In a significant move set to reshape South Africa’s entrepreneurial landscape, ASI Financial Services has unveiled a groundbreaking R300 million (approximately $17 million USD) Entrepreneurship-Through-Acquisition (ETA) Search Fund. This innovative initiative directly confronts two pressing national challenges: the critical succession gap among Small and Medium-sized Enterprise (SME) owners and the persistently high youth unemployment rate. By pioneering a new ownership model in the local market, ASI aims to connect retiring business owners with a new generation of aspiring leaders, fostering continuity, job creation, and economic transformation.

The launch of this fund is particularly timely for South Africa, a nation grappling with a complex economic environment. The country’s official unemployment rate stood at a staggering 32.9% in the first quarter of 2025, a slight increase from the previous quarter, reflecting a challenging labour market where formal sector jobs continue to decline. Within this grim statistic, youth unemployment remains a particularly acute crisis. For young people aged 15-34, the unemployment rate soared to 46.1% in Q1 2025, with those aged 15-24 facing an even more dire 62.4%. This demographic, often lacking prior work experience, finds itself trapped in a cycle where they struggle to secure employment without experience, yet cannot gain experience without a job.

“This is more than a business transaction – it’s about legacy, community and transformation,” stated Tishalan Pillay, Executive Director of Growth at ASI Group, emphasizing the fund’s broader societal objectives. “We are proud to pioneer a model that enables continuity for SMEs and creates real opportunities for the next generation of business leaders.”

The Unsung Backbone: SMEs in the South African Economy

Small and Medium-sized Enterprises are widely acknowledged as the engine of economic growth and job creation globally, and South Africa is no exception. These businesses form the bedrock of the nation’s economy, with estimates suggesting that SMEs comprise 91% of formalised businesses in South Africa, collectively employing approximately 60% of the labour force and contributing roughly 34% to the country’s GDP. Beyond these impressive figures, SMEs are vital for economic diversification, fostering innovation, and providing essential goods and services to local communities. They are also crucial for absorbing labour, particularly in a country with high unemployment, as the formal sector struggles to create sufficient jobs.

Despite their pivotal role, South African SMEs face a myriad of challenges that often hinder their growth and long-term sustainability. Key obstacles include:

• Access to Finance: This remains one of the most significant barriers, with many small businesses struggling to secure the necessary capital for operations and expansion from traditional commercial banks, often due to stringent credit criteria.
• Cash Flow Issues: Rising living costs and reduced consumer spending directly impact SME revenues and profitability.
• Skills Shortages: A national shortage of skilled labour, particularly in STEM fields, makes it difficult for SMEs to find and retain qualified employees.
• Economic Uncertainty: South Africa’s fluctuating economic climate, marked by high inflation and low GDP growth, creates an unpredictable environment for business planning.
• Deteriorating Infrastructure: Issues such as unreliable power supply (load shedding) significantly increase operational costs and reduce productivity for small businesses, often forcing them to invest in expensive alternative power sources.
• Competition: Stiff competition from both local and international businesses makes it challenging for SMEs to carve out a unique market position.
• Lack of Digital Technology Adoption: Many SMEs lag in adopting modern digital tools and technologies that could streamline operations and improve competitiveness.

These challenges contribute to a high failure rate among South African SMMEs, with studies indicating that between 60% and 80% of businesses fail within their first two years. This context underscores the urgent need for innovative solutions that not only support the creation of new businesses but also ensure the longevity and growth of existing ones.

Bridging the Generational Gap: The Succession Crisis

Compounding the general challenges faced by SMEs is a looming “succession gap.” Many South African business owners, particularly those who founded their enterprises post-apartheid, are now approaching retirement age. However, a significant proportion of these owners lack formal succession plans. Research, such as PwC’s Africa’s Family Business Survey 2021, revealed that a striking 76% of African family businesses do not have a succession plan in place. This absence of a clear transition strategy poses a substantial threat to the continuity and value of these businesses.

Without a well-defined succession plan, businesses risk being left in “limbo” when a founder or key leader exits due to retirement, illness, or other reasons. This uncertainty can lead to significant operational disruptions, loss of institutional knowledge, diminished business value, and even outright collapse. For employees and communities dependent on these SMEs, the failure of an established business can have devastating consequences, exacerbating unemployment and economic instability.

