Pavlo Phitidis announced the launch of Aurik Capital, a S12J Fund to back the growth of established businesses with annual revenues between R15m to R150m.
- Established SME’s are the backbone of SA’s economy, but their growth is stymied by the lack of appropriate growth funding because of historic reasons.
- Aurik Business Accelerator works with over 300 established businesses that last year grew their average annual turnover by 29.8%
- Equity funding to support these hungry businesses will now be available through this new S12J fund.
- The confluence of established deal flow and growth funding brings the spirit and intent of S12J to fruition.
On Friday, 2 August 2019, Aurik Investment Holdings launched its plans to raise capital for a Section 12J growth fund at the 12J Marketplace Conference, in Melrose Arch.
Pavlo Phitidis outlined the fund’s strategy and mandate at the 12J Marketplace Conference:
“Aurik Capital is a Section 12J fund that’s been established to invest in what I believe are the best investments in South Africa. They are businesses run by established business owners who have traction in the market, are growth-oriented and want to turn their years of hard work, sacrifice and commitment into a fantastic capital gain. We work with them every day at Aurik, their businesses do between R15-R150 million in annual revenue and they have a 5-10 year exit horizon.
Last year, the portfolio we worked with secured average annual revenue growth of 29.8% in the 0.8% GDP growth economy. They grow because of their mindset, the growth support we provide through Aurik Business Accelerator and now the funding we will use to further accelerate growth from this fund. Their growth comes from us working with them to position their businesses in a no-growth economy, build scale and then compete with competitors who are not investing and corporates that cannot adapt to the new market opportunities that present themselves daily in South Africa”
Aurik Capital’s intention is to promote the spirit of Section 12J through the development and promotion of the SME market, with the aim of having an impactful and sustainable contribution to economic development and job creation.
“We are doing this for several reasons. The first is that we are incentivised to grow our client’s businesses in Aurik Business Accelerator. Their growth is our growth – that’s what a true partner is all about. Next, Section 12J offers a vital ‘cog’ in the nascent capital access market for SMEs in South Africa. For many historical reasons, the SME funding market has remained under-developed and the Section 12J provision in the Tax Act begins to plug a huge hole in SME development and growth if the investments made into it find their way into growing businesses. It’s the SMEs that carry our future through jobs, tax receipt growth and innovation, since they are being built and grown by people who have 5-10-year horizons not short-term, quarterly performance constraints.”
Aurik Capital’s pipeline of investments will originate from Aurik Business Accelerator’s portfolio of clients. Over the years, these clients have been nurtured to reach a scale where growth equity is required to accelerate their businesses, with the objective of building and creating greater value.
“Each business has an annual revenue of between R15-R150 million and is typically run by a business owner who is in their mid-forties to early-fifties. They’ve been around the block. They’ve earned, learned and burned what they needed, to develop businesses of value.
These are businesses that have a growth bent, which is the main reason they join Aurik Business Accelerator. When you have a growth mindset and you implement a methodology that supports that growth mindset, you achieve growth.
Aurik Business Accelerator’s portfolio consists of 302 businesses across various industries that have achieved consistent growth, with turnover growing by 29.8% during 2018.
“The 29.8% growth that the Aurik portfolio yielded last year came from 2 areas. The first is the inability of corporates to grow in a zero-growth economy and who are unable to adjust, flex and move to areas where there is opportunity for growth. This has led to our portfolio of clients, as small to medium enterprises or as private business owners, moving into the fringes of the corporate market space. The other area of growth is from their equivalent players in the market. Ambivalent about the future and unsure of whether to invest or not, their lunch is being eaten by competitors who have committed to growth”
Section 12J companies have come under enormous scrutiny recently due to their failure to invest investors’ capital, so much so that a large portion of the market’s investors are receiving dividends out of interest income due to their capital sitting idle in interest bearing accounts. Aurik Capital has, however, positioned itself through Aurik Business Accelerator to be able to invest investors’ capital seamlessly and timeously.
“Aurik Capital has an established and mature portfolio of investable companies through Aurik Business Accelerator, which has over the years mentored, developed, and grown these businesses. This has allowed Aurik Business Accelerator to develop an unparalleled understanding of each business and the markets in which they operate.
These businesses make up a mature pipeline of investments, which will allow Aurik Capital to deploy investors’ capital timeously.”
Aurik Capital, through the Section 12J incentive, will allow investors to claim 100% of their investment as a tax deduction, thus reducing the investors’ exposures by up to 45% on the total investment amount.