Government Grants and Funding in South Africa
A small business can on average employ 12 people. The drop in entrepreneurial activity over the past five years is equal to 2.3 million possible job opportunities lost. Small and micro business sectors are the main source of real employment in the economy.
South Africa’s economy needs to inspire entrepreneurship in order for it to grow. By creating an environment that is friendlier to small businesses and actively encouraging the sector, the country is in a better position to create jobs.
Two simple measures that would go a long way to support and develop entrepreneurs is access to finance and improvement of logistics.
Content in this guide
- National Empowerment Fund (NEF)
- Industrial Development Corporation (IDC) Funding
- Small Enterprise Finance Agency (SEFA)
- The Isivande Women’s Fund (IWF)
- Khula SME Fund
- Black Business Supplier Development Programme (BBSDP)
- Incubation Support Programme (ISP)
- National Youth Development Agency (NYDA)
- PDF Download
The government created government funding to extend finances to previously disadvantaged South African’s in order to develop black economic development. Your much needed capital investment could come from government funding opportunities.
Financing a small business, whether you’re starting-up or trying to expand, is a challenge all entrepreneurs go through. Here are a few examples of government funding that focuses on black entrepreneurs:
National Empowerment Fund (NEF)
The NEF is, a part of the government’s development mandate to encourage black participation in business and entrepreneurship. It helps to assist black entrepreneurs in achieving funding. This fund aims to assist black youth, women and men, communities and businesses to achieve sustainable success.
Types of NEF Funding
The NEF has four main channels of funding that consist of subdivisions. These are:
1. iMbewu Fund:
- This consists of subdivision is entrepreneur finance, procurement finance and franchise finance.
- This fund supports black entrepreneurs who are starting up a new business or expanding an existing one.
- This contribution takes the form of offering debt counselling, quasi-equity and equity finance products.
- The funds contribution ranges from R250 000 to a maximum of R10 million
2. uMnotho Fund:
- This NEF funding has subdivisions in finance, new venture finance, expansion capital, capital markets, and liquidity and warehousing.
- This fund is available to black entrepreneurs who manage or own businesses, new ventures, expanding existing business. It is also available to black entrepreneurs who want to buy a share of equity in black and white owned businesses.
- The contributions from this fund range from R2 million to R75 million.
3. Rural and Community Development Fund:
- This NEF fund has subdivisions in acquisition, new venture capital, expansion capital and start-up/green categories.
- The creation of this government fund is to promote sustainable change in social and economic relations along with supporting and developing the rural economy by financing sustainable enterprises and co-operatives.
- This NEF funding ranges from R1 million to R50 million.
3. Strategic Projects:
- This NEF fund has subdivisions of empowerment objectives.
- The aim of the government fund is to increase black participation in early-stage projects.
- These projects need to have economic merit and the ability to deliver on the government’s development mandate.
How Can You Apply for NEF Funding?
NEF funding is available for start-up and existing businesses. It will conduct the following processes when evaluating your business:
- It will conduct a, self-needs analysis to determine how the NEF funding can assist your businesses needs and which offer is best suited.
- You will need to provide an application form and a comprehensive proposal with evidence that supports the commercial viability and financial position of your business.
- After you’ve submitted your application to the NEF, it will assess your information for final approval and receiving of funds.
- The NEF website offers the following checklist to ensure you include everything needed when applying for funding.
- You’ll need to meet all the requirements or your application won’t be successfully considered.
- This process can take up to six weeks.
- If your application is successful, it could take up to three to four months to receive NEF funding.
Contact Details for NEF Funding
- For more information about the NEF fund, visit www.nefcorp.co.za.
- Email general enquiries to email@example.com
- Or call the following numbers +27 (0)11 305 8000 or 0861 843 633 (call centre).
Industrial Development Corporation (IDC) Funding
IDC funding is available to those who have an existing business or wish to start a new one; those that have the visions of job creation along with serving previously disadvantaged communities.
