Small business may be key to job creation in SA
With an unemployment rate of 28% at the end of last year, South Africa will not hit its job creation targets without a huge influx of cash into the venture capital (VC) industry, which not only encourages business development, but enables entrepreneurs to expand their businesses, driving employment opportunities.
Tanya van Lill, chief executive of the South African Venture Capital Association (Savca), said that small businesses could be pivotal for job creation.
“To build workforce, companies, particularly small ones, need growth capital. They generally don’t have ready access to more traditional sources of funding, meaning that VC firms are an essential form of financing.”
Savca’s 2018 VC survey found that 97.1% of VC-backed businesses would have ceased to exist or developed slower, were it not for the VC investment. In addition, 77% receiving VC backing increased full-time employment positions.
“Right now the majority of pension funds are wary about putting a lot of money into VC funding, especially start-ups, which are considered high risk.
“Changing that perception means the association focuses on ensuring that companies that receive VC funds succeed, which means tighter involvement from fund managers.”
SweepSouth, a tech start-up, is a prime example of a VC investment’s multiplier potential. The on-demand online platform for booking home cleaning services now has over 11,000 cleaners. It relied on an injection of capital to surge ahead.
SweepSouth chief executive, Aisha Pandor, said the goal was not simply creating many thousands of domestic worker job opportunities, but giving the people a realistic vision of a prosperous future.
“It’s about upskilling, educating and uplifting South Africans through employment. Aside from the cleaners, we have 42 in-house employees, ranging from call centre agents to tech developers, many of whom started on our cleaning teams and worked their way up.”
Janice Johnston, fund head of Vumela Fund at Edge Growth, took a punt on SweepSouth, saying the company allowed domestic workers to increase earnings.
Van Lill said by end 2017 the local VC asset class had R4.39bn invested in 532 deals.
Savca’s next goal is to educate the international market on SA’s huge VC potential, but international targets are still uncertain as to whether President Cyril Ramaphosa’s investment drives will hold their momentum after the election.
“Some start-ups are wary about the forceful role good fund managers will play in their businesses. Depending on the size of the investment, the funder is likely to sit on the board and have strong input into the company's direction. This should be seen as a positive addition from skilled people who need to satisfy their investors.
Van Lill said investors supply invaluable support and mentorship to their portfolio companies, which stimulates growth and ultimately employment.
Savca has 170 members, with about R165bn in assets under management, but to become a real powerhouse in the finance industry the five-year is a massive increase in the number of VC funds, and with it fund managers.