Imagine if you could invest small amounts in SA start-ups.
It would be high risk – but creating affordable unit-trust type venture capital funds would enable ordinary people to participate in real growth.
Large companies and wealthy families do it. Why shouldn’t you?
Financial advisers will have a hernia at this idea. Venture capital by its very nature is massively high risk. Considering most small businesses fail, it puts this idea into the realm of crazy – but give this a chance.
When Anton Rupert toured the winelands as a young man looking for financial backers to start what would become a global cigarette empire that would morph into one of the world’s great luxury brands groups, no-one who gave him money could have been certain they would ever see any of it again.
As it turns out, many of those families became wealthy rising on the coat-tails of Rupert’s entrepreneurial flair. They backed a winner and those who stayed invested through good times and bad have seen the benefits.
So too did the 20 families who backed Raymond Ackerman, who was unceremoniously sacked by the Greatermans Group at the end of the 1960s for his refusal to expand margins and fix prices at the expense of the customer. When Pick n Pay founder Jack Goldin offered his business to Ackerman, the recently fired entrepreneur didn’t have the money to make the purchase.
Venture capital wasn’t yet a “thing” and banks were risk averse. With supermarkets being a new concept in South Africa, there must have been a fair degree of trepidation when Ackerman, then in his thirties, knocked on the doors of fools, friends and family.
They were asked to invest in the region of R20 000 each, a princely sum, probably the equivalent of R1.2m today, and must have questioned their judgement when it emerged that Ackerman had overpaid for the business.
“We were prepared to pay R580 000 for the four shops, Ackerman said in a recent interview. “As the talks dragged on into the night I was pushed up to R600 000, and when I finally agreed to R620 000, my brother-in-law who was advising me kicked me so hard under the table, that it still hurts me on cold mornings to this day.”
Backers were again well rewarded for the risk they took.
Investing is based on the idea that you provide risk capital in the hope of making a greater return than a cash deposit in the bank.
You can invest in venture capital through the SARS-sanctioned Section 12 J schemes, but these tend demand hefty contributions way out of the reach of ordinary South Africans.
Few of us live in the rarified atmosphere where captains of industry come to dinner and tell us of their grand plans and invite our participation, so we will always lose out on venture capital opportunities.
But there is a way to allow private participation in high risk projects.
When Nhlanhla Nene was fired in 2015, big business realized the game had changed. They got together and created the SA SME fund, collecting R1.4 billion to invest in small businesses and to assist entrepreneurs to grow their enterprises into significant employers.
That money will all be in the hands of specialist VC firms by September and SA SME fund CEO Ketso Gordhan is already considering how to raise new funding.
If the first round of funding is seen to be successfully invested, it will be easier to convince pension funds to make a new pot of money available.
Imagine though if there was a crowd funding initiative which allowed you to invest – with a lump or in small increments – in potentially high growth businesses at the start.
You might lose your money, but you might just see your cash go into the next Bidvest, Discovery or Uber.
I’d love a little piece of that kind of action. Wouldn’t you?
Throw in a tax incentive to reduce the risk. Let the SA SME fund manage it, and help fix the country.
Bruce Whitfield is a multi-platform award-winning financial journalist and broadcaster.