Securing sufficient capital to transform ideas into a viable business venture is often a major deterrent for entrepreneurs. One avenue for entrepreneurs is venture capital.
Venture capital is start-up or expansion money provided to small businesses by venture capitalists in exchange for equity. Venture capitalists seek out well-thought-out proposals and business ideas from entrepreneurs. Businesses that are typically funded have high-growth and global-scaling potential.
Ben White co-founded Venture Capital for Africa (VC4Africa) with Bill Zimmerman in 2008 after realising that a gap existed between micro-finance and private equity. VC4Africa offers a potential solution, with an accessible networking platform that connects investors and entrepreneurs for new ventures.
“If you are an entrepreneur working to build a scalable enterprise, but require anything less than a million you are basically left to operate alone in the dark. With the rise of mobiles, and increasing penetration rates of internet, it is possible to use technology as a connector and enabler,” said White.
Venture capital makes it possible to for anyone anywhere in the world to make a meaningful contribution to small and medium enterprise (SME) development, said White.
Erika van der Merwe, chief executive officer of South African Venture Capital & Private Equity Association (SAVCA), says the venture capital model has always been popular. “The provision of start-up capital that is combined with mentoring and strategic guidance is a powerful means to bring innovative, scalable businesses to life and to ensure their long-term success,” she said.
“VC4Africa uses a peer-to-peer approach in which entrepreneurs learn from one another. At the same time, and as the community grows, entrepreneurial networks become more visible and accessible. This is essential if you want to offer otherwise critical business support services efficiently,” said White.
However venture capital is not a substitute for obtaining a bank loan.
“Venture capital funding (equity funding) is not comparable with a bank loan (debt funding); each serves a different purpose, and has different implications for both the provider and recipient of capital,” said van der Merwe.
“By definition, venture capital funding is risky. It is difficult to know at the outset whether a particular venture will be successful or not. Anecdotally venture capitalists refer to a success rate of 2 out of 10, but it really depends on circumstances and the industry,” said van der Merwe.
It is very important to have a ‘cultural fit’ between the business and venture capitalist and to share a common vision.
VC4Africa has facilitated start-ups in 159 countries around the world, including South Africa in a number of different sectors. Its interactive map (available at https://vc4africa.biz/ventures/ ) allows you to zoom in on venture start-ups around Africa. See a screenshot below:
In Johannesburg, there are 45 business ventures ranging from Gksolar that supplies portable solar power units in Chislehurst to Tubular Emergency Shelter Systems (TESS) in Lenasia. TESS builds 16 m2 emergency low cost transitional shelters.
The VC4Africa community currently supports more than 1 000 ventures in more than 30 African countries. Venture capital continues to grow in popularity as entrepreneurs realise that bank loans are not the end of the world.