The significant role that venture capital can play in helping the South African economy, has long been acknowledged by business and government alike. However, for venture capital activities to be truly effective and successful they need to be managed correctly.
"Venture capital is often surrounded by a great deal of enthusiasm and as a result it is easy to forget it is a risky form of investment. In fact the management expertise required to make it work needs to be top notch otherwise problems can easily arise," says Deloitte & Touche, Capital Brokering Services Leader / Associate Director, Donald Mackay.
Mackay points out that most fund managers are pressured to perform their work within the constraints of tight budgets. This is a situation that can result in less than optimal performance by fund managers.
"I think the time has come for the typical allocation of management fees to be revisited. The 2-3% allocation which has become the norm in venture capital circles is no longer adequate."
In Mackay`s opinion the allocation of a higher management fee and the impact it can have upon the venture capital market should not be underestimated.
"A higher fee will allow fund managers to apply themselves to the effective and profitable management of start-ups.
"Providing them with a fee that will allow them to access greater resources for their management tasks, should ultimately contribute to a higher success rate in this market."
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Deloitte & Touche is one of the nation`s leading professional services firms delivering world-class assurance and advisory, tax, and consulting services through 4 000 personnel, including partners, in more than 11 offices in Southern Africa.
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