What To Do When Your Start-Up Can't Get Finance
Mduduzi Luthuli couldn't find his ideal job in the wealth management space – so he decided to create it, bootstrapping his business, Luthuli Capital.
- Player: Mduduzi Luthuli
- Company: Luthuli Capital
- Est: 2016
- Visit: luthulicapital.com
Mduduzi Luthuli and his wife Trudy, both of whom have a solid track record in financial services, launched wealth management company Luthuli Capital in 2016. He left a great job because he wanted to do something he was truly passionate about. Having funded Luthuli Capital with their personal savings, it's now self-sustaining and turning a modest profit — in less than two years. Mdu says he started the business because, after years in wealth management, he could not find his ideal job, so he decided to create it.
The Challenge: Wealth management companies look after their clients' money. That alone makes this space supremely difficult for a start-up. How do you find customers and investors willing to bet on you when the business does not have a track record?
The Solution: For Mduduzi Luthuli, the solution was to build a niche business. But he admits he was fortunate to have developed a strong personal brand over time. "When you are investing offshore for your clients, their primary concern (other than growing their capital) is the person they trust to manage their money.
"While I was still employed, I let my clients know that I would be starting my own business. Because of the emphasis I had always placed on personalised service — and I am talking about going above and beyond — many of them wanted to move with me. That taught me how powerful a personal brand can be."
Nonetheless, he says, Luthuli Capital still has a way to go to build its own brand. That's why Mdu has formed strategic partnerships. "A large part of our investment book sits on Allan Gray's platform. Because it's the largest privately-owned investment management company in South Africa, that association is key. We are leveraging off a strong brand while creating and developing our own."
Finding equity partners
Mdu says that finding the right equity partners has been one of the greatest challenges he has yet had to face. "We found that most venture capitalists and private equity funders simply do not have the appetite for the long-term. It's extremely difficult to find patient capital — they either want a return on investment in 18 months, or they say they will give you money only if they can take a majority stake in your business. But that would be like working for a boss again, which is what I don't want," he says.
It's for this reason that Luthuli Capital has grown slowly and organically, with profits being pumped right back into the business. At the end of year one, when the business had gone as far as it could with limited resources, one of the top insurance houses offered to provide capital, but there were strings attached — they wanted a majority shareholding.
Just as Mdu was about to sign the deal, one of his wealthiest clients agreed to put up the capital required. "She told me she loved what we were doing, and she wanted us to remain independent," he says. Mdu has also learnt to stop apologising for being new.
"The top performing investment managers did not get to where they are today in 24 months. I cannot magically make the business a decade old. What I can do is use our expertise to build it. I know we are making an impression in the market because lately we have had several offers to buy us out. Clearly, we are heading down the right path."
It's for this reason that he advises other entrepreneurs to stay the distance and maintain their independence.
"There is no doubt that you will pay for your independence, but when people see that you have made it through the start-up phase, that's what keeps them coming back. In the beginning, potential funders were laying down their terms; now they are ready to negotiate and take our requirements into account too."