SA venture capital market on the rise
Venture capital is often associated with investments into large, high growth businesses, yet there is a growing need for venture capital amongst entrepreneurs in South Africa who require smaller investments to get their concept to market or move their business to the next level.
This is according to Gerrie van Biljon, Executive Director of Business Partners Limited, who says that this demand has been highlighted by the interest received from entrepreneurs since the launch of the Business Partners Limited Venture Fund in October last year.
“Despite the current economic downturn not lending itself to the ideal breeding ground for new innovation and typical venture type transactions, there is a growing appetite for this type of funding, especially amongst small and medium enterprises (SMEs).”
The Business Partners Limited Venture Fund, which finances deals for market-ready products or concepts up to R10 million, has already concluded several deals, the most recent being with Triggerfish Animation Studios, an award winning animated film production company situated in Cape Town, which produced the international acclaimed film, Adventures in Zambezia.
“Many innovative products or services never hit the market, despite the potential they have, as financial constraints prevent them from taking the concept further. The Fund is therefore specially focused on investing in SMEs, as opposed to most venture funds that focus on larger private equity deals,” says van Biljon.
He adds that the Fund has a particular focus on high impact investments and new technology, businesses which could ‘shoot the lights out’, and says that Triggerfish is a typical example of the type of venture which will be considered.
“Having been branded by the international media as Africa’s answer to DreamWorks, Disney and Pixar following its first animation film Adventures in Zambezia (3D), and second film, Khumba, Triggerfish required venture funds for its upcoming film’s script and storyboard.”
Jean-Michel Koenig, CFO of Triggerfish Animation Studios, says that the company applied for funding to help finance the first phase of development work on their film slate. “We are a pioneering animation filmmaking company on the continent and there is very little precedent for what we are trying to do. As a result, there are not many organisations in South Africa who provide early stage risk financing, or who are open to financing businesses that fall outside of the more traditional industries, such as Triggerfish.”
Other innovative businesses that have received funding since the launch of the Fund include a new technology packaging company, companies in the telecommunications industry and a bio technology company. “These South African entrepreneurs have over the years invented and developed outstanding products and services,” says van Biljon.
He says that the queries Business Partners has received from SMEs for venture capital to date are widespread throughout all industries, ranging from electronic products to new innovations relating to the agricultural industry.
He adds however that they have also noticed a low level of understanding amongst SMEs on what venture capital entails since the launch of the Fund. “Venture funding is very different to the term financing or asset base financing, which involves providing structured working capital and term loans that are secured against assets, while venture funding provides capital for early-stage, high-potential, high risk, growth start-up companies.
“One of the challenges we have encountered is sourcing vital information from entrepreneurs, which ultimately prevents the allocation of funds. While many entrepreneurs have developed a great product, sufficient market research to establish the size of the market, or financial information, is not forthcoming. This results in entrepreneurs only forecasting the money they anticipate to make, without considering the possible potential and / or risks.”
Along with the launch of the Business Partners Limited Venture Fund, a Venture Capital Forum was also initiated in Durban, Cape Town and Johannesburg by Business Partners, where all industry role players and entrepreneurs can meet to promote and discuss venture capital, which will ultimately benefit entrepreneurs.
“There are so many entrepreneurs that deserve a chance in the market but lack the capital, and this should not prevent a dream from coming true,” concludes van Biljon.