South Africa needs more risk investors, particularly those aimed at investing in talented black entrepreneurs that struggle to access mentorship and funding.
Written and published by Stephen Timm on smallbusinessinsight.org
Speaking on Thursday at the Cape Town launch of the South African Business Angel
Network (Saban) Entrepreneur and SABAN advisor Vuyisa Qabaka (pictured below) said while the venture capital (VC) ecosystem is growing and the state is supporting this with the Section 12J tax incentive (see this post), South Africa needs more risk-taking investors.
“We need more more people to put in money in the early stages of the business, in that not so heavy level of R20,000 ($1,500), R40,000, R100,000 investment level (and for) syndicates to come together to put together money towards talent. That’s missing in our ecosystem,” he said.
Qabaka added that while many white communities had friends or family who might be able to help seed their businesses, black entrepreneurs had few such people to approach for investment. “The question I have to ask is who is their uncle?”
He said angel investing could help fund and mentor rising talented start-ups.
South Africa has about 49,000 dollar millionaires who could potentially help seed new businesses and create jobs. In the US each angel investment added an average of 3.6 jobs, according to a 2014 estimate.
A 2015 report said 55 angel investments collectively valued at R42.5 million ($3m), were concluded in South Africa between 2011 and 2015. However the report likely failed to capture the large number of deals which are concluded under the radar.
‘Critical to SA’
SABAN steering committee member Mvi Hlophe said angel investing is critical to the country meeting its challenges of unemployment and poverty.
As a private equity fund manager he sees an increasing amount of money is chasing fewer deals. Angel investing could therefore help seed a pipeline of deals, some of which could later migrate to receive private equity investment.
Hlophe says SABAN aims to bring together and accredit angel groups, allowing angels to invest together and in so doing find and validate better deals and lower their risk by spreading investment across various deals.
He says the organisation plans to run a set of angel masterclasses early next year. The group is in the process of registering as a non-profit.
Angel investor Audrey Mothupi has in the last two years funded a number of small businesses, including a Diepsloot gas distributor who has grown his business to employ 50 people today.
Two years ago she cashed in on her shares that she was given in Liberty Life while she was working at the company, to fund her angel investing endeavours,
Mothupi said missing in South Africa is a collective engagement about what “I can do”.
Perhaps a lesson is to be had for policymakers, in Turkey. A 2013 law allows angel investors a 75% corporate tax reduction should they hold company shares in recipient businesses for at least two years. It’s the biggest such tax exemption offered by any country in the world.
In addition angel investor can get 50% of their investment, matched by a $200m government co-investment fund, in which the government will provide an equity-free investment in a beneficiary.
Further to this the Turkish stock exchange Borsa Istanbul in 2014 launched an online matchmaking platform.
The “Private Market” platform (www.bistozelpazar.com) allows entrepreneurs to find angel investors that have been registered and accredited by the stock exchange. It offers companies the opportunity to raise finance without going public while allowing company partners to sell their shares, and investors to liquidate their investments.
In the first half of 2015 the amount invested in early-stage investments grew by more than 200% compared to the same period in 2014, with the number of investments growing from 22 to 33, according to a tech blog.
Also speaking at Thursday’s event, World Business Angel Investment Forum chairman Baybars Altuntas, said there are now 400 angel investors accredited by the Treasury, with 16 angel networks (each with an average of 50 angels) now located in three cities.
Because of the difficulty of exiting from deals, it is difficult to convince global angel investors to invest in Turkish firms. To address this the government recently allowed global angel investors who can prove that they have been involved in a successful exit, to qualify for the same tax incentive in Turkey as citizens do.
‘Invite all players’
Altuntas, an entrepreneur who took part in the Turkish edition of Dragon Den, said back in 2010 he knew next to nothing about angel investing but ordered many books from Amazon.com on angel investing to learn more.
Later he met with President Recep Tayyip Erdogan to advocate for the incentive. His advice for convincing policymakers? “You have to find simple words to convince them.”
“I think Saban has to invite all market players to the same table – the stock exchange, the government – someone has to do it. And creating such an ecosystem will leverage the market in a very short period of time,” he advises.
Incentivising those with money, connections and experience to invest in start-ups or helping angel networks to set up (see this post) can only help small businesses in emerging economies to make a bigger impact. More governments should listen up.
Stephen Timm is a South African journalist and researcher who has been writing on small business and entrepreneurship in South Africa, Brazil, Chile, India, and Malaysia since 2003. He has written on small business for a number of South African newspapers, including Business Day and Mail & Guardian, and magazines, including Entrepreneur SA and Financial Mail.