Bandwidth Barn wants 'angel fund'

Cape Town technology incubator the Bandwidth Barn is exploring the possibility of creating an “angel fund” to raise finance to turn new ideas into proper businesses, says Bandwidth Barn executive director Chris Vermeulen.

“The big problem in SA is that there is very little in the way of early stage funding to take an idea, help build a prototype of the product and then create a proper business out of it.

“Most South African angel fund networks are closed loops, meaning you have to know someone connected with one in order to access it,” Vermeulen told a group of visiting American students from the University of Georgetown Business School.

Angel funding generally means a wealthy individual who helps finance a business idea. However, Vermeulen wants the Bandwidth Barn to become its own angel funder in order to help start-up businesses that come through its doors.

“I have seen many ideas that had a very strong potential to become great companies, but the lack of early funding has meant they have wilted before realising what they could have become,” he says.

Vermeulen says early stage funding over at least a three-year period was essential to get enterprise-type software and technology products off the ground and gathering market traction.

“What we are seeing now is that most developers in SA appear to be aiming at developing software for the mobile and the social media markets in order to make a quick buck, but this is not necessarily a long-term sustainable solution for the sector.”

Vermeulen says placing an angel fund within the Bandwidth Barn would make sense, as it is able to control the finances, monitor company performance and protect investors' monies.

He also says this is part of the leadership characteristics that technology incubators should develop to encourage growth and investment in the technology sector.

The students from Georgetown University are completing their research requirements for their executive masters of leadership degree.

According to their research, the Bandwidth Barn shares many of the characteristics that US technology incubators exhibit, although there are some differences.

“Most US technology incubators are either located within or associated to a university,” says student Marie Huard. “Only about 6% of the 1 400 incubators there are located outside of universities and this has to do with the university programmes and the funding models used.”

Another student, Kristin Hiffert, says research shows that those incubators with a “university light” touch appear to be more successful in generating sustainable business than those that are owned or operated by the universities.

“This has probably to do with the resulting administration and conditions that a university that owns an incubator places on it,” she says.

The students also pointed out the Bandwidth Barn's definition of successful companies are far stricter than found in the US.

In the US, incubators rate a company as successful if it has managed to survive only 12 months, “while with the Bandwidth Barn it is at least three years,” says Huard.

A third student, Daniel Stiller, says the Bandwidth Barn staffing levels and its ability to conduct its own administration appear to be more robust than found at incubators in the US.

“US incubators generally only have two or three direct employees, with most of the mentoring and consultation being done by volunteers or the university with which they are affiliated. Here, the Bandwidth Barn has to do everything itself,” he says.