Policy reforms would boost high-growth start-up sector, says investor boss
Endeavor SA MD Alison Collier highlights areas in which regulatory change could increase access to capital
SA’s burgeoning high-growth start-up sector could attract more foreign venture capital and create more jobs if the country’s intellectual property, exchange control and visa regulations were streamlined to support it, says the local boss of a leading US-based venture capital investor.
Endeavor SA MD Alison Collier says SA’s venture capital has been shooting the lights out in the past few years, and the sector has huge potential to grow revenue, create jobs and address mass market challenges in SA. But there are three areas in which regulatory change would really assist SA start-ups, unlocking better access to capital and making it easier to expand globally, she said.
International venture capitalists tend to be comfortable investing only in start-ups domiciled in countries they know, such as the US, UK, Europe and Singapore so many emerging market high-growth start-ups look to move their legal headquarters to those jurisdictions, while keeping their operations at home. However, SA’s intellectual property, exchange control and tax regimes make that cumbersome and costly for such entrepreneurs.
The local venture capital market was only 0.15% of the $643bn global venture capital market in 2021. SA’s regulatory environment is more restrictive than in competitor countries. The local industry has proposed policy reforms, including changes in intellectual property legislation as well as Reserve Bank exchange control regulations and tax regimes affecting start-ups.
Collier said reforms to the work visa system are also urgently needed to enable start-ups that are scaling up to bring in highly skilled foreigners to help them expand their businesses and train personnel.
Bright future
Domestic institutional investors such as the Public Investment Corporation and Eskom Pension Fund are showing increasing interest in exploring the high-growth entrepreneurial sector and signing cheques, she said.
“The trends we’ve been seeing in the past year in SA in the venture capital asset class are really interesting and pave the way for a bright future for high-growth entrepreneurs.”
New York-based Endeavor focuses on high-growth, high- impact entrepreneurs, supporting them with the mentoring, finance and access to markets that they need to scale up. The SA firm, founded in 2004 by SA entrepreneurial luminaries such as Adrian Gore, Isaac Shongwe and Paul Harris, has about 100 businesses in its portfolio now.
Endeavor SA announced on Tuesday that its two-year-old Harvest Fund II portfolio of 17 companies delivered 123% revenue growth and created 2,800 jobs in 2022. These companies raised capital of altogether R7bn and achieved a combined R5.7bn in revenue.
Endeavor SA acts as a catalyst to bring other funders into these companies, taking a smaller equity slice itself.
“There is a plethora of examples of real problems that they are solving for the mass market,” said Collier.
Largest distributor
Overall the companies in the Endeavor portfolio grew revenue 78% last year and jobs — three-quarters of which are black SA youths — 39%. Collectively they delivered almost R12bn in revenue. Their focus is on issues such as financial inclusion, enabling broader access for goods and services and creating access to markets.
One of the investee companies, Yebo Fresh, an end-to-end order delivery service for spaza shops and other township entrepreneurs, now has 7,500 customers on its platform in 25 townships, deals with 150 suppliers, and is on its way to becoming the largest distributor of fresh goods and other fast-moving consumer goods in townships.
Yebo Fresh founder Jessica Boonstra said the township market is estimated at about $15bn, with half-a-million entrepreneurs, and “we have cracked the code of how to do e-commerce in a challenging market”.
Another business, Sandton-based MFS Africa, has significantly reduced the cost of cross-border payments and expanded its services to 42 African markets, linking these to the US, Asia and Europe.
