Awethu Model for developing brilliant entrepreneurs from under-resourced backgrounds

The Awethu Model requires public funders to subsidise the first six months of every selected Awethu Entrepreneur’s time with Awethu. This time is referred to as an Awethu Apprenticeship, during which the Entrepreneur is matched with a pre-screened business opportunity (Awethu has an Investment team working full time on developing appropriate opportunities), provided with physical infrastructure (office space, phone, internet, computer, etc.), given a six-month entrepreneurship training course, provided with one-on-one support from a world-class business professional (recruited using the Awethu Fellowships), given a small start-up budget (ZAR10,000 – 15,000) and paid a small stipend (ZAR 2,000). During their six-month Apprenticeship they are required to meet a pre-determined profit target appropriate for their particular business opportunity. During this time the Apprentice also develops a business plan that will be used to apply for any expansion capital required at the end of their six-month Apprenticeship. At the end of the six-month period, those Apprentices who meet their profit target or otherwise demonstrate significant entrepreneurial ability remain within the Awethu Incubator as Awethu Entrepreneurs, whereas those who do not leave Awethu with a certified diploma and track record that can be used to continue their entrepreneurial career outside Awethu.

While the selected Awethu Entrepreneurs are eligible to share in the profits of their business based on their performance, they are required to earn out the equity in their business: 10% after 1 year, 25% after 2 years, and 50.1% after 3 years. The Awethu system is based on merit, competition, and hard work.

Awethu looks to aggressively expand the businesses of the Entrepreneurs who graduate from the Apprenticeship. In order to do Awethu applies for private sector debt finance, for which an own-capital contribution is required. In order to fund this own-capital contribution, Awethu may draw on its own capital, sell an equity stake to a private SME investor, or rely on public sector grant financing.

a) Asymmetry of information: Awethu uses established psychometric tests and other more objective measures of entrepreneurial potential, rather than relying on business track records that are hard to come by and hard to verify.
b) Informality: The six-month Awethu Apprenticeship ensures that our Entrepreneurs achieve a basic level of formality before applying for private sector finance.
c) Lack of collateral: Awethu itself provides the collateral based on the fact that we own a significant equity stake in each business when funding is applied for.
d) Lack of financial capacity: See (c).
e) Lack of SME access to skills / knowledge / markets: The Awethu Entrepreneurship Training Program accounts for the lack of skills and knowledge issues, while the Awethu Fellowship program and Awethu’s global networks gain access to markets for our SMEs.
f) Unavailability of financial products tailored to SME needs: Awethu requires only a simple loan product common in most developing countries.
g) Lack of institutional capacity of financial intermediaries: Awethu centralises applications to intermediaries, streamlining our applications for funding, thereby reducing the burden placed on intermediaries.
h) High transaction costs for financial intermediaries to serve SMEs: Awethu formalises our SMEs before applying for funding, allowing larger sums to be applied for and reducing transaction costs.
i) Lack of competition / incentives for financial intermediaries to serve SMEs: As stated in (h), the loans applied for by Awethu Entrepreneurs are fairly large, improving incentives for intermediaries.
j) Underdeveloped local capital markets (term local currency funding, exit options for SME equity): Awethu requires only a simple loan product common in most developing countries. Beyond that we invest our own capital and are more concerned with steady cash flows than exit options.
k) General barriers to SME development related to investment climate: The Awethu system is self-contained, and therefore is relatively unaffected by investment climate.
l) Lack of financing to women entrepreneurs: The Awethu Talent Identification process can be run for women only if necessary.
m) Specific barriers to fragile and weak states: Awethu cannot solve the problems of weak states, but we can empowers people on the economic margins of every state, thus strengthening the state as a whole.