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South Africa needs more angel investors who can help startups and small businesses to grow. Yet there are still too few black Africans involved in angel investing. In a bid to create more debate around the issue Ventureburn asked Simodisa managing director Matsi Modise what the country can do to address this.
Ventureburn: When you hear stories of angel investors you see mainly white faces, and perhaps just a smattering of Indian angels – most of them being male. Where are the black angel investors then?
Matsi Modise: The angel investment space in South Africa is still in its infancy and is not a formalised sector. Naturally there are a few players and of those few, many of them are not out in the public announcing their angel investment activity.
Personally, I know of less than five black angel investors, that are quietly investing, and I believe that there are probably more. The space has to evolve and part of the evolution includes promoting angel investing to high-net-worth individuals that have disposable income that they can invest in startups.
VB: Why do we particularly need black angel investors?
MM: At this point, there cannot be a colour bias. The angel investment sector has to grow, black or white. Can you transform something that does not exist?
VB: How do we grow more black angel investors?
MM: More education and promotion, further to the efforts that Simodisa and various other organisations have done, has to go into educating people on what venture capital (VC) as an asset class is, how angel investing fits into the VC funding spectrum, what Section 12J (VC tax incentive) is, its uptake in South Africa and how (Sars) provides tax incentives for this.
See the following Southern African Venture Capital Association and Private Equity Association (Savca) and Simodisa video on venture capital.
VB: What role can the government play? Should it be promoting angel investment networks that target black startups and black-owned SMEs?
MM: Before the government can promote angel investing, they need to be a bigger investor and stakeholder in the overall venture capital industry in South Africa. The SA SME fund, a growth capital fund, was intended to be a co-investment fund between the private sector and the government but at this point there has been no matching by the government. If we have a robust and healthy VC industry in South Africa, this can possibly will spin out more angel investment.
VB: What are private initiatives doing, like the SA Business Angel Network (SABAN)?
MM: SABAN is an example of a localised initiative spanning from a global angel investment network that promotes angel investing among high-net-worth individuals. The network was launched last year and it is still finding its niche in South Africa. SABAN’s role is to promote angel investing in different ways and part of that would be to simplify what angel investing is, how people can invest and they could actively create the necessary channels and platforms for people to do so.
VB: Is there a culture of investing in businesses together in black African communities as there is in some immigrant societies and perhaps Indian and Jewish communities in SA? Is this something that needs to be nurtured more?
MM: There can definitely be more nurturing of investing among black communities, more especially in their own black startups.
But some few considerations and observations must be made. The number of black high-net-worth individuals that have some disposable money to invest, does not compare to that of white people in South Africa. So we need more critical mass in that regard.
The average black person in South Africa has to deal with “black tax” (where black professionals are compelled to financially support relatives — VB) even before they can think of risking the money they have into a startup that has more than 50% chance of failing.