Calling all the angels
Carien Engelbrecht [Director at Aurik, a South African Business Accelerator] wrote a super article on funding for startups, one I hope everyone in government and business who has ever uttered the word ‘unemployment’ will read.
Since most startups have little or no access to established financing options such as bank facilities or private equity, funding is typically limited to Venture Capital or FFF ["friends, family and fools"] funding. But there’s an important bit that we rarely see – angel investors.
Ms Engelbrecht talks about the relative absence of angel investors in the South African funding landscape, and explains how our legislative environment fails to stimulate improvement in the area. Some specific excerpts:
“It is interesting to note that despite its glamorous image, venture capital is in fact not the most important source of start-up capital in the US. Instead, this accolade goes to angel investors who are estimated to provide 27 times more seed funding to early stage businesses than venture capital funds each year. In 2007 alone, angel investors invested more than $26 billion in 57 000 start up businesses… Angel investors are critical if we are to fill the gap between the financing typically provided by family and friends and venture capital funds.”
“Of perhaps greater concern is the problem that there is currently no tax relief whatsoever for angel investors or angel investor networks who fund start-up or early stage businesses. This means that this form of funding will probably remain unavailable within the South African environment, with ongoing negative implications for entrepreneurial development.”
I know some people who are seriously passionate about South African entrepreneurs that would agree entirely with this. Justin Spratt and Eve Dmochowska are just two to watch who are determined to change the landscape [and I'm betting they will].
So what can actually be done? Government has a role to play for sure. For the rest of us, let us at least consider creative ways to stimulate angel investments for startups. Who knows where it could lead to.
Huge thanks to Oscar Tshifure for bringing the article to my attention. Much appreciated Oscar!
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