A hybrid vc funding model
Since 1994, more than 6 million work-seekers have entered the labor force in South Africa. Yet, the economy has only created 4 million jobs. The result is a growing pool of lower skilled workers facing long-term unemployment. This situation is further highlighted by the findings of the latest Global Entrepreneurship Monitor (GEM) research report which states that a country in South Africa’s stage of economic development would be expected to have a Total Early-Stage Entrepreneurial Activity (TEA) index of between 11% and 15%, more than double its actual rate of 5.9%. These findings confirm the continued trend of below average South African entrepreneurial activity. It is apparent that the approach to sustainable entrepreneurship development has to be more innovative. In other economies, Venture Capital (VC) has been proven to be an effective means for large-scale job creation, accelerated growth, and enhanced innovation and competitiveness. The challenge in South Africa is however that the traditional model of institutionalized VC is biased towards sophisticated innovation-driven entrepreneurs, and mostly overlooks the emerging, efficiency-driven entrepreneurs that dominate the South African entrepreneurial landscape. In order for VC to improve the TEA in South Africa, it must: 1. Address the known deficiencies in quality and management skills of existing efficiency-driven entrepreneurs. 2. Cultivate a pool of innovation-driven entrepreneurs from within existing efficiency-driven entrepreneurs. 3. Provide access to meaningful VC funding, tools and techniques. Simply making more traditional VC available would continue to keep the focus on the small percentage of innovation-driven entrepreneurs whilst overlooking the much larger pool of emerging efficiency-driven entrepreneurs.
VC Fund managers have the ability to mobilize much needed mentorship skills and knowledge banks in favor of emerging entrepreneurs. They can also be the catalyst for the creation of a supply chain of goods and services by connecting emerging entrepreneurs with existing businesses. PoweredbyVC – an experienced South African VC Fund Manager – is in the process of establishing a new type of VC Fund in Cape Town due to the city’s propensity for entrepreneurship. This hybrid VC model will combine proven best practices of a traditional VC Fund with a new Business Cultivator funding system to unlock synergies between entrepreneurs at different life- and skill stages. While the VC Fund will focus on equity funding for high-growth businesses in pursuit of commercial returns, the Business Cultivator will have a Social Entrepreneurship objective focusing on cultivating and funding successful businesses that are not yet VC ready. The Business Cultivator will systematically facilitate knowledge transfer from experienced innovation-driven entrepreneurs to emerging and efficiency-driven entrepreneurs while creating an entrepreneurial supply chain. New technologies will be utilized to run the Business Cultivator on the basis of practical and measureable knowledge transfer milestones as the ongoing prerequisite for an entrepreneur’s continued admission to the program. Various smart partnerships will be set up with existing incubation and training institutions to craft flexible programs that are scalable by combining the following elements: I-ncubation: Providing an array of business support resources and management services (including access to the internet, roaming office space and back office support). -Training: Online practical entrepreneurial training courses called the Ent.Farm (Entrepreneurial Farm). -Mentorship: Through the incubator, innovation-driven entrepreneurs will have access to mentors. -Networks: Providing organized networking and business development initiatives to enable emerging entrepreneurs to obtain resources and partner with others quickly. VC Funding: A portion of the VC Fund will be made available as start-up and growth capital for the emerging entrepreneurs that successfully rise through the program.
The success of this new funding system hinges on a twofold approach: securing committed capital for investment activities and crafting the appropriate smart partnerships on the Business Cultivator level. In this regard, PoweredbyVC is in the process of presenting the VC Cultivator Fund concept to interested funders and to date has secured sufficient support for the Business Cultivator from established organizations specializing in incubation and training.
Business Cultivator: Emerging entrepreneurs with passion for their product or services, who have a viable business model and who can demonstrate a commitment to engage in the Ent.Farm program. Potential Investors in the VC Fund: Local and international corporations and Development Funding Institutions who are mandated to advance entrepreneurship in emerging markets.
Local and international Corporations that focus on local Enterprise Development as well as Development Funding Institutions. Entities with existing programs providing business support resources and management services to emerging entrepreneurs. Established VC Funds to scale and replicate the model.