Equity Crowdfunding to address SME sector development in South Africa
The South African economy is in need of a sustainable solution to economic growth. The government has earmarked the SME sector as one of the key areas where growth is necessary. Taking a closer look at this sector in South Africa will reveal a decline in the number of South African Entrepreneurs in the last few years. According to the 2017 Seed Academy’s Real Estate of Entrepreneurship in South Africa Survey many Entrepreneurs attribute the decline to the lack of business support and funding.
43% of survey respondents highlighted funding as the biggest challenge in starting a business. Many Entrepreneurs are not aware of the different options to funding and 95% of survey respondents claimed the majority of the funding they receive comes from friends and family.
In order to create a sustainable solution to the development of the SME sector it is important to create alternative systems for Entrepreneurs to access funding. Many Entrepreneurs are still at the stage of self-funding their businesses. Self funding limits the businesses opportunity for growth because it diminishes the Entrepreneurs own pocket and restricts the company’s ability to hire more staff. The Equity Crowdfunding model would release such limitation and provide an opportunity for small businesses to not only raise capital but to make a meaningful contribution to the South African economy and make a dent in the unemployment rate.
One of the major road blocks to capital is the way in which South African Entrepreneurs are assessed for eligibility of funding. Banks do not look at how businesses are performing currently but rather at the past credit score of the business owner. These outdated methodologies of risk assessment do not take the time to understand individual businesses and the Entrepreneurs true level of qualification for the loan. South African Entrepreneurs are ready for a platform that will disrupt the funding landscape.
Another limitation to SME development is business development support. With current government initiatives like The Black Industrialists Programme failing to promote the growth of emerging entrepreneurs, many South African Entrepreneurs have been forced to look elsewhere not only for funding but also for mentorship. SME development would thrive in a collective space where Entrepreneurs can gain pitch support, connect with ecosystem players, raise capital and create a network of people who believe in their businesses. Funding and Mentorship should not exist without the other.
This model also promotes inclusive growth as Investors need credible pitches to invest in. Equity Crowdfunding would not only give Investors an opportunity to create a legacy of enabling South African Entrepreneurs but also putting their money behind a pitch that has been supported and facilitated. Investing in people and their ideas.
South Africa is ready for Equity Crowdfunding to assist in the development of the SME sector and contribute sustainable growth.