In South Africa, small business founders discuss self-financing without venture capital
In South Africa, small business founders can develop companies using their own funds and profits, without raising venture capital or selling a stake in the business. As Daily Maverick reports, this model differs from startups, which typically seek rapid technological scaling and expansion into global markets.
According to Shoprite’s latest report on small and medium-sized businesses, 32% of small enterprises in the country have operated for more than 20 years. At the same time, 39% of such companies have had fewer than five employees throughout their entire period of operation. Tato Ntseare, head of venture investments at E Squared Investments, noted that this differs significantly from the startup approach involving high risks, rapid team expansion and a focus on investor exits.
Capital for startups
Each year, around 3.3 billion rand in new venture capital is directed to 525 startups in South Africa. More than 90% of technology startups, meanwhile, remain self-financed or receive informal funding. More than 65% of venture investments are concentrated in ICT and fintech, while other technology sectors receive less funding.
Naturals Beauty founder Tanya du Bois established the company 18 years ago, starting by making natural care products in her own kitchen. During the first decade, she worked as a sole proprietor and reinvested all income in the business. Instead of selling a stake in the company or taking out high-interest bank loans, du Bois sought non-dilutive support from government bodies, including the Small Enterprise Development Agency and the Western Cape Agri-Processing Fund.
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Gradual growth of brands
Jake Axelrod launched the high-protein functional food brand Metalab in 2020, investing 250,000 rand of his own money. During the first three years of operations, he did not receive a salary, directing cash flow toward inventory, research, development and team expansion.
At an early stage, Axelrod turned down offers from major retail chains in order to retain control over the brand and its positioning. Metalab later began selling in more than 300 Checkers stores across the country. The brand’s products cost 30–40% more than those of traditional competitors due to supplier selection and independent laboratory testing of every finished batch.
According to the publication’s estimate, South Africa’s startup ecosystem is growing at a rate of 19.5%, behind Kenya at 33.5% and Egypt at 22%. Obstacles to startup development include slow implementation of government policy, fragmented support, currency restrictions on the transfer of intellectual property and the movement of foreign capital, as well as the absence of a separate startup visa to attract international technical specialists.
