With new asset class, Grovest wants to disrupt VC in South Africa

Grovest Venture Capital introduces a new asset class today. Investors are encouraged through incentives like tax relief as well as the growing attractiveness of the VC industry in South Africa. Although this asset class is the first operational venture capital fund introduced in South Africa, it has proven to be very successful in the UK. By having attractive incentives, Grovest aims to encourage investments which will further help grow the venture capital industry in South Africa.

In order to boost and further drive this industry, tax relief incentives as well as tax-free dividends are included. Tax relief of as much as 40% is given to investors. This is made possible by the South African Revenue Services under section 12J of the Income Tax Act.

Investments with a minimum of R100 000 are encouraged. This means that an investment of R100 000 will receive income tax relief of R40 000, making the net cost of the investment R60 000.

Erika van der Merwe, CEO of the South African Venture Capital and Private Equity Association (SAVCA), says that “lessons from elsewhere in the world have shown that a sensible tax framework – one which rewards tax payers’ contribution to enabling innovation, kindling growth and boosting job creation – pays off.” She also notes that Grovest is entering new grounds worth exploring by other capital venture firms– an area needing major encouragement.

The company’s focus will be the mobile and tech industry as it aims to “identify high growth, scalable, low capex, disruptive, technology-focused South African private companies.” Startups have been struggling to gain ground, mainly because of the shortage of VC and angel funding. As mentioned in this Ventureburn article, startups are being funded by investors outside the continent.

Reasons for lack of funding include, the fact that venture capital is high risk and there are very few venture capital companies in South Africa. Grovest wants to fill this much-needed gap by reducing risk using tax reliefs and numerous risk management strategies. This new asset class will hopefully encourage potential investors in a very important VC industry.