The IDC achieves its goals by providing finance for industrial projects, promoting partnerships between and across industries within SA and internationally. It focuses on projects that finance and facilitate, that lead to the creation and innovation of new industries. It also focuses on diverse expertise to drive growth in priority sectors and to take on higher-risk funding projects.
The IDC supports B-BBEE and actively boosts and promotes black-owned and managed business along with those with employment equity. It aims at developing the skills of black employees and business owners, by supporting local, regional, provincial and national government projects.
The Different Types of IDC Funding
1. Development Funds.
- These funds aim at supporting projects that will have high long-term impacts on the economy through growth.
- Its aim is to bring projects out of the informal sector and into the economic mainstream.
- Please find more information on these funds and links to the online application process here.
2. Agro-Processing Competitiveness Fund
- This government fund provides support and helps businesses to achieve increased competitiveness, business growth, job creation and development in the agro-processing and beverages industries.
- For further information and a link for the online application process please visit here.
3. Product Process Development Scheme (PPD)
- The aim of this fund is to provide financial support to micro and small enterprises where the total assets are below R5 million, annual turnover is less than R13 million, and the business employs less than 50 people.
- The fund intends to promote innovation and technology development with financial support.
- This enables the development of new products and/or processes.
- For more information on the PPD Scheme continue to the website here, to apply for funding, please visit their website http://www.idc.co.za/, click on “Online Funding” and follow the prompts.
4. Risk Capital Facility Programme
- IDC Funding aimed at providing risk finance to businesses owned by previously disadvantaged individuals that offer substantial job creation potential.
- For more information on the Risk Capital Facility Programme continue to the website here, to apply for funding please visit their website http://www.idc.co.za/, click on “Online Funding” and follow the prompts.
This programme provides three channels of funding:
- Direct channel operating alongside IDC’s mainstream business
- Through a niche fund channel
- Third party channel.
5. Transformation and Entrepreneurship Scheme
- This fund finances marginalised groups of South Africans such as women and the disabled.
- The aim of the fund is to gain access to finance that will help to develop and grow your business as a start-up or through expansions or acquisitions.
- This IDC funding also offers mentorship and non-financial support including business planning, training and mentorship.
- For more information on the Transformation and Entrepreneurship Scheme continue to the website here, to apply for funding please visit their website http://www.idc.co.za/, click on “Online Funding” and follow the prompts.
6. Green Energy Efficiency Fund
- The fund aims at improving energy efficiency and helping South Africa become a low-carbon economy.
- It aims to drive down energy related costs, improve production capacity, operational effectiveness and competitiveness, which would aid in job creation.
- For more information on the Green Energy Efficiency Fund continue to the website here, to apply for funding please visit their website http://www.idc.co.za/, click on “Online Funding” and follow the prompts.
How Can You Apply for IDC Funding?
The IDC government funds aims are: Job creation potential, rural development, urban renewal and poverty alleviation, the employment of women and youth as well as up-skilling of employees. All of the projects that the IDC funds, need to show economic viability and sustainability and should target previously disadvantaged groups, women, people with disabilities, low income working groups and marginalised communities.
Contact the IDC for funding
- For more information on any of the funds visit www.idc.co.za, click on “Online Funding” and follow the prompts.
- You can also phone the IDC call centre on 0860 69 38 88
- Or email firstname.lastname@example.org.
Small Enterprise Finance Agency (SEFA)
Do you have an existing small business or want to start one? SEFA are piloting direct finance to entrepreneurs wanting to start or grow a business.
Types of SEFA Funding
SEFA provides direct funding to business in loans between R50 000 and R3 million in three different ways: Directly to business owners, via retail finance intermediaries, and through banks using credit guarantee schemes including Khula.
1. Bridging loans
- These are short-term loans, which provide working capital.
- The types of working capital offered by this government fund include stock purchases and operating overheads. This loan is offered for only one year.
2. Term loans
- This government fund is a loan of a specific amount and has a specified repayment schedule, amount and interest rate.
- This type of SEFA funding is normally used to finance your assets that have a medium to long-term lifespan, for example machinery, vehicles, office equipment.
