Potential entrepreneurs are being denied start-up capital, which hinders the goal of reducing poverty
SA’s venture capital sector is too timid, says acting director of the University of the Witwatersrand Business School’s (WBS’s) Centre for Entrepreneurship, Fredell Jacobs. This means too many potential entrepreneurs do not get the funding they need to start a business or expand the one they started on their own.
The government has bought into the United Nations Conference on Trade and Development’s observation that development of the private sector and entrepreneurship are as essential to emerging economies and eradicating poverty as are sound macroeconomic policies and market access. It often implores society to “do more” to help small businesses, but Jacobs says the substance is not there.
“Look at the American capitalist system. It’s got its problems right now, but its safety net for start-up business is far bigger. Here if you fail in business it’s a quick road to getting blacklisted and then it’s very difficult to (get the funding) to start up again. Venture capitalists in the US have a bigger appetite for risk and they don’t have a punitive system (that kicks in) if you fail,” says Jacobs.
This in turn means too many South African youngsters do not see others around them starting up businesses, fail or succeed, and that translates into a general feeling of apathy, says Jacobs, a businessman and final-year Master of Business Administration (MBA) candidate at WBS.
“We have to get rid of the ‘I can’t’ attitude,” says Jacobs, who is also programme leader for the Massachusetts Institute of Technology Global Start-Up Workshop the WBS is hosting in Cape Town next March.
The business school is making a point of getting SA’s youth to the conference — 35 of the 60 seats available to the WBS will be sponsored so that higher education institutions and entrepreneur-supporting youth groups can send budding business leaders to the conference, says Jacobs.
While many young urban South African do have entrepreneurial confidence and zest, the closer to rural areas one gets, the less this is so, says Business Partners MD Jo’ Schwenke.
During 2007-08, Business Partners managed a R1672,1m investment portfolio and made 682 investments, 304 of which were approved for black entrepreneurs and 254 for businesses owned and run by women.
Umsobomvu Youth Fund (UYF) CEO Malose Kekana says SA’s youth are growing in entrepreneurial spirit, but that SA’s lending sector is wary of providing youngsters with start-up cash, and this is their biggest hurdle. The UYF is a statutory body which promotes entrepreneurship, job creation, skills development and skills transfer among South Africans aged 18-35. It helped set about 50000 businesses on their feet from 2003 to 2007.
Jacobs notes that banks are not the best vehicle for securing start-up business finance, though they are probably good entities to underwrite this.
“Venture capital needs to come from people who are open to taking a knock from time to time and we need also to provide a lot of support and not draw back funding (from a newly established business) immediately things start to go wrong ... the Business Partners model is a good one,” he says.
This is a brave statement in the current financial situation, but Jacobs says business people must draw lessons from business moguls such as US investor Warren Buffet and SA’s Brian Joffe (Bidvest’s CEO), both of whom have said that it is when markets are running scared that investors need to go in.
Jacobs says it is heartening that SA’s financial sector has been buffered from the crisis and that money for start-ups in institutions such as the trade and industry department’s National Empowerment Fund is reasonably safe because most of their assets are locally sourced.
Schwenke believes what differentiates Business Partners’ funding model from most others is the type of deal it secures with a prospective business, and the lengths to which it goes to monitor businesses it finances.
Jacobs lists a final problem as being that business leaders such as Patrice Motsepe and Tokyo Sexwale only make the news once they are already successful. So young people don’t get to see the “sweat and slog” of developing a successful business.
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