Funding is the number one challenge facing ICT entrepreneurs starting out in the market, and a complicated regulatory environment makes it hard to grow beyond the initial stages.
This is according to various ICT business incubators, who say start-up costs are available, but often difficult to secure.
Robynne Erwin, CEO of Durban-based ICT incubator SmartXchange, says lack of capital and access to funds is the biggest hurdle in this space. “Small businesses are extremely risky and any bank will consider its return on investment (ROI). Government is playing a role and trying to encourage banks to go 50/50, but it's challenging operating in that kind of system.”
Chris Vermeulen, GM of ICT incubator Bandwidth Barn, says funding tops the list of challenges for small companies. However, he adds there's often an expectation from young entrepreneurs that if they come up with a good idea then someone is going to fund it.
“What we try to explain from the beginning is that if you don't get funding from government or a private investor, will you still be able to go ahead with the business?
“It's difficult for start-ups to carry themselves until they get their first customer, then it becomes easier to get funding.”
Teboho Mafodi, founder and director of the Rehlohonolo group of ICT companies, says: “There are funding opportunities provided by government and private sources, but few people are benefiting from them.” He explains this is because of stringent investor requirements, and entrepreneurs being unsure of where to get funding.
Mafodi adds that other challenges include obtaining business within the major corporate or private sectors and getting the required training to actually run and manage a business effectively.
Related to this is an understanding of company financials, especially for ventures started by technology specialists, adds Erwin. “For a small business which has taken the first step, the next priority is getting the back-office right, because if you've studied technology, why would you study accounts?” She says getting the business to function efficiently and compliantly is a major challenge.
Concept to commercialisation
Roger Norton, administrator at Silicon Cape, says incubators can be helpful in lowering the barriers of entry for ICT entrepreneurs in SA. “By grouping small companies together, they can provide shared resources.” This includes renting office space by the month and offering community phone lines and board rooms.
“Incubators also provide guidance in entrepreneurial aspects like writing business plans and approaching potential clients.”
However, Femke Pienaar, acting CEO of The Innovation Hub, says when looking at incubation, there's an entire value chain that needs to be appreciated. “Incubation is a downstream activity in the whole process of creating an economy. In terms of the current commercialisation of technology and innovation, there's a very well accepted and acknowledged gap from the innovation side to the commercialisation side.”
Barlow Manilal, CEO of the Automotive Industry Development Centre, notes that a lot of people consider funding R&D projects or small entrepreneurs risky, especially with the success rate not being very high. “They're reluctant to give it a shot and spend money if only two out of every 10 are likely to come out at the other end.”
Costly ideas
According to Pienaar, the value of intellectual property (IP) and related regulatory issues are also causing difficulties. “It's seldom that an entrepreneur is also an innovator. So often there's an institution or individual developing a new technology, and they own the IP, and then you bring in an entrepreneur that wants to take that solution to the market.”
The problem comes in, she says, in the valuation of the IP. “If the research council adds too high a value to that invention, it's not feasible for the entrepreneur to have to pay all those royalties and licence fees because the costs become too high.”
So part of addressing the challenges in commercialising technology is to look at the costs involved in the whole chain of getting a solution to the market, notes Pienaar.
“Because the R&D money goes mainly into product and technology development, and the innovator takes a lot of it back for the IP, when someone come onboard to try and commercialise it they often struggle.“
In turn, investors and venture capitalists become wary of funding innovative projects, because they wonder whether they'll really get a ROI, explains Pienaar.
“The policy environment definitely needs to be enhanced to ensure we enable the commercialisation of technology.”
Manilal says the major issue is creating a culture of innovation in the country. “For this to happen, we need a common desire, a common vision and the money to realise it as well, because innovation is about trial and error. We seem to like the trial, but not so much the error.”
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