Argentina’s Secretary of Entrepreneurship and SMEs Mariano Mayer has been awarded for his work on developing a strategy to revive Argentina's entrepreneurial spirit, including a new law for entrepreneurs.
Mayer was among several individuals honoured for their role in policymaking and drafting SME programmes by the Global Entrepreneurship Network (GEN) at an awards ceremony in Estonia earlier this week during the Startup Nations Summit.
Mayer took home the Startup Nations Award for National Policy Leadership.
“Having successfully tested entrepreneurship policy levers as an intrapreneur in the Buenos Aires city government, upon assuming broader leadership as National Secretary for Entrepreneurs and SMEs, Mr. Mayer began a bold, multi-pronged strategy to revive Argentina's entrepreneurial spirit, including a new law for entrepreneurs,” GEN said.
The three other winners were former Minister of Argentina’s province of Cordoba Jorge Lawson for the Startup Nations Award for Local Policy Leadership, the Innovation and Entrepreneurship Team from the World Bank, for the Startup Nations Award for Groundbreaking Policy Thinking and Mikk Vainik of Estonia for the Global Entrepreneurship Network Award.
Plan to grow SME numbers
In an interview in September with online publication Nearshore Americas, Mayer said Argentina now has about 850,000 SMEs – which make up 99% of all firms in the country. He said about 50,000 to 60,000 new firms are created each year in Argentina.
However, he noted that there has been no net creation of companies in the last two to three years. It's this that his government is looking to change, to put the country back on growth after years of economic instability.
Recently his government introduced a new entrepreneur and SME law (see this post), which aims to among other things boost funding and reduce the time it takes to open a new business.
A new online company registration system, which went live on 1 September (see this post), allows for the registration in Buenos Aires province of a new type of company called an SAS in just 15 minutes – down from two months to over a year that it took before. Mayer says the ministry is helping other provinces to introduce a similar system.
He says a tax reform is in process and his ministry wants to next simplify the country’s gargantuan bureaucracy.
Mayer earlier this month said the country needs to create one million new small businesses to ensure that 300,000 survive so that two million new jobs (that Argentina needs to create) can be generated. To ensure this is achieved, he pledged that his administration will add not one new regulation for enterprises.
This week Mayer's department announced the names of the 13 accelerators and three funds (see this story) that - together with the state - will invest more than $86 million into new projects through an accelerator (Fondo Aceleración) and expansion fund (Fondo Expansión). About half of this amount will be contributed by the state.
The idea is based on Israel’s successful Yozma fund (see this post), in which the state there was able to help grow a venture capital sector in the early 1990s.
Earlier this month national newspaper La Nacion reported that to qualify local and foreign accelerators have to have liquid funds of at least $150,000. In all 31 accelerators applied.
The funds, as well as a seed fund, which invests up to 250,000 pesos in firms of no more than a year old, falls under a new fund of funds Fondce (Fondo Fiduciario para el Desarrollo de Capital Emprendedor) which was unveiled in September.
In the same month the government predicted that the economy will grow by 3.5% in 2018 - with inflation falling to 10% from 24% the same month. Things are then on the up.
Likely because of this President Mauricio Macri this week called Argentina the "best place in the world to bet on".
But what many will hope now is that the red tape and corruption that Argentina is famous for will be eradicated as quick as possible. Until then nice policies such as getting the state to co-invest with accelerators will benefit little more than the elite.
Timm is a South African who writes on small business in emerging economies. He speaks Portunhol (bad Spanish) and has visited Argentina in 2010 and 2014. Follow Small Business Insight on Twitter at @Smallbinsight and on Facebook.
The number of black-owned tech start-ups in South Africa may be on the rise, yet just four percent turn a profit currently, reveals a new survey. What then should be done about it?
In the survey - released on 22 November SA tech start-up publication Ventureburn - 50% of 260 tech startup founders reported that they were black founders (black African, coloured, Indian or Chinese South African). This is up from 26% in a 2015 survey of 197 founders by the publication.
Of the current survey, four percent opted not to reveal their race, while 46% listed themselves as white.
Yet, while 16% of start-ups founded by white entrepreneurs are turning a profit, a mere four percent of black-owned tech start-ups are doing the same. In addition 61% of black start-ups have yet to generate an income, compared to 30% of white start-ups.
Added to this white start-ups accounted for 59% of all those start-ups that reported having tapped angel funding.
The survey also reveals that white start-up founders are significantly older than black founders. Over a quarter of white founders are 40 years or older, compared to just 13% of black founders. Almost three quarters of black founders are aged 35 and younger.
This might explain why so few black start-ups are making a profit compared to white start-ups. Older founders are usually more experienced, better networked and have more capital than younger entrepreneurs.
Aligns with increase in black SMEs
The survey results suggesting the growing number of black tech start-ups, are in line with a study released earlier this year by Trade and Industrial Policy Strategies (TIPS) which revealed that the percentage of black-owned formal small businesses grew from 38% of such firms in 2002 to 49% in 2015 (see this post).
The figure however still lags behind the national population where black population make up 92% of South Africans.