Simultaneously, a vast pool of talented, ambitious young professionals in South Africa faces significant barriers to business ownership. Despite possessing the skills, drive, and innovative ideas, they often lack the substantial capital and established networks required to launch a successful startup or acquire an existing company through traditional means. This creates a paradoxical situation: experienced business owners are looking to exit, while eager young leaders are struggling to enter the ownership space. The ASI Fund aims to directly address this critical disconnect.

Entrepreneurship-Through-Acquisition (ETA): A Proven Model for Growth

The ETA model, while novel in its institutionalised form in South Africa, is a well-established and proven pathway to business ownership in more mature markets, particularly in the United States. It offers a structured, lower-risk alternative to traditional entrepreneurship, which often involves the high failure rates associated with launching a new venture from scratch. As one entrepreneur, Keval Shah, noted in an interview, startups have high failure rates—around 50% within the first five years—compared to established businesses, making ETA an attractive option for those without technical skills or a specific startup idea.

In essence, the ETA model involves a “searcher” – typically a young professional with strong leadership potential and business acumen – identifying, acquiring, and then operating an existing, profitable business. The process is typically supported by investors who provide the necessary capital for the acquisition and often offer strategic guidance and mentorship post-acquisition. This contrasts sharply with the traditional startup route, where entrepreneurs build a business from the ground up, often facing immense financial strain, market uncertainty, and the need to develop every aspect of the business from scratch.

The benefits of the ETA model are manifold:

• Lower Risk: Acquiring an established business with existing customers, revenue streams, and operational infrastructure significantly reduces the inherent risks associated with new ventures.
• Immediate Revenue: Searchers step into a business that is already generating income, providing immediate financial stability.
• Mentorship and Support: Investors in ETA funds often provide invaluable strategic guidance, mentorship, and access to their networks, helping new owners navigate the complexities of running an established business.
• Access to Capital: The fund structure provides the necessary financial backing that aspiring entrepreneurs might otherwise lack.
• Focus on Operations: Instead of building from scratch, searchers can immediately focus on optimizing and growing an existing enterprise, leveraging their leadership and management skills.

ASI Fund: Pioneering a Solution in South Africa

ASI Financial Services, with its stated mission to “Build Wealth and Change Lives in South Africa” and values rooted in humanity, transparency, and innovation, is uniquely positioned to launch this pioneering ETA fund. The R300 million fund represents the first institutionalised version of this model in the country, signifying a robust commitment to addressing the identified market gaps.

The operational mechanics of ASI’s ETA fund are designed to be comprehensive and supportive:

1. Connecting Entrepreneurs and Owners: ASI leverages its online channels to create a pipeline of potential “searchers” (young professionals eager for ownership) and retiring business owners seeking a viable succession solution. This matching process is crucial for identifying synergistic opportunities.
2. Sourcing and Assessing Businesses: The fund actively assists searchers in identifying suitable acquisition targets. This involves rigorous due diligence, financial analysis, and operational assessments to ensure the target businesses are healthy, scalable, and a good fit for the entrepreneur’s skills and aspirations. This step mitigates risk for both the searcher and the fund.
3. Facilitating Funding and Acquisition: Once a suitable match and business are identified, ASI provides the necessary funding for the acquisition. This enables selected entrepreneurs to step directly into leadership roles, becoming the CEOs of the newly acquired businesses. This direct path to leadership is a significant draw for ambitious young professionals.
4. Post-Deal Support: ASI’s commitment extends beyond the acquisition. The fund offers ongoing strategic guidance, mentorship, and access to its network of experts. This crucial post-deal support is designed to ensure the long-term growth, stability, and continuity of the acquired businesses, maximizing their potential and safeguarding their legacy.

Tishalan Pillay, a key figure in ASI Group’s growth strategy, highlights the transformative potential of this model. ASI Group’s broader services encompass a range of financial solutions, and this fund aligns perfectly with their objective of fostering economic participation and wealth creation across South Africa.

