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INITIATIVE
FOCUS
TYPE OF INTERVENTION

​ADVANCING SUPPORT FOR BLACK ENTREPRENEURS THROUGH EQUITY FINANCE

Access to equity finance has been identified as a challenge for black entrepreneurs wanting to start or expand their businesses. An optimal capital structure, made up of debt and equity, is required to enable entrepreneurs to bring viable ideas into reality and to embark on larger scale projects. New entrants require substantial investments in order to be efficient producers and usually face challenges in obtaining start-up capital.

 

These entrepreneurs may not have the capital required for large scale entry and will often be required to provide at least 30% of own equity to get funded. Furthermore, in some cases, entrepreneurs may be required to give up part-ownership of their ideas to get the required investment. Furthermore, applications for financing can be cumbersome and lengthy, with entrants often being assessed against historical performance rather than projections. Whilst it is important to conduct proper due diligence, there is also a need for timely decision-making to enable companies to take advantage of opportunities, especially where a breakthrough may be needed in a short space of time.


Businesses go through several stages in their growth process, all of which require different forms of support; interventions necessary at the ideation stage may not be the same as those required at the stage for scaling up of the business (Bosiu, Nsomba& Vilakazi, 2019). There is therefore a need for interventions to address the different stages and needs of black businesses in terms of capital, particularly the equity gap. Equity financing can be raised through angel investors, crowdfunding platforms, venture capital firms, corporate investors, and ultimately shares can be sold to the public through an Initial Public Offering (IPO).

 

There are, therefore, two methods of equity financing; private placement of stock with investors and the public stock offering.

 

Typically, investors focus on the long term without expecting an immediate return on their investment, which allows the company to reinvest the cash flow from its operations to grow the business, instead of focusing on debt repayment. Furthermore, through the investors, equity financing can provide invaluable assistance to the business through providing management expertise, business contacts, and access to other sources of capital. Several initiatives have been introduced in South Africa to meet the different needs of black-owned businesses at different stages, with some encouraging black business participation at a larger scale than the small and micro enterprise. These initiatives have been in the form of financial support, technical support, mentorship and incubation.

Some of the initiatives by government are illustrated in the table 1 below.

A sample of Government funding initiatives for black-owned businesses Initiative Focus Type of intervention
 

As evident in the table above, there are existing equity funding instruments, but these appear to be limited somewhat. There is a need to build on existing instruments to expand reach across interests in various sectors of the economy and consider further development of equity funding support initiatives for black entrepreneurs, without the risk of losing ownership of ideas in those transactions.

 

The ECDC, therefore, seeks to host a Symposium on “Advancing Support for Black Entrepreneurs Through Equity Finance” as a platform for engagement on possible interventions for supporting black entrepreneurs across different sectors to bridge the equity gap to advance their interests of starting or growing their businesses. The Symposium will bring together key stakeholders from the public and private sectors to exchange ideas on the challenges, proposed interventions, possible areas of collaboration as well as a proposed action plan.

The objectives of the Symposium are to:

 

  • Explore the different equity instruments available for supporting black entrepreneurs.

  • Identify any gaps within the existing initiatives.

  • Explore the development of interventions for supporting black entrepreneurs through equity financing across different sectors, as well as opportunities for building into existing initiatives.

  • Come up with proposals as well as an action plan for supporting black entrepreneurs in bridging the equity gap

Representatives from the following institutions are expected to participate in the Symposium:

  • Small Enterprise Finance Agency (SEFA).

  • Small Business Development Agency (SEDA).

  • Industrial Development Corporation (IDC).

  • National Empowerment Fund (NEF).

  • Public Investment Commissioner (PIC).

  • Development Bank of South Africa (DBSA).

  • Africa Development Bank (AfDB).

  • Department of Trade, Industry and Competition (dtic).

  • National Treasury.

  • SARB.

  • JSE.

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