SA requires more start-up capital to help technology firms get off the ground and aid the country`s growth targets, say venture capitalists.
HBD Venture Capital - a Mark Shuttleworth-founded firm - says venture capital invested in start-up companies, especially higher risk technology firms, will potentially boost SA`s growth.
HBD investment analyst Sol Bezuidenhout says the contribution that venture capital makes to the broad economy as a whole cannot be denied.
In 2003, venture capital added 10.1 million jobs, a growth figure higher than in any other area. Locally, companies such as Dimension Data and Thawte were started as a result of venture capital.
HBD CEO Julia Long says there is not enough investment into new firms. This would include seed funding and start-up capital.
Funding companies in their infancy has "pretty much" disappeared from the landscape in the past two years, she says. IT, one of the top three sectors that is seeing later stage investment, should be in the top three sectors receiving start-up capital.
One of the challenges facing companies seeking early-stage funding, she says, is that the high cost of telecommunications is a barrier to entry for call centre companies. However, there are alternatives such as voice over IP, but it`s still a barrier because of SA`s broadband capabilities.
Growing, but too slow
David Murray, a partner of a Cape venture firm Cape Venture Partners and representing the Southern African Venture Capital and Private Equity Association, estimates that funds under management this year should reach the R50 billion mark.
By the end of last year, R43.9 billion was under investment and the industry has seen growth of 28% in the last four years. However, only 12% of venture capital in the last six years has been invested in start-up and early stage companies.
"This is really, really low and significantly lower than I would expect to see if benchmarked against other countries."
HBD portfolio manager Eben van Heerden says SA`s venture capital market, which is still in its infancy, was driven by disinvestment in the 1980s. While sophisticated by emerging market standards, and recently driven by black economic empowerment, the country still requires more investments of this type.
"SA has a huge requirement for venture capital," he says.
Innovation Fund seed fund manager Ela Romanowska says this gap is why government is intervening in seed and start-up funding. She says only 16% of funding between 1999 and 2005 has gone into IT and technology ventures.
These types of ventures - high technology and high risk - also offer greater returns. However, government does not have enough data to determine the exact growth potential.
"Technology start-ups have the potential to drive growth," she adds.
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