If you dream of wooing investors with your genius idea for a South African startup and walking away with millions of rand to get your dream business off the ground, you’re about to be disappointed. A whopping 85% of South African startups are completely self-funded, with a further 9% surviving on backing from family and friends.
That’s the findings presented by Joburg’s Seed Academy, which has published its second annual Startup Survey tonight. According to Seed Academy founder Donna Rachelson, almost 1 500 firms responded to this year’s survey making it the largest undertaking of its kind so far in the country.
The findings were disappointingly similar to last year: startups still struggle to attract funds and Rachelson describes the problems faced accessing support from banks or government as “dismal”.
While banks are still too risk averse to loan to startup firms, Rachelson said that a lot of money was being wasted because applying for government funding is too difficult.
“55% of startups manage on less than R50 000 of startup capital,” Rachelson said, “In conversations I’ve had with government they tell me they have billions to invest in entrepreneurs… but no-one knows how to access it.”
Part of the available funds should be earmarked, Rachelson suggests, to help startups learn how to approach government bodies, or dispersed to private sector institutions focussed on developing small firms with less bureaucracy. In addition, tax breaks for investors should be introduced to encourage more private investors to back startup firms.
The funding issue is reflected in other findings in the report, says Rachelson’s colleague Shalane Yuen. A huge 59% of respondents describe themselves as being “pre-revenue” – ie having made no sales. 17% of those companies are more than five-years-old.
“We suspect that that might mean there are a lot of part-time entrepreneurs,” says Yuen. The implication being that lack of focus makes it harder for them to reach profitability.
The demographics of South African startups are encouraging, however. Women founders account for 31% of respondents which, while not enough is above international standards (only 7% of startup funding in the US goes to female-led companies). 59.3% identify as Black African, and 26.1% as White. While the stats don’t quite reflect the national population they are moving in the right direction.
An overwhelming number of respondents, especially women, are positive about their prospects: 45% describe themselves as “very optimistic” despite the issues within the ecosystem. After financial support, the biggest single issued raised by entrepreneurs is marketing, something that Rachelson says there’s a real need for improvement around.
One major concern raised is the lack of jobs created by participants in the survey. Only 4% of the sample said that they employ more than 10 people, which will disturb policy makers touting entrepreneurship and small businesses as the key to improving the South African economy.
Rachelson says that she’s a passionate believer that this could be true, but that entrepreneurs and the startup ecosystem desperately needs better solutions and guidance than it currently has. More exposure and business training in schools is imperative, and dedicated acceleration programs for female entrepreneurs is vital. Rachelson, who has written a book about women in business, says that the problems faced by female founders are definable and result in smaller firms. Creating more ways of tackling them specifically is the right thing to do.
