Capital Raising Opportunities for Startups in the Eswatini Stock Exchange

Last week Thursday, Pinaco & Co (P&C) in collaboration with the Eswatini Stock Exchange (ESE) hosted a Webinar where Eswatini entrepreneurs learnt about the history and development of the stock exchange, its transition, and benefits of listing under the SME board.

“A stock exchange is simply a place where financial instruments can be bought or sold,” Charlton C. Tsodzo, PhD, ACIArb. who was moderating the session explained. In his opening remarks, P&C Senior Partner, Lwazi Ian Dlamini , discussed the value of information sharing and the growing importance of entrepreneurial initiatives for solving societal problems. To illustrate this point, he cited Strive Masiyiwa 's effort to increase telecommunications accessibility in Africa.

“The number of people in Africa [in 1993] who have a phone is 0.7% of the population. Whilst 98.6% of the people do not have access to a phone, 75% have never actually heard a telephone ringing. I want to help change that,” Masiyiwa told the court.

The judges agreed with him. Econet Wireless Zimbabwe (listed as the 72nd member of the Zimbabwe Stock Exchange 25 years ago) came about through a court ruling of the Constitutional Court. Today more than 75% of the African people own a phone, and almost everyone has access. This access, birthed from Masiyiwa’s entrepreneurial vision, has created hundreds of jobs in Zimbabwe and significantly contributed to the country’s economic growth. Entrepreneurship, as evidenced by Econet’s success story, is one of the most assured ways to create jobs and generate wealth.

P&C Senior Partner has stressed the importance of capital raising, startup research for business growth and the need to increase the country's visibility in the global startup ecosystem to attract venture capital. His introductory presentation covered recent startup activity in the continent, insights from the P&C Startup Hub, stages of startup funding (see graphic below) and the Webinar’s relevance to what P&C does.

Stock Exchange History and Transition

Eswatini Stock Exchange, Product and Market Development Officer, Sihle Tsabedze (CMSA?)(FMVA?) , narrated the history of the stock exchange, including its transition from physical to online trading. “Stock exchanges began simply as meeting places where investors gathered to discuss companies and their shares, and to trade shares. As they became more formal, these meeting places became the trading floors of exchanges, where traders made deals face to face,” he said. Today, many of these exchange floors have been replaced by sophisticated electronic dealing systems run on computer systems that now operate in major cities throughout the world.

In his presentation, Tsabedze explained the process of initial public offerings and the types of securities that can be traded on the exchange, including equities/shares/stocks, corporate bonds, and government bonds.

He further outlined ESE’s mandate to provide a primary market for companies to raise new capital and a secondary market for investors to buy and sell shares. Lastly, the importance of regulation and market monitoring to ensure transparency and fair trading.

Listing Benefits and Requirements Explained

Benefits of listing a company on the stock exchange, he said, include access to capital markets, improved liquidity, and provision of an exit strategy for shareholders. "Listing a company can help with employee retention through share ownership schemes," he said. Enhanced evaluation, market capitalization, increased credibility and public awareness are some of the benefits he presented. Other benefits include access to larger capital markets, (with a large pool of investors), enhanced credibility with stakeholders, and price discovery through an automated trading system.

Listing Requirements ?

The importance of preparation, including having necessary documentation and ensuring good corporate governance was emphasized.

The SME Board, a market operated by the Stock Exchange specifically for small and medium enterprises, was introduced to participants and the distinction from the main Board was explained including waiving fees for small companies.

Companies with interest in listing on the exchange must be incorporated and have fully paid and transferable shares. The company's financial history and/or projections for the next three years must be scrutinized by an qualified accountant.

The minimum amount of money that can be raised on the SME Board is between E50,000 to E8 million. SMEs do not require a profit history, but sustainable cash flow projections for three years are necessary.

The Memorandum and Articles of Association of the company must comply with the Stock Exchange Listings Requirements and the Companies Act. For instance, companies must have a minimum of 10 shareholders and one authorized advisor. Other listing requirements are available on the ESE website.?

ESE presentation highlighted some of the challenges faced by SMEs in accessing credit facilities which include lack of strategic and technical capabilities. Shedding more light on the benefits of listing, Tsabedze, assured participants that such issues are addressed in the preparatory stages for listing. ??

Fair Value, Venture Capital, and Safe Funding

One of the Webinar participants, Ntandoyenkhosi Matsenjwa , wanted to know about venture capital funders' interests in new renewable energy businesses, preferred equity structures and exit strategy. P&C clarified that there is high interest in renewable energy startups and projects, especially those with gender or climate impact. On equity structures and exit strategies, the company explained that this can vary depending on the terms of the venture capitalist and that P&C is yet to gain more insights in a completed deal.

Startup Stock Exchange Readiness

At the end of ESE presentation, Charlton C. Tsodzo, PhD, ACIArb who also serves in the P&C Advisory Board, led a discussion on the future of Eswatini startups and their readiness for the stock exchange. P&C concluded by advocating for public education on the funding opportunities available for entrepreneurs. In addition, the importance of finding startup success stories and use cases to demonstrate the value of the stock exchange. ESE reiterated its commitment to working with and preparing startups for listing on the stock exchange. ?

Full recording of the Webinar is available here. Past webinars are accessible through the P&C YouTube Channel.

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Pinaco & Co is a start-up focussed management consulting firm providing research, capital raising and brand management services.

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