Beyond rands and cents: Venture capital providing support to local entrepreneurial ecosystem
Early-stage ventures require a lot more than just funding to become thriving business empires. Within the Southern African context, which currently has one of the highest start-up failure rates in the world, emerging entrepreneurs certainly require financial support, but over and above capital investment, they also need access to markets, a strong business network and ongoing operational support. The health of the local entrepreneurial ecosystem depends on input from role-players throughout the entire value chain.
This was one of the key takeouts to emerge from the 2023 Southern African Venture Capital and Private Equity Association (SAVCA) Venture Capital Conference.
Early-stage strategies for long-term success
In attendance was Catherine Young, Managing Partner at Grindstone Ventures, who participated in a panel discussion entitled: ‘Strengthening the ecosystem at early stage to improve the quality of the pipeline.’ In her opinion, the success of early-stage businesses requires a collective effort from a number of stakeholders including founders, start-up incubators, accelerators, high-net-worth individuals, angel investors and industry experts, all of whom play a crucial role in building robust pipelines and can help to nurture ventures through the trying first years of doing business.
“We often refer to the three key channels of support when it comes to new and emerging businesses: knowledge networks, access to markets and funding. Once entrepreneurs enter the pipeline, we’re interested in finding ways to bridge the technical and industry-related knowledge gaps that exist. Our next concern is providing entrepreneurs with access to the right networks – connections that can give entrepreneurs a much-needed ‘foot in the door.’
Given that a business’ best form of funding is the first client, interfacing with the people that can help you get that first ‘yes’ is a vital part of fueling a healthy entrepreneurial ecosystem. As venture capitalists, we can help with the hard work and heavy lifting involved with getting businesses off the ground. Then, once these two factors have been explored, we introduce funding,” she explains.
A case in point: BixBio
Providing insight into the importance of building strong relationships that can enable growth was James Ross, co-founder of biotechnology start-up, BixBio. His venture started with the business participating in an accelerator programme, which played a pivotal role in his journey from scientist to entrepreneur. Today, BixBio answers the call for more diverse genetic data, specifically on African genomes, which has up until very recently, been largely unexplored.
The company aims to develop and build the genetic tools needed to inform the future drug target discovery, in the hopes of solving several key global genetic problems. As a biomathematician, specialising in the field of precision medicine, Ross and his team required much support in terms of funding for preliminary research and development (R&D) efforts.
As he explained: “we needed like-minded investors to support our R&D phase – to believe in what we aimed to achieve without expecting immediate overnight returns. This required an incredible amount of foresight and patience on the part of the venture capitalists who shared our vision both in terms of solving a healthcare-related issue as well as building a financially viable business. The earliest stages of building a business such as BixBio, therefore relies heavily on fostering a collaborative culture between founders and fund managers.”
Business networks as the bedrock of the VC industry
Building on these insights from the perspective of a VC investor was Brett Commaille, Partner at Hlayisani Capital, a growth fund investing into high-growth African businesses. Commaille participated in the final panel discussion of the conference, entitled: ‘Lessons learnt on fundraising.’ He echoed the sentiments shared by previous panellists that beyond the financial aspect of support offered by VC leaders, the ability to introduce companies to broader networks is one of the key differentiators of successful fund managers.
“We believe that our network is one of our core strengths. If you have multiple office locations that span different geographical areas for example, that’s a huge advantage – a unique selling point that can set your apart in the market. This is particularly true in cases of co-investment, where knowledge and connections can be shared and leveraged to ultimately get Limited Partners more exposure,” he said.
Interestingly, the multi-directional approach to investing and managing the risks that come with funding early-stage ventures is a growing trend in the local VC market. The most recent 2023 SAVCA Venture Capital (VC) Industry Survey, published by SAVCA, found that this year saw the most co-investments ever recorded in the industry’s history.
As SAVCA CEO, Tshepiso Kobile concludes: “Investing in Southern African start-ups is not just about financial support; it's about co-investing in the promise of innovation and contributing to the growth of a dynamic entrepreneurial landscape. The VC industry has the power to nurture groundbreaking ideas, drive economic development, and create a legacy of success. By strategically co-investing, we forge partnerships that go beyond funding, empowering start-ups to reach their full potential and leaving an indelible mark on the future of South Africa’s business ecosystem.”