- Term loans can be used to expand your business or for acquisitions.
- This loan has a repayment range of one to five years.
3. Structured finance
- Use this SEFA facility for funding that falls outside the parameters of the term and bridge loans.
- Provided by a debt facility, it can be repaid over a period of five years and tailored to your unique requirements.
- The following businesses can’t apply from the benefits of this fund: Liquor, tobacco, gambling, sex trade, armaments, speculative real estate, leveraged buy-out funds, and illegal trade.
- This includes any business activity that would tarnish SEFA’s reputation, political organisation, entrepreneurs under debt review, insolvent business owners and business.
How to Apply for SEFA Funding?
Your start-up and existing survivalist, micro, small and medium business must meet these criteria:
- Submit a completed application form
- Submit a completed comprehensive business plan that meet SEFA’s application requirements. Include initial and supporting documentation.
- Demonstrated ability to repay loans
- Personal and business credit references
- The applicant must be an owner manager
- The applicant must be a South African citizen with ID documents or a valid permanent residence. Alternatively, the business can be in the control of a South African citizen.
- The business must be legally constituted including sole traders with a fixed physical address
- Must have contractual capacity
- All operations including projects, programmes activities etc. must be within South Africa
- The enterprise must be compliant with accepted corporate governance practices
- A trust that has within the trust deed the power to borrow money and pledge assets as security and to give surety for borrowing.
Contact SEFA for funding
- Visit www.sefa.org.za for more information on regional branches, how to apply, exclusion criteria, products and services available. To contact head office, call 0860 00 73 32.
- To apply for Sefa Funding visit their website http://www.sefa.org.za/, you can either submit your application online or you can print it out and submit to their physical offices. You can see the contact information for both online and physical submissions for all their funds here.
The Isivande Women’s Fund (IWF)
This government fund aims at accelerating women’s economic empowerment by supplying cost effective, user friendly and responsive, available finance. The IWF offers support services to improve the success of your business.
It targets business that are starting up, expanding, rehabilitating, franchising and those that need bridging finance. The aim of the fund is to create self-sustaining black and women owned businesses by offering you primary financial and non-financial support.
How to Apply for IWF Funding
The women owned companies need to meet the following criteria to be eligible:
- Operational for 6 months.
- Needs early stage capital for expansions and growth.
- 50% plus one share owned and managed by women.
- Have potential growth and commercial sustainability.
- Improving social impact with employment creation.
Contact IWF for funding
- Businesses that are eligible and need funding between R30 000 and R2 million can submit their application.
- Apply to the IWF through the IDF website or call +27 (11) 772 7910.
- Download the application form here www.idf.co.za.
Khula SME Fund
Offered by Khula Enterprise Finance Ltd, this government funds aim is to grow and increase sustainability of small businesses.
The purpose of the fund is to:
- Offers SME’s early-stage and expansion capital.
- Offer early-stage debt funding to business that meet the criteria.
- Support SME’s in rural and peri-urban areas.
- Improve the business owners access to finance.
- Grow businesses so they can create new jobs.
- Encourage meaningful economic involvement of black South Africans.
- Foster entrepreneurship for men and women within the SME sector.
How to Apply for Khula Funding?
The following are the requirements for business wanting to apply for Khula government fund:
- South African SME who have a majority share in their company and who are seeking to start and/or grow their company.
- South African SME’s who have a majority share in their business that is in rural areas.
Contact Khula for funding
- Business that are eligible and need funding can contact Khula at: +27 (0)11 807 8464.
- To apply for Khula funding, visit the SEFA website http://www.sefa.org.za/, you can either submit your application online or you can print it out and submit to their physical offices. You can see the contact information for both online and physical submissions for the Khula Fund here.
Black Business Supplier Development Programme (BBSDP)
The Black Business Supplier Development Programme (BBSDP) is a cost-sharing grant that offers black-owned businesses improve their competitiveness and sustainability.
This government grant does not support start-ups, only the expansions of existing business.
