The goal of a venture capital firm like Effi Enterprises is to provide start-up funding for a new business. This type of short term investment is made by a VC firm in exchange for profits that the company is expected to generate at a later date. Generally, a company will either go public with an IPO, or sell out for a large profit and the investor will obtain a return on their investment which helped the business succeed. Each region around the globe has their own unique set of challenges as well as advantages. South Africa is just beginning to gain from VC funding and it is just now beginning to take shape.
History of VC in South Africa
Venture capital funds are a critical tool in supporting innovation and spurring economic growth. Until recently, South Africa has had a slowly developing VC market and there has not been a lot of venture capital funds available either government or privately funded. This has been a large problem for the entrepreneurs who have difficulties securing funding options. The lack of early stage investments was complicated by the lack of managers with substantial amounts of experience to be able to provide the mentoring needed to make a business successful as well. This has had the effect of squelching entrepreneurship in South Africa with an adverse effect on the nation’s economy.
Present State of VC in South Africa
Private investors are beginning to provide more venture capital funding for business projects in South Africa. There is a large number of entrepreneurs who are looking for funding necessary to help them market their new products. In South Africa there are “capital seekers” that help provide advice to entrepreneurs in finding the right type of VC funding for their marketing ideas. Just for comparison’s sake, in the US about 4% of the GDP comes from investments made by venture capitalists but in South Africa, it is less than 2%. This simply demonstrates that the South African market has a long ways to go to be as developed as that of the US and other advanced countries. However, great progress has been made over the last 10 to 15 years and they are making great strides in catching up.
Future of VC in South Africa
Most would agree that venture capital and private equity funding in South Africa generally comes from just a few select investors and tend to favor the same types of businesses. However, over the last year, there has been more contact between investors from South Africa and entrepreneurs on both a local and global level. This has brought about an increase of VC funding for individuals and start-up businesses. With the current rate of growth in the South African market, it is expected that the number of venture capitalists will continue to grow in number over the next few years.
It is expected that the government may begin to offer incentives to encourage entrepreneurships and VC funding. This can provide a jump start for the economy in the region. There is also a move to engage universities in the process. Universities can provide education to entrepreneurs regarding the creation of realistic business plans that are investable. Retired businessmen can provide the mentoring necessary for a start-up business. The general consensus is that government and educational systems can work with established businessmen to develop a system that will encourage both the entrepreneur and the venture capitalist. Universities are being encouraged to set up their own VC funds in order to promote inventions through the university and offer a completely different type of VC investor.