As the saying goes, it takes money to make money. Having a great idea for a business is really just the start – it’ll take a lot of cash to get it off the ground, and sometimes, a lot more on top of that to get you to a point where your idea is actually profitable.
But being profitable is a problem for many months down the line – the first hurdle to overcome is where to get funding for your idea. Fortunately, in South Africa, there are a good number of options, but not everyone might know about them.
So, we’ve put this list together to give you some inspiration on where to go looking. Because who knows, today’s glimmer of an idea could be tomorrow’s Facebook.
Small Enterprise Development Agency Funding
We’ve all heard the South African government and our local media banging on about how “small businesses are the backbone of the economy”, and while that may inspire a few eye-rolls, it’s true: a recent report published by the International Finance Corporation estimates that small businesses contribute up to 34% of South Africa’s total GDP.
And to give them their due, the South African government at least puts its money where its mouth is by offering programmes and grants aimed at developing small businesses.
One of their initiatives is the Small Enterprise Development Agency (SEDA) which has been set up specifically to help small businesses get off the ground. SEDA offers various funding options as well as business advisory services intended to support businesses with solid advice and mentorship.
SEDA funding and support are accessible to all micro and small businesses, provided they meet certain criteria. Specifically, businesses must be owned and operated by South Africans and be registered with CIPC. They must also be tax compliant and have an annual turnover of less than R50 million.
And because this is a government programme intended to benefit the country and its people, SEDA requires that businesses maintain a workforce where 70% of employees are South Africans. Non-South African employees must possess valid work permits.
To apply for SEDA funding you’re going to need a solid business proposal. When you’re ready, you should submit your request for funding along with your watertight business proposal by (drum roll) filling in government forms.
How: Attend conferences, network, do pitch competitions, etc.
Finding venture capitalists to fund your idea is an excellent option, but it’s not quite as easy as approaching a bank or a government agency. You first need to find them.
To do that, you can: attend industry conferences, find and take part in pitch competitions, be introduced by a mutual contact, follow and comment on their blogs, stalk them on LinkedIn or Twitter, or if you’re really desperate, send them an email.
The thing with going the venture capital route is you need to be really confident that your business idea could get really, really big. Venture capitalists typically don’t back spaza shops, they back ideas that could turn into the next Google, Facebook, Tesla, etc. because those offer the best potential returns.
Another thing to keep in mind is that venture capitalists will give you money to get started if they believe in your idea, but they do that in exchange for shares in your business. That means you’ll have to give away those shares, which potentially reduces your earnings and gives your backers more control over your idea than you might be comfortable with.
They also have high standards and are prone to pushing for results, so if you don’t like any of that, then VC funding might not be for you.
On the other hand, venture capitalists have huge money reserves which gives you access to a near-bottomless pit of funding. They are generally OK with taking risks, and they will give you hands-on support and contribute their expertise.
Furthermore, you won’t have to repay the money they give you, they have access to a huge network of contacts who could help get your idea where it needs to be, and you have a good chance of producing serious growth, quite quickly.
So if you’re confident in your business idea and you think you’re going to need buckets of money to realise its full potential, VC funding is a great way to go.
The Small Enterprise Finance Agency, founded in 2012, is a government agency overseen by the Department of Small Business Development that provides funding to qualifying SMMEs and co-operatives “…that are not able to attract commercial funding”.
As for SEDA, you need a solid business plan to apply, and of course, be a South African citizen. To apply