The aim of this government grant is to fast-track small and micro-enterprises, encourage links between black-owned businesses, corporates and public sector as well as to complement affirmative procurement and outsourcing.
It provides black entrepreneurs with a grant to a maximum of R1 million.
Do You Qualify for the BBSDP government grant?
- Your business must be a CIPC Registered company or corporation
- 50.1% black owned (Black, Indian or Coloured) or more
- Management team 50% Black
- Trading for at least one year and have financial statements to prove turnover.
- Turnover must be between R250k and R35m per annum
- Valid SARS tax clearance and Vat registered if turnover is greater than R1 000 000.
How to apply for the BBSDP government grant
The following are the documentation that you need to apply for the BBSDP grant:
- CIPC Company registration documents (proof of ownership and shareholding)
- Certified ID of all Directors/ members
- Certified ID of all managers/ staff training (if applicable)
- Certified financial statements for latest financial year (three years if available)
- Management accounts for current year
- Valid SARS tax clearance (with 3 months to expiry or get a new one)
- VAT registration document (where applicable)
- 3 Months bank statements
- 3 Quotations (comparable) for every intervention
- Declaration appointing Graphit as the consultant.
- Company diagnostic questionnaire and application typed on template supplied by Graphit. Please send back as a Word Document
- Domicillium form
- Bank confirmation of your 50% contribution (Will you be able to get finance for your 50% or 20% contribution.) (Clear credit record)
To apply you will need to email all your documentation, all your documents need to be in a PDF format except your application form, which needs to be in word format. Please send them as individual documents.
Incubation Support Programme (ISP)
Designed to create and develop successful enterprises. These are enterprises with the ability to revitalise communities and local economies.
Do You Qualify for the Incubation Support Programme?
In order to qualify for the Incubation Support Programme you need to be:
- A registered legal entity in South Africa
- A registered higher or further education institution
- A licensed and/or registered science council.
This programme is also available to applicants who want to establish their own incubators or wan t to grow and expand existing ones. The incubator may either offer physical and/or virtual incubation support services. The incubator may be a:
- Corporate incubator
- A private investor’s incubator
- An academic or research institution incubator in partnership with industry
The incubator must be focused on establishing and/or growing enterprises that will graduate to sustainable enterprises.
How To Apply for the Incubation Support Programme
- Applicants can contact the DTI directly or appointed support agencies.
- They can assist you with the application process.
- You need to submit a completed application form to the DTI.
- This must outline the objectives of the project and demonstrate how the incubator would function and be sustainable.
- Submit your applications to the Incubation Support Programme Secretariat at the DTI.
Contact Incubation Support Programme
- Contact: Semakaleng Mangwedi
- Email: SMangwedi@thedti.gov.za
- Contact Number: +27 (12) 394 1073
- Contact: Ambani Ramaru
- Email: ARamaru@thedti.gov.za
- Contact Number: +27 (12) 394 1119
Application enquiries: email@example.com
Claims enquiries: firstname.lastname@example.org
National Youth Development Agency (NYDA)
This government grant is moving away from grants for youth and shifting towards mentorship and development programmes. Grants are however, still available for youth entrepreneurs.
Types of NYDA Funding
NYDA awards individual grants to formal and informal businesses that are in the start-up or development phase of their business. These government grants get awarded to co-operatives, which is an autonomous association of people united to meet common economic and social goals through a jointly owned and democratically controlled enterprise. Additionally, another option is community development and facilitation projects.
Do You Qualify for NYDA funding?
- You need to be eighteen years old at the time of application
- Need the grant for business start-up or growth
- You need to be between the ages of 18-35 years with necessary skills, experience or with the potential skill appropriate for the enterprise
- South African citizens and resident within the borders of South Africa
- Are involved in the day-to-day operation and management of the business
- Require grant from NYDA of not less than R1 000 and not more than R100 000.
Upon approval of the grant, if you are employed full time, you could be required to resign from employment and provide grant officer with proof of resignation. This is a requirement so that you can focus an appropriate amount of time on your venture.
