative business funding to the SME sector.
“If it’s just about capital, chances are as soon as that capital comes under pressure, the relationship will sour.”
“When we sought out an investor to take Retail Capital to its next phase of growth, we didn’t necessarily need capital, but access to improved distribution capabilities to fast-track our customer acquisition and revenue growth.”
In 2019, Crossfin acquired a stake in Retail Capital through a strategic investment. Westvig says the partnership with Crossfin started just as the business had embarked on an effort to move from a high-touch business – where a substantial on-the-ground sales force would manually sign up customers – to a low-touch business, which used data and digital on-boarding.
“We had started conversations with a few payment acquirers, including Crossfin-backed iKhokha prior to the partnership with Crossfin, with a view to reaching customers and prospects in a more scalable manner.”
“By plugging our lending platform directly into the acquirer, we were able to get transaction details of merchants, and provide pre-qualified offers in-app. This was a game changer for us – today our business is about 90% low-touch in terms of customers funded.”
Investor support critical to weather pandemic storm
Crossfin is a leading emerging market fintech investment group with a portfolio of high growth and established cash generative businesses.
Shortly after Crossfin came on board as an investor in Retail Capital, the world came to a standstill due to COVID-19. Westvig says the impact of the pandemic was immediate and devastating.
“About 90% of our customers couldn’t do business, and since we only collect revenue when customers trade, nearly all our revenue disappeared overnight.”
During this time, the benefits of having active investors on board became clear.
“We had some tough conversations during the early days of the pandemic, and realised it would take us six to nine months to start getting the business back on an even keel.”
“Throughout this period, the Crossfin team were hugely supportive, bringing different companies within its broader portfolio together with opportunities for collaboration and shared value generation.”
Retail Capital was sold to Tyme Bank at the end of 2022, with Westvig shifting into a new role as the executive responsible for Business Banking and Consumer Lending.
Vet investors carefully
For entrepreneurs that are considering seeking investors, Westvig recommends they do careful background checks.
“It’s easy to support a business when things are going well, but you also need to know your investors will support you through the hard times.”
“Do your reference checks and make sure you know how they behave when things get tough. With Crossfin, we saw how the team dealt with some difficult situations with other portfolio companies, and their hands-on support with helping entrepreneurs get through challenging times.”
“That type of support is simply invaluable to a growing business.”
Westvig highlights the benefit of having decisive investors in the room when vital discussions are taking place over the future of the business.
“Some of the more institutional investors were not always the key decision-makers, and had to confer with other people in their fund before a decision could be made.”
“This can be very frustrating to an entrepreneur who wants to get things done quickly and capitalise on opportunities before they disappear.”
“In (Crossfin co-founders) Anton and Dean, we found a more active and decisive shareholder, who could make decisions with speed and clarity.”
What investors look for
A successful relationship and partnership with investors also depends on the entrepreneur and the qualities they bring to the business. For Dean Sparrow, CEO at Crossfin and Retail Capital board member representing Crossfin’s interest at the time, a few key qualities stand out.
“Karl brought an incredible ability to build and empower an exceptional executive team to the business.”
“His experience in the alternative funding industry also helped refine and optimise Retail Capital’s strategic positioning, allowing it to adapt dynamically to challenges and opportunities facing the business.”
“This was clearly illustrated during the pandemic which put immense pressure on Retail Capital’s business model, and again when Karl and his team capitalised on the pent-up demand from SMEs for funding post the pandemic.”
Sparrow says the shift within Retail Capital from a high-touch to predominantly low-touch business was perfectly executed.
“Karl and his team executed a fundamental shift in the business in a relatively short period of time, allowing the business to thrive despite the immense challenges brought by the pandemic.”
“It’s not often one can say a vision and related strategy was executed this well.”
For Anton Gaylard, co-founder and CXO at Crossfin, the opportunity to work alongside founders and entrepreneurs that share Crossfin values and respect his team’s input is extremely rewarding.
“We go to great lengths to vet the teams we choose to back to ensure they have a proven track record and the ability to collaborate with the businesses across our broader portfolio.”
“Karl’s ability and wealth of experience in addition to a proven track record with previous successful exits made him an invaluable asset to anyone he engaged with over the past few years.”
“His unselfish mentoring of other founders and teams across our portfolio has also brought immense value to our group.”
Given the success of the relationship, Crossfin recently invested in Retail Capital International (RCI), which was born out of Retail Capital SA and leverages the company’s experience across multiple SME industries.
RCI aims to build opportunities outside South Africa, specifically addressing the global SME funding gap in markets that remain underserved by traditional lenders.
“RCI aims to become a SaaS partner to lenders across the globe, offering expert guidance on the user experience for merchant funding and empowering partners to maximise their conversion rates with relevant technology and support,” explains Gaylard.
“So, in a way, our journey with Karl and his team continues.”
Click here to learn more about Retail Capital
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