Impact on Young Entrepreneurs and Business Owners

The ASI ETA Search Fund offers a compelling proposition for both sides of the generational divide:

For Young Entrepreneurs:

This initiative provides a practical, lower-risk pathway to business ownership that bypasses the traditional hurdles of starting a company from scratch. Young South Africans, often excluded from traditional ownership pathways due to lack of capital and networks, gain:

• Access to Established Businesses: They acquire a ready-made enterprise with existing market presence, customer base, and operational infrastructure.
• Mentorship and Guidance: The fund’s post-deal support system provides invaluable strategic advice and mentorship from experienced professionals, accelerating their learning curve and reducing the likelihood of failure.
• Leadership Opportunities: Young professionals are empowered to take on CEO roles, gaining hands-on experience in managing and growing a business.
• Reduced Risk: Compared to the high failure rates of startups, acquiring an established business offers a more secure foundation for entrepreneurial success.
• Meaningful Economic Participation: It offers a direct route to economic independence and wealth creation, addressing the systemic exclusion faced by many young people.

For Retiring Business Owners:

The fund provides a dignified and sustainable exit strategy for owners who have dedicated their lives to building their businesses but lack an internal succession plan. This ensures:

• Preservation of Legacy: Owners can see their businesses continue to thrive under new, dedicated leadership, preserving the jobs and community contributions they have built.
• Fair Exit: The fund facilitates a structured and fair acquisition process, allowing owners to monetise their life’s work.
• Continuity for Employees: Employees retain their jobs, and the business maintains its operational stability, avoiding the disruption or closure that often accompanies unplanned transitions.
• Community Benefit: The continued operation of these SMEs contributes to local employment and economic stability, benefiting the broader community.

Broader Economic and Social Transformation

The ASI Fund’s ETA model aligns with broader demographic and labour trends across Africa. The continent is projected to have the world’s largest workforce by 2035, with the number of sub-Saharan Africans reaching working age expected to exceed that of the rest of the world combined. This demographic dividend presents an immense opportunity for economic growth and poverty reduction, provided that sufficient high-productivity jobs are created – an estimated 18 million jobs per year until 2035 for sub-Saharan Africa. However, without meaningful economic participation and access to assets and capital, this youth bulge could instead lead to increased social instability.

The ETA model directly contributes to harnessing this demographic dividend by:

• Job Creation: By preserving existing SMEs and enabling their growth under new leadership, the fund helps to retain and create jobs, directly addressing South Africa’s unemployment crisis, particularly among youth.
• Economic Stability: The continuity of established businesses contributes to local economic stability and resilience.
• Skills Transfer: The mentorship and support provided by ASI facilitate the transfer of invaluable business knowledge and skills from experienced owners to the next generation.
• Transformation: By empowering young, often previously disadvantaged, entrepreneurs, the fund contributes to the broader economic transformation agenda in South Africa, fostering a more inclusive and equitable business landscape.
• Community Development: Healthy, growing SMEs are vital for community development, providing local services, employment, and contributing to the social fabric.

The South African government has long recognized the importance of supporting SMEs and youth entrepreneurship. Initiatives like the Youth Employment Accord (introduced in 2012-2013) and the Youth Enterprise Development Strategy (2012-2022) aimed to promote youth participation in entrepreneurship through various interventions, including mentorship, business incubation, and access to funding. The ASI Fund’s private sector-led approach complements these efforts, demonstrating a practical solution to a persistent challenge.

Encouraging Early Momentum and Future Prospects

The early response to the ASI Fund has been overwhelmingly positive, with significant interest generated across South African provinces. Early applicants have signaled strong demand for this more accessible path to ownership, indicating a clear appetite among young professionals for alternatives to traditional startup models.

“Succession in SMEs is an overlooked challenge in South Africa,” Pillay reiterated. “This initiative gives both sellers and buyers a way forward that benefits communities, employees and the broader economy.”

The success of the ASI Fund could serve as a blueprint for similar initiatives across Africa, where the dual challenges of SME succession and youth unemployment are prevalent. While scaling such a model will undoubtedly present its own complexities, including the identification of suitable businesses and the continuous provision of robust post-acquisition support, the institutionalised nature of ASI’s fund provides a strong foundation.

As South Africa continues its journey towards economic recovery and inclusive growth, the ASI ETA Search Fund stands out as a beacon of hope, offering a pragmatic and impactful solution to empower a new generation of entrepreneurs and ensure the enduring legacy of the nation’s vital small and medium-sized businesses. This is not just about financial transactions; it’s about building a more resilient, equitable, and prosperous future for South Africa, one successful business transition at a time.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

25th July, 2025