How to apply for NYDA funding
NYDA government grants are available to entrepreneurs or co-operatives that meet the following criteria:
- Applicants must be a youth (18 to 35 years old). They must have the necessary skills and experience or show the potential of skills for the business and industry in which they wish to operate.
- Applicants must be South African citizens with ID documents and operate their business within South Africa.
- The applicant must need the grant to start or grow their business i.e. no other source of capital.
- Applicants must involve themselves in the operation and management of the business on a day to day basis and must work on a full-time basis.
- The business may be formal or informal and categorised as a micro-enterprise.
- The enterprise must show, or have potential to be commercially viable and sustainable
- Applicants should be sole traders or in the case of groups have a minimum of five people.
Contact details for NYDA funding
For more information on the NYDA government grant visit www.nyda.gov.za or contact the call centre on 0800 52 52 52.
Learn from entrepreneurs who started in the same place as you and have made it to the big time: 10 Dynamic Black Entrepreneurs
6 Money Management Tips For First-Time Entrepreneurs
That $5 coffee every morning isn’t taking you to the next level any faster than brewing a pot at the office.
How many times have you been told that saving money is a good thing? Financial specialists recommend that you save a bit of money every month, but that’s easier said than done. After all, it’s not uncommon for people to live paycheck to pay cheque.
However, if you want to start a company, you’ll need to break away from this cycle and start budgeting and saving. At times, this will be a trying task, but it must be done if you want to invest in your future as an entrepreneur.
If you want to start managing your money more effectively and set yourself up to become an entrepreneur, follow the six tips below. With these techniques in your arsenal, you’ll start so see immediate changes, and you’ll set good behaviours in motion that’ll serve you throughout your career as an entrepreneur.
1. Prioritise organisation
When you are organised, you can track every facet of your finances. Record all of your financial information in one place so you can refer to it and keep track of your progress.
When you chronicle all of your financial information, you may want to try and organise it by category. For example, when you are recording your current costs, you can categorise them as “urgent” and “future.”
Not only will this system help you stay on top of your personal finances, but it’ll prepare you for entrepreneurial success because it’s a directly transferable skill.
Related: Smart Money For Small Businesses
2. Check your credit
According to a recent MoneyTips survey, nearly 30 percent of people don’t know their credit score. If you are among this group, it’s time to request a free credit report. Once you know your number, assuming money’s tight, feel free to use a few do-it-yourself credit repair techniques to quickly improve your score.
Understanding your credit score and improving it to the best of your ability is paramount when it comes to money management. A little-known fact among aspiring entrepreneurs is that the funding a new business receives is often dependent on the founder’s credit score.
3. Save where you can
People often cringe when they think about cutting back. Fortunately, there are several painless ways to save. Look at your daily habits and see if you have any spending trends. For example, if you spend $5 every day on lattes, you might consider cutting back and only having the expensive latte every other day. Slowly, you’ll get used to this new habit, and your bank account will reap the rewards.
4. Search for additional information
Subscribe to websites and follow podcasts that offer advice on money management. Also, keep your eyes peeled for informative outlets that speak directly about entrepreneurial finances and follow them, too.
5. Set long- and short-term goals
Have you ever noticed that people want to reach their goals in as little time as possible? If you pick up almost any given health magazine, it’ll claim that it can help you achieve extreme results in little to no time.
Unfortunately, crash diets are often ineffective, and “get rich quick” money management techniques often lack substance.
It’s hard to accept that your goals will take time to accomplish, which is why you create short- and long-term goals. In either case, aim to make goals that are specific, measurable, attainable, relevant and time-based. Ideally, accomplishing your short-term goals will give you the positive feedback that you need to continue striving for your long-term goals.
6. Find a mentor
If you manage your personal finances and entrepreneurial finances, one thing is certain – at times, it will feel like you can’t keep up with everything. Financial planning can be difficult, and it’s not uncommon for it to feel overwhelming.
