This past month has seen a flurry of events focused on the SME and entrepreneur start-up sector that is both welcome and exciting for the struggling South African Economy as a whole.
There have been a number of really amazing efforts by private sector players such as the launch of the Lekker Network by a group of amazing South Africans, and the successful Suits and Sneakers events in Jo’burg Cape Town and Durban as well as the Google’s Startup Accelerator programme.
There has also been two events run by the government in the last month, the Technology Innovation Agency (TIA), a Department of the ministry of Science, Technology and innovation has also run two programs with finalists announced last week in the Global Cleantech Innovation (GCIP) awards as well as officially launching the Women Technology and Innovation Programme (WTIP).
The WTIP initiative goal is to address systemic challenges in funding, support, and development for women entrepreneurs in the technology and innovation sector in particular it seeks to address the failure of the government to address hurdles still encountered by women entrepreneurs in getting, access to markets, support and funding that remains remains a major hurdle.
Loyiso Tyria, the Chairman of the TIA board stated at the launch of the program that “after 30 years, things remain the same”, referring to the 30 years since the dawn of democracy in South Africa. “We want to Disrupt the status-quo” he commented, saying that the entire system needed to change and that the government would need to reallocate resources to ensure that this happens.
Avoiding Past Mistakes Crucial
University of the Witwatersrand, Dr Judy Dlamini, gave the keynote address at the event spoke of the need to start understanding the challenges faced by women entrepreneurs better, and how it was essential to start talking directly to the market and not for decisions to be made in boardrooms, where women entrepreneurs did not feature.
“How can we make sure that going forward, we don’t repeat the same challenges for our entrepreneurs, stated Dr Dlamini. “I do believe we need to strengthen our resolve to just check how are we doing”. “Because churning out the things that we do, and only having big business in the room, and not the people that we’re solving for, we will wonder why Mr. Chairperson, things are not changing 30 years later”. “So I really, all I wanted to say is just that, that let us have the voice of the people we’re solving for in the room, telling us where we’re going wrong” She Stated.
The stance taken by Dr Dlamini has been echoed around the market for a while, and it appears there may finally be a focussed approach growing that will see the government co-creating the solutions with the entrepreneur community, with their insights and pain points and hurdles taken into account in building solutions to enable ownership from the ground up.
Four Critical Challenge Areas to be Addressed
Dr Dlaming who is conducting field research on women entrepreneurs across the country raised for particular areas that she believes needs to be addressed to grow and support female entrepreneurs in South Africa:
The Age Impact:
Statistically women tend to get married and have children earlier in life, and this is driven largely via expectations from family and society at large. This is also a common finding across race groups and across classes.
The bias from funders however, predominantly restricts grants and start-up funding to younger people, generally between the ages of 18-35, and this creates an unintentional bias against many women entrepreneurs who are often looking to start up a business in their late 30’s or 40’s after they have had their children.
Dr Dlamini comments that “We then punish them and offer opportunities, including funding, across sectors for women between 18 and 35. Those that are at university know what I’m talking about, even when it comes to funders”, she states.
Statistics however point out that entrepreneurs in their 40s and 50s are twice as likely to build successful businesses compared to those in their 20s. Studies by the Kauffman Foundation shows that the highest rate of female entrepreneurship occurs between 35 and 45 years. And why is this the case? Well, women in their 30s and 40s have stronger professional networks and industry expertise, and this matters when starting a business.
These women are also more resilient and have a greater depth of life experience that helps women navigate entrepreneurial challenges better. “They have more confidence, and they’ve built resilience to quote Dr. Mlambo-Ngcuka, there is no substitute for time and depth, quotes Dr Dlamini.
Failure a Foundation for Successful Funders
Dr Dlamini’s second submission proposes that there should be a greater use of failed entrepreneurs as part of fund manager’s advisory team and post-transaction advisors.
“Research suggests that failed entrepreneurs often make better fund managers due to their first-hand experience, patent recognition, and risk management skills” Claims Dr Judy.
The Kauffman Foundation report shows that investors who were former entrepreneurs, including those that have failed, tend to outperform traditional investors because they understand operational challenges and market dynamics. While Gompers et al. in the Harvard Business School study showed that entrepreneurs who previously failed are more likely to succeed in their next venture compared to first-time founders.
“This experience translates well into venture capital and angel investing as they can spot viable opportunities and help founders to avoid common pitfalls” says Dlamini.
Further evidence of this is supported by Stanford and MIT research which shows that former entrepreneurs who transition into fund management develop a stronger ability to assess risk, mentor startups, and structure deals creatively due to their lived experiences.
Failed founders have a higher success rate in investment decision than fund managers with only finance backgrounds.
The Race Dilemma
According to Dr Dlamini, Black women entrepreneurs in South Africa face significant challenges in accessing VC funding. While data is limited, Dr Dlamini pointed to the Venture Bank data, that indicates that of overall VC funding for women, between January 2018 and August 2019, approximately 4.5% of VC funding in South Africa was allocated to female-founded startups. The situation is even more concerning for Black women entrepreneurs, with estimates suggesting that less than 0.2% of any state venture funding is directed toward Black women.
These figures do highlight that systemic barriers may well be penalising Black women in securing VC funding. This could be due to limited access to investor networks, unconscious bias within the investment community, and a scarcity of funding initiatives specifically targeting Black female entrepreneurs.
Dr Dlamini says that “This is a missed opportunity”. “It’s about just doing what will benefit the GDP of the country, so it doesn’t make sense that we don’t do it already” sates Dr Dlamini.
According to a study by the Boston Consulting Group, if women participated equally as entrepreneurs, the rise in GDP across the world could see a rise of between 3% to 6%, adding up to a $5 trillion injection for the global economy.
Challenges and Opportunities
Despite these efforts, the funding landscape remains challenging. A 2023 report noted that, although Africa has the highest proportion of women entrepreneurs globally, women founders receive less than 7% of all VC investment on the continent. The picture is no different when it comes to Asian investors.
Black women in South Africa and across the African continent face similar challenges. While data on angel funding is limited, reports indicate that black women entrepreneurs receive a very small percentage of angel investment capital, often estimated at below 1% of total angel funding on the continent. The African Business Angels Network is working to improve diversity in angel investment, but funding remains disproportionately low for black women founders.
It is critical that government and the public sector acknowledges the challenges and starts to understand these more by including women entrepreneurs in their conversations and decision making processes, and bringing the funders, and the entrepreneurs, and innovators together to create a higher level of collaboration.
