- As a freshly minted CA (SA), Jarred Noche had the desire to start something of his own overseas instead of doing it in South Africa.
- However, when he was at Grant Thornton in New York, he reconsidered his decision and along with his best friend, he established Fundrr, a startup that empowers SMEs in South Africa.
- It wasn’t an easy journey and no one was willing to invest in their startup. This forced them to bootstrap.
- Here is how they built Fundrr.
The first step towards realizing my entrepreneurial traits
Hailing from Johannesburg, South Africa, I always had entrepreneurial aspirations, most probably because of my father.
He has a printing business. Therefore, I was exposed to the business world from a young age and that is how it all began.
In high school, I could not figure out a career choice. Then I looked at my brother who had recently qualified as a chartered accountant (CA), and I thought I should pursue CA as well.
In the back of my mind, I knew that being an accountant would be the best way forward since many often call financial accounting the language of business.
Just like that, I decided to become a CA.
I always wanted to gain varied experience and see what is out there, so for my articles, I chose Grant Thornton. The company exposed me to manufacturing, publishing, financial services, and a vast range of different businesses. Most importantly, I learned the practical aspects of work.
Finally, after six long years of hard work, I qualified as a Chartered Accountant of South Africa [CA (SA)] in 2015.
U-turn from the US to South Africa to establish a startup
After becoming a CA, I rejoined Grant Thornton, but in their New York office in the United States of America. The plan was to take a cool or innovative concept from South Africa and then go overseas to start something of my own.
For the first few months, it was great, but after a while, the overcrowding and fast-paced life were starting to become a bit too much for me. I did not like city life anymore.
I immediately realized where I wanted to be and which direction I wanted to take.
At that point, I searched for some unique American concepts that I could potentially bring back to South Africa, my home country.
Around this time, my best friend Idan Jaan came to visit me. He mentioned that he wanted to do something new with his career. The timing could not be better.
With similar ambitions, we thought we should join forces and embark on a new journey together. Thus, the exciting yet intense journey began.
When I was struggling to find an idea to start a business myself, Idan brought up the concept of peer-to-peer (P2P) lending.
P2P enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the agent.
It sounded like a great idea and so in July 2017, I quit Grant Thornton to return to South Africa.
Pivoted from peer-to-peer lending to fintech
Since I had quit my job and was not earning anything to pay for my day-to-day expenses, I moved back in with my parents. That was a huge financial relief.
Although I was pretty well versed in audit and transaction advisory, I did not have any knowledge of credit.
We quickly realized that doing peer-to-peer lending in the consumer space would require a lot more than what we could set up.
We had to acquire a number of licenses and understand the intricacies of matching borrowers with lenders. Frankly, it just became a bit unrealistic in that particular market.
Jaan previously worked in a group that had 80 small and micro enterprises (SMEs) in their portfolio. Most of them had limited access to bank funding.
There are 2.4 million SMEs in South Africa. In aggregate, they employ around 70% of the working population, yet this market experiences a dearth of funding.
This causes a ZAR86 billion (US$6 billion) credit gap for small businesses. Each year, the number of SMEs in South Africa decreases due to their inability to access finance.
Thus, we pivoted to offering fast and flexible business funding to small businesses in South Africa and launched Fundrr in 2017.
Getting rejected by 50 angels and bootstrapping
We knew nothing about credit, but we took a leap of faith and decided to raise capital.
Many of the people we approached said they liked the idea and the founders, but it was just “too early”.
Nearly 50 angel investors rejected us, thus we were forced to bootstrap Fundrr for the first year.
Each of us invested R750 000 (almost USD 51K) of our own “life savings”
In hindsight, it was the best thing that happened to us. Having said this, surviving from one month to the next was difficult.
The journey was getting a bit rough but in the process, we ended up befriending two amazing mentors, both of whom had more than two decades’ worth of experience in the financial services industry.
Every Friday, they taught us the tricks of credit and lending. They both got us to a level where we could actually go out and do our first deal.
Finally, in June 2018, we did our first disbursement of funds. It was for a restaurant in a shopping complex. Everything worked out pretty well.
What next?
Fundraising and looking at profit
Within a year of launching, we had built a stable record of accomplishment – running a tangible and profitable business.
In 2019, we eventually raised funds for the first time to scale our startup. We received capital from a Cape Town angel investor and invested it in our systems and processes.
I believe people often take a common approach when utilizing funds – raise capital, invest in systems, and go all out.
Since we were inexperienced, throwing money on something we had no idea about would have been a wrong investment. Therefore, we took it slowly thus maintaining profitability.
Operations of Fundrr
We differentiated ourselves in the market by developing an automated credit model that analyses close to 100 data points, including factors like social media presence, to provide a more complete picture of a small business and its growth possibilities, not based solely on their financials
This produces a Fundrr score, on which basis the startup offers loans. So far, Fundrr has offered loans to 70% of its loan applicants. That is how Fundrr provides fast and flexible funding to help SMEs in South Africa.
We provide South African SMEs with loans of between ZAR20 000 ($1,400) to ZAR500 000 (US$35 000) for three to twelve months.
We do this through our seamless onboarding application process, which takes only eight minutes to submit. Within 24 hours, applicants receive feedback (acceptance or rejection). Our interest rates vary depending on the applicant’s creditworthiness.
Unlike other fintech, we fund all the deals on our balance sheet by raising money from various debt providers, and we then lend it out at a margin.
Startups: a challenging yet rewarding journey
We have come a long way since we first started in 2017 and I can confirm that coming back to South Africa was the best decision of my life.
I cannot fully recommend that CAs go and do their own thing. But for me, it has been the most rewarding and life-changing experience.
Having said this, if you start and fail the first time or second time, keep pushing because it will be worth it.
I must admit that South Africa has a challenging environment. The risk appetite of South African investors is certainly not like that of Silicon Valley, where investors are just looking to write blank checks. Having said this, things are changing rapidly.