As an individual, you can seek out mentors that can help you with personal finances. As an entrepreneur, you can continue to work with these people or seek out more established financial consultants that provide you with guidance you need to run your business.
Managing your finances is a trying and rewarding experience. It will feel messy at times, but the more you practice, the more you’ll improve your personal finances and set yourself up for entrepreneurial money management success.
This article was originally posted here on Entrepreneur.com.
How To Raise Working Capital Finance
There are more than 150 working capital funds available for SMEs in South Africa. Here’s what you need to know to access them.
A healthy cash flow is the life blood of a business. The reality is that most businesses experience cash flow problems from time to time, which could be caused by a structural problem in your supply chain, inadequate debtor controls, poor pricing structures, bad planning, too much capital being tied up in stock or possibly the impact of unplanned growth on your existing resources.
Whatever the reason, the good news is that there are more than 150 different working capital funds available for SMEs in South Africa. Working capital loans are short-term loans that are designed to provide financial bridging to address cash flow needs.
The more you understand about how these funds work, the better you will be able to identify the most appropriate option for your specific needs.
Overdrafts and credit cards
Overdrafts and credit card facilities are a good option for relatively small, short-term cash flow problems. Most banks are willing to provide profitable businesses with overdrafts and credit facilities and you will only be charged interest on the money you use. Some banks charge a small monthly fee for these facilities even if you don’t use them, but this is a small price to pay for the convenience of being able to meet financial obligations.
Related: Equity Crowdfunding In SA Explained
Also known as getting upfront cash to fund the work for an approved contract. If the reason for the cash flow problem is high sales volumes that result in a temporary cash flow issue, contract finance can be a good option. Contract financiers want to know that your client is reputable and has a good payment history. They’ll also want assurance that you have the knowledge and experience to fulfil the terms of the contract.
First prize is contract finance that enables you to control both the finance and the contract work although in some cases the lender will insist on controlling the finance and may even want involvement in managing the project. Most contract financiers charge an interest rate linked to prime and you will also be charged for drawing up cession documents if this is relevant.
Debtor finance or invoice financing
Also known as getting cash while waiting for customers to pay invoices. If the cash crunch is caused by customers who will take a long time to pay you, debtor finance can be useful. In this case, unlike contract finance where the finance is provided prior to the work being completed, debtor finance requires that the work has already been done and that the customer has been invoiced. As with contract finance, the credibility and credit history of the client is key to lenders as they rely on their ability to pay your invoice.
On average you can raise between 75% and 80% of the value of the invoice within a day or two of sending the invoice to your customer. There is usually an administrative fee to be paid plus interest on the loan — it can be an expensive way of getting finance but it is better than waiting 90 or 120 days for your customer to pay you if you have cash flow constraints. Debtor financiers offer two options — invoice discounting and factoring. Factoring is when your client pays the lender who then returns the outstanding portion of the invoice to you (less their fees).
Invoice discounting is where the customer pays you and you pay the lender i.e. the client does not know that you have borrowed against their invoice. There are usually big penalty costs for late payments. Be aware that if the client does not pay by the specified date agreed with the lender, you will incur additional penalty costs.
For businesses that operate in the retail sector and generate their revenue from debit or credit cards or EFTs there are lenders who provide loans that are repaid by deducting a small percentage of daily sales. You will need to generate a regular income of at least R30 000 monthly to qualify for this type of finance. The useful aspect is that repayments vary according to income generated. During busier months, you’ll pay more, and less during quiet periods.
Term loans are another popular way of raising finance to cover cash flow gaps. The money is loaned for a fixed period and you agree to repay at regular intervals. Interest charges are usually linked to prime and the rate is linked to your risk profile. The duration of term loans varies according to the business’s needs and lender’s terms.
You will be expected to provide collateral to raise a term loan. Lenders will also check your credit rating and financial statements, business plan and possibly the order book before they agree to lend you money.
