South African Startup Scene Lacks Funding, But More Women Entrepreneurs Have Emerged

Written by Tom Jackson

 

A recent survey into the South African startup scene shows that there is a lack of funding for new businesses in the country, and much needs to be done by the public and private sectors to better support South African entrepreneurs.

While there is good news in terms of the narrowing gap between male and female entrepreneurs in representation, most of the findings are negative and require urgent efforts on the part of government and others who can provide business development support to small and medium-sized businesses.

The recently-released Real State of Entrepreneurship Survey offers a reality check to the South African entrepreneurship scene, according to the CEO of the company behind it.

Every year, the Johannesburg-based startup training and investment company Seed Engine surveys entrepreneurs in South Africa to gauge their sentiment, and find out what they think is going well and badly in the local scene.

Small and medium-sized enterprises (SMEs) are considered vital to the future of South Africa’s economy, with the National Development Plan (NDP) – launched by the government with the aim of eliminating poverty and reducing inequality – suggesting such businesses should create 90 percent of the new jobs required to bring unemployment down to six percent from the current figure of over 25 percent by 2030.

The survey, however, paints a less than positive picture, suggesting there is still much to be done if the country’s SMEs are to grow and scale in order to compete successfully.

South African startup scene
Many South African entrepreneurs struggle with funding. Photo – Seedstars

Seed Engine CEO Donna Rachelson says it constitutes a reality check for the space, which is the subject of much hype as South Africa leads in terms of startup investment on the continent.

South African small and medium-sized businesses employ far fewer people than they should, which is mainly down to their lack of revenues, the survey found. Sixty percent of the entrepreneurs sampled work full-time, yet do not earn revenue, a very worrying statistic. Meanwhile, 14 percent of entrepreneurs have no customers at all, with the majority having less than 20.

“This aligns to the low revenues that we are seeing in the businesses and highlights that business basics may not be in place,” the report said.

To solve this problem, Seed Academy is calling for more impactful business development support to ensure entrepreneurs have the robust business basics needed to increase success rates. Indeed, many entrepreneurs said they require education specific to the practicalities of running a business, such as marketing support and business planning.

Rachelson said centres for entrepreneurship at technical and vocational training colleges were making strides in entrepreneurial education, but suggested both the public and private sectors needed to look at what more could be done.

Half of the entrepreneurs surveyed reported having already failed with at least one business, while a decline in youth-owned businesses also emerged as cause for concern given South Africa’s dire unemployment figures.

South African startup scene lacking funds

Lack of funding is one of the major issues for South African entrepreneurs, in spite of the fact that startups from the country are more likely to secure investment than their counterparts elsewhere on the continent.

Indeed, many are not even bothering to try given the constraints. Only 18 percent of the entrepreneurs surveyed have attempted to secure funding from banks or development funding institutions.

“Some entrepreneurs indicated that they simply don’t know where to go for funding, especially in light of the fact that most early-stage business funding requirements are below the ZAR100,000 (US$6,500) threshold,” Rachelson said.

“There is certainly a case to be made for funding providers to revise certain requirements to better accommodate the unique needs of small and early-stage businesses. Of course, one unfortunate implication of self-funding is that growth potential is limited to the owner’s own pocket and diminishes the ability for a small business to increase capacity, hire more staff, and make a more meaningful impact on the South African economy.”

She called for action across the board in addressing all these problems if SMEs were to contribute to South Africa’s economy in a meaningful way.

“Funding institutions still need to do a lot to market themselves, simplify their processes and assist entrepreneurs become funding-ready. In addition, corporate South Africa has a key role to play in ensuring the programmes they offer as part of enterprise and supplier development (ESD) are relevant, uniquely crafted and add real value to entrepreneurs,” said Rachelson.

There were at least some positives, notably in the representation of women amongst the entrepreneurs surveyed.

“Encouragingly, we are seeing the gap between the number of male and female entrepreneurs start to narrow as women represented 47 percent of entrepreneurs surveyed,” Rachelson said.

“This gives some indication that efforts focused on the development of women owned businesses are beginning to pay off. Similar initiatives are now urgently needed to develop youth entrepreneurs so that entrepreneurship is viewed as a ‘real’ career option.”

In general, however, it was mostly bad news, issuing a warning to the sector that all is not well, in spite of the hype, and that there is much more work to be done.

Tom Jackson is co-founder of Disrupt Africa, a news and research company focused on the African tech startup ecosystem.

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