Business incubators in South Africa and certainly the modern day version of these is playing an enormously important role in ensuring that entrepreneurs receive the support they require. Before the days of the Internet, venture capitalists would provide intensive, personal coaching for promising talent.
But Venture Capital in South Africa has certainly moved on. Now, because of the phenomenal number of new companies, they’re just too busy. Individual, time-consuming coaching has become a luxury many cannot afford. Because of the flood of money, the competition, and the short time to liquidity, the interaction with entrepreneurs is “more transactive than it used to be;’ notes Kleiner Perkins venture capitalist Russ Siegelman. Former 3Com CEO Bill Krause observes, “Twenty years ago, venture capitalists were very much a catalyst in the transfer of knowledge. Today they are portfolio managers, deal makers, financial engineers:’ The largest venture capital business still take on a few carefully selected, highly promising zero-stage start-ups. But they won’t spend time on businesses that aren’t going to grow huge very quickly.
According to Statista, South African startups raised an estimated $259 million in 2020 and Business incubators in South Africa played an important role in supporting this.
Thus, the supply of entrepreneurial expertise for smaller deals has shrunk. Business, like nature, abhors a vacuum and has found ways to meet the demand. One popular form is the incubator, a term that covers a multitude of models, from largely infrastructural help (space, administrative support, and computers) to highly developed, structured services which supports early stage and growth ventures to reach their potential.
The other alternative for entrepreneurs, especially those without track records, is the mentor capitalist. Compared with most venture capitalists or business incubators in South Africa, mentor capitalists typically spend more time with entrepreneurs, care more passionately about the vision, put more of themselves on the line, and become personally invested in making sure the start-up gets funding.
According to the Harvard Business review, capitalist that act as mentors are:
Just as a sculptor constructs a wire armature as a foundation and then layers clay on top, gradually working toward the final form, so do mentor capitalists work with the entrepreneurs’ basic idea to set a general direction and gradually shape a prototype to show to venture capitalists.
Psychologist: Besides helping entrepreneurs keep things in perspective, mentor capitalists can help boost confidence. Even passionate, single-minded entrepreneurs occasionally get discouraged. And although potential investors would like to believe they make decisions on a purely analytical basis, the reality is that they are swayed by enthusiasm. It’s essential for start-up teams to show a brave face to the world, and mentor capitalists can often lend their energy and optimism.
As diplomats, mentor capitalists also mediate or negotiate with important stakeholders inside and outside the company and they direct negotiations from behind the scenes.
Mentor capitalists act as a talent magnet in assisting to attract talent in three ways: by persuading a professional headhunter to take on the search (at the height of the Internet frenzy, recruiters themselves had to be heavily courted), by suggesting actual candidates from within their network, and by interviewing candidates.
Mentor capitalists as rainmakers use their own networks to get seed money, and they figure out how to get the real cash from venture capitalists. In most of the startups we studied, the mentor capitalists provided early funding through a few phone calls to angel friends. Later, they introduced the entrepreneurs to venture capitalists who relied on them to screen hot prospects.
Despite the benefits of working with venture capital in South Africa might not be your preference and it may be useful for you to consider alternative options to fund your business.
Business incubators in South Africa will support the entrepreneur with access to funding
When most of us think of business funding, and start-up capital, we think of traditional bank loans, venture capital, business grants, or angel investors. There are, however, alternative methods of business funding that most people do not even realise are an option, and in this article, we look at what they are.
If you are only looking for a small amount of start-up capital, then microfinance may just be an option for your company. Micro lenders typically lend out smaller amounts than banks or traditional financiers, and while they do charge more interest, they are also more likely to offer finance to higher risk individuals.
If you do opt for microfinance as a method of business funding, minimise the interest costs by borrowing as little as possible to get your business started, and try to accelerate your repayments.
Starting a Service Business First
It is a fact that service businesses (like consultancies, independent contractors and others) require less business funding to start than manufacturers or retailers. Whatever your business field, look for opportunities in your industry to start a service business that you will use to build up the capital you need to start your ‘real’ company. Offer consulting services to people or companies in your industry, or create a digital product, that you can sell to earn the capital you need.
Start In Parallel
Starting a business in parallel to your day job is probably one of the hardest things you can do. You will feel like you are working 24 hours a day (and some days, you might be.) However, it is possible to get a company started while you are still working, and earning a salary, and if you cannot find any other sort of business funding, then it might be an option.
Another idea, if you are still planning your business, and looking for funding, while you are working in a salaried job, is to cut costs, and save the surplus to fund your business.
Most people can downgrade their car to a smaller, less flashy model, or rent a smaller home. You can also adjust your lifestyle, shop around for cheaper insurance, entertain at home, and look at other ways to cut costs. For many people, doing this can free up a significant amount of money over time, and if you are saving that money for your business, you should have at least some of your business funding by the time you are ready to launch.
Negotiate With Suppliers
If you cannot find business funding in any other way, negotiating with your suppliers is always an option. If you can secure 30 or even 60 days credit with your suppliers, that’s like money in the bank. You will have time to sell those items, and make a profit, before you have to pay them for their products. In many cases, this kind of vendor financing is the quickest and easiest way to fund your start-up, and it can be a good idea even if you have some capital to work with!
Bootstrapping is a term that describes small businesses that get start without any outside funding at all. It is tough, but it does mean that you get to maintain complete control of your company. Many companies that bootstrap early on also go on to gets business funding later on, but you will be in a much stronger position if you have already got a company that is working when you do.
New business finance is one of the hardest things in the world to get. However, there is no reason you cannot still start the business you have been dreaming about if you do not find the finance. Take a second look at your plan. Look for creative ways to finance your start-up yourself, and remember, where there is a will, there is always a way!
The Caban Group have built ups significant infrastructure of service providers who support entrepreneurs with access to business finance, support with restructuring, access to grant funding and support in improving cashflow challenges. Contact the team at Caban through the contact form on the website or by emailing Info @ Caban.co.za