A lack of black angel investors means the state has to get more involved. Earlier this year Matsi Modise (pictured above), head of start-up advocacy group Simodisa, said more black high-net-worth individuals would help to grow the angel investors pool.
But this alone won't be enough. A “black tax”, where black professionals are compelled to financially support relatives, also holds many back from investing in start-ups, she says.
State support still lacking
Perhaps then the state should intervene?
To some degree the state is already doing so - by offering incubation and seed funding and by using Black Economic Empowerment (BEE) legislation to compel large IT companies (including multinationals) to support and fund black entrepreneurs.
Yet there is much the state still needs to do. Just nine* of the 62 incubators under the government’s Small Enterprise Development Agency (Seda) support software or high-tech firms. The agency added three new incubators in 2016/17, two of which are incubators aimed at the high-tech sector (see this post). It needs to fund more such incubators.
A Pretoria-based incubator and science park - The Innovation Hub - has of late broadened its reach to innovative entrepreneurs, by adding township hubs (the eKasi Labs programme) and running Startupbootcamp and Startup Weekend events.
But its head McLean Sibanda admitted in May that it’s still difficult to find black entrepreneurs with unique ideas in the township. Too many township startups are pursuing “me-too ideas” over innovative ideas. More exposure to the networks of more affluent entrepreneurs might help and better schooling could help.
The introduction of seed grants in 2012 by the Technology Innovation Agency (TIA) could well help fund more black technology start-ups. The agency disburses grants of up to R600,000 through universities and selected small business support organisations.
In the last financial year the agency channelled R74.3m to 133 innovative projects - up from R66.5m in the 2015/16 year. Though the initiative isn't aimed exclusively at black innovators or entrepreneurs, a large number of those the agency supports are black.
Black tech start-ups have also to thank the country’s BEE legislation for increased support and funding.
Large IT companies such as telecoms provider Telkom (in which the state still retains about 50% ownership), as well multinational firms such as IBM and Microsoft have introduced support programmes in recent years.
For instance Telkom Futuremakers head Litha Kutta says three hubs that the telecoms provider backs support over 1,000 tech entrepreneurs involved in black-owned start-ups.
Among IT multinationals, IBM has provided support and funding to three black-owned IT companies and four aspiring black tech entrepreneurs in the last two years. It includes R1.2m in incubation support and about R2.5m in funding to two of these IT black firms.
But Bhavya Rama, who oversees IBM’s R700-million Equity Equivalence Investment Programme, says it’s not always easy to find black-owned IT firms, says Rama. “We’re finding that the market has challenges. Every startup claims that they have ICT capability, but when you look it’s only a few that have it.”
She also notes that many black tech startups getting support currently through incubation programmes are serial incubatees.
These are the kinds of challenges to be expected initially, when black startups are still struggling
But limit state's role
In the end the state's role should be limited - to support such as training and incubation and seed funding.
Helping to nurture a venture capital sector could help too, if the state were to launch a co-investment fund. Here an idea by Discovery Health CEO Adrian Gore might be worth testing - where fund managers could be enticed to invest in black startups in return for higher management fees (see this post).
In addition the state could tweak its venture capital tax incentive - which is growing in popularity (see this post) to allow for greater deductions for those that invest in black tech startups. This might help fuel the creation of black angel investors.
Ultimately the state should be wary of any measures that distort the market. Black tech startups after all want to pitch their solutions on an equal as possible footing as their white counterparts. Some support will help. Too much might render black firms uncompetitive.
*Seda's nine high-tech and software incubators are: Sofstart, Invotech, Smartxchange Durban, Smartxchange Ugu, SA French Tech Labs, Savant, Tuksnovation, Singatha ICT Incubator College and Seda Nelson Mandela Bay ICT Incubator.
Timm is a South African who writes on small business in emerging economies. He is also the editor of Ventureburn (which conducted the tech survey). Follow Small Business Insight on Twitter at @Smallbinsight and on Facebook.
Brazilian development bank BNDES has just launched a 100-million real ($30m) fund that will see the state co-invest alongside angel investors. Yet it comes only months after a new tax norm was released which will effectively disincentivise angel investing.
The new fund (Fundo de Coinvestimento Anjo) was launched on 14 November and will see the development bank put down 40% of the 100m reals, sourced through its investment arm BNDESPar, with the remainder to come from private investors.
The fund will invest up to 500,000 reals (provided an equal proportion of funding is secured from an angel or accelerator) in technology startups with an annual revenue of up to 1 million reals in sectors such as biotech, smart cities and nanotech.
Those startups that get initial funding can also qualify for a second round of funding from the fund – provided their annual revenue grows to between one and 16 million reals. In second round funding they will be able to tap up to 5 million reals.
Angels and accelerators that want to tap funding have up to 12 January next year to submit their proposals to BNDESspar.
Angel investing is growing in Brazil. Statistics released by angel investor association Anjos do Brasil in July show that the volume of investments by angels was up nine percent in 2016 to 851 million reals ($260m). Yet the number of angels fell by three percent.
The association estimates the country has 7,070 angels who each invest about 120,300 reals ($37,000) on average (the US in 2015 $24bn channeled into 71 000 deals).
The association reasoned that the figure climbed despite the recession, because most of these investments were in high growth companies that don’t depend on the economic situation to grow, while some investors moved from the local stock exchange with its negative returns.
No tax deductions for angels
A law introduced in October last year, as part of reforms to kick start the economy got investors wondering whether angel investments would be granted a tax deduction as is common elsewhere,
Yet in a tax norm gazetted in July, Brazil’s tax authority has ruled that angel investors will be required to pay tax on their investment – at a rate of between 15% and 22.5%.
This seems out of step with other jurisdictions which offer tax deductions (including South Africa – see this post). In the case of Turkey (see this post) a 2013 law allows angel investors a 75% corporate tax reduction should they hold company shares in recipient businesses for at least two years. The government also co-invests with angels.
Anjos do Brasil president Cassio Spina (pictured above) is concerned. In August he said the new tax norm could compel investors to put their money into safer bets like property or listed companies over more risky startup investments.
Spina says the tax authority is not listening to angels’ submissions. He points out that every real invested can generate a further 2.20 reals in tax.
BNDES’s move is noble. Along with a new equity crowdfunding rules which came into force in July (see this post) they could help edge up economic growth. Yet if Brazil is to expand faster a far more bolder approach is needed to unlock investment in startups.
But the lesson of South Africa is instructive to Brazil. A venture capital tax incentive there only took off after onerous measures were removed (see this post). Things then could still get better for angels in Brazil – but only if authorities are willing to adapt and learn.
Timm is a South African who writes on small business in emerging economies. He speaks Portuguese and lived in Brazil in 2014 and 2015. Follow Small Business Insight on Twitter at @Smallbinsight and on Facebook.
The value of venture capital (VC) deals concluded in South Africa last year mushroomed by 134% over 2015 - more than doubling, from R372 million ($26m) to R872m ($62m), data from the Southern African Venture Capital and Private Equity Association (Savca) reveals.
The data, revealed in a report released last month by Savca, also shows that the number of investments increased from 93 in 2015 to 114 in 2016 - an increase of 23%. The number is also the highest since Savca began tracking the sector in 2000 (see the below graphs drawn from the report).
Savca CEO Tanya van Lill (pictured above) said in the report that the introduction and improvement of Section 12J tax deductible investments had driven greater flow of capital to VC and from a broader base of individual investors (see this earlier post).
The SA Revenue Service (Sars) recorded R1.8 billion raised by 49 investment vehicles registered for the tax incentive, having already invested into 56 qualifying companies. Not all of these Section 12J investment vehicles focus on VC as an asset class.
“Through Section 12J, more VC investors, not limited to high net worth individuals, are willing to participate in the VC eco-system. Data from SARS informs that the uptake of individual investors into Section 12J VCs at February 2017 totalled 892 investors,” she said.
By value of deals concluded in 2016, seed funding and start-up capital totalled 42% (2015: 53%) - roughly the same split as VC investments in the US in 2016 (44%) shows a US report.
The average deal size of new VC investments in South Africa increased from R4m ($300,000) in 2015 to R7.6m ($540,000) in 2016.
However this is still at over one 50th of the average deal size concluded in the US - where the average deal size in 2016 was $30.4m - or about a 10th of that in Europe ($5.5m) or Brazil ($4.4m).
Deals involving the ICT sectors account for the largest portion of investments (30% of all deals concluded by number of deals and about 17% by value of deals),
The report also revealed that there were 14 exits in 2016 compared to eight in 2015. In all 38 exit events were reported to have taken place between 2012 and 2016 – about 55% of which were exited profitably (see the above graph from the report).
At the end of 2016, 53 fund managers (up from 36 in 2015) managed R3.5 billion in 461 VC deals. Three state-managed funds accounted for R1.28m or 39% of the value of all deals and invested in just under a quarter of all deals.
Angel investors invested about R44m in 2016 from 33 deals, slightly down from R45m from 30 deals invested the previous year.
The number of deals concluded between 2007 to 2016 - at 538 for a total investment of R3.6bn ($260m) - may be dwarfed by the 8,136 deals valued at $79bn concluded in the US in just 2016, but things are hotting up.
It comes even though the economy in the last year and half has slowed to under 1% growth.
Yet following a decrease in VC investment activity after the financial crisis in 2008, the VC sector saw growth in investment activity towards the end of 2013. And venture capital investments could be set for an even better year in 2017.
Speaking this week at the launch of Savca publication of 20 recent VC success stories, venture capitalist and co-founder of Knife Capital, Keet van Zyl, says 2017 has been "a hell of a year" so far.
"I tell you when I sit and have my G&T at the Breede River at the end of this year it is going to taste like no other G&T has tasted before," he said.
Yet with the VC investments having grown so dramatically of recent, policymakers will wonder what the jobs and revenue potential is of the sector. Sadly the report does not reflect this.
Better data on this may convince the state to co-invest with the private sector as other countries such as Chile, Malaysia, Brazil, Israel and the US has done (see this earlier post). This could propel the sector to new heights.
Timm is a South African who writes on small business. Click here to sign up for the monthly Small Business Insight newsletter.
Stephen Timm is a