What working capital funders expect
The key to obtaining working capital funding is understanding the lenders’ risk. To minimise their risks, lenders will require security for the loan. Providing collateral is often difficult for entrepreneurs who do not own property or have assets or investments that can be ceded to the lender for the duration of the loan.
Lenders will ask you for a list of personal assets and liabilities and based on this information, they may ask you to sign personal surety for the loan. If you do not own sufficient assets, you’ll need to find someone who does who is willing to stand surety for your loan. This means that if the business fails to repay the loan, the lender will approach the person who signed surety, to settle the debt.
For terms loans, retail finance, overdrafts and credit cards, the lender will focus on the financial strength of your business and its trading history. They usually only consider companies that have been in operation for at least a year and can show that the business is profitable, has a regular income and achieves good credit scores. For contract finance and debtor finance, lenders focus on the quality of your client and may fund working capital advances to businesses that are not yet profitable.
Working Capital Loans
Working capital loans are short-term loans that are designed to provide financial bridging to address cash flow needs. The more you understand about how these funds work, the better you will be able to identify the most appropriate option for your specific needs.
Finfind is SA’s leading access to finance solutions for SMEs. This revolutionary online platform links finance seekers with matching lenders, providing easy access to over 200 lenders and over 350 loan options. Finfind is supported by USAID and sponsored by the Department of Small Business Development.
Go to www.finfindeasy.co.za to find the business finance you need. It’s free and easy to use.
Equity Crowdfunding In SA Explained
Here’s a brief snapshot of what it is and how it could benefit your business.
As an entrepreneur, finding the right funding for your specific start-up is hugely important.
With momentum around crowdfunding growing on a global scale, there is talk about equity crowdfunding becoming a viable option in South Africa. This is very good news indeed, as it has the potential to significantly boost economic growth.
Here’s a brief snapshot of what it is and how it could benefit your business.
Equity crowdfunding is a simple concept: Members of the public (the crowd) are offered equity (shares) in a company (generally a start-up) in exchange for funding. The company then uses that funding to kick start the business.
Donations-based crowdfunding and rewards-based crowdfunding have started to gain some traction, with local players such as Thundafund (rewards based) and Backabuddy (donations based) leading the charge; however South Africa is still lagging behind much of the rest of the world, mostly due to the lack of precise legislation around crowdfunding.
The Financial Services Board are yet to decide how they will regulate crowdfunding in South Africa, and so interested parties have been hesitant to engage with crowdfunding, with no-one attempting equity crowdfunding to date.
Another major hurdle is that private companies are not allowed to offer their shares to the public, and the difficulty of registering as a public company is simply too great for a start-up to even bother with. The reason for such stringent requirements though, is to essentially stop fraudulent schemes. The last thing you would want to do is fund an extra round of piña coladas in Mauritius for the opportunistic con-man – the government is therefore right in trying to regulate this area.
There is, however, light at the end of the crowdfunding tunnel – a new start-up Uprise.Africa aims to launch towards the end of this year. Uprise.Africa will be the first of its kind in South Africa in that it will offer the man on the street the ability to invest in a startup of his choosing and receive equity (shares) in exchange for that investment. This is great news for start-ups, as the public will have a vested interest in the success of the business.
Take the example of a microbrewery wanting to launch their brand and get off the ground: Instead of the public (crowd member) receiving a reward in the form of a case of beers for their contribution, they will receive shares.
They will (probably) order a case of beers from the microbrewery and tell their friends to order beer from the microbrewery, as they will get a financial benefit if the microbrewery succeeds. The microbrewery, as a result, receives funding three times over instead of once – which is a powerful tool for growth.
Essentially, the crowd will be a business partner with the start-up, and in so doing, the first customers of the start-up are already waiting in the wings.
The World Bank recently predicted that the market potential in Africa for crowdfunding will be up to $2.5 billion by 2025. Equity crowdfunding in South Africa will hopefully tap into that and unleash significant potential in the startups that are based here.
The hope is that the regulators, when they do eventually regulate crowdfunding, do it in such a way that it is not a death knell for the system that has the potential to significantly boost our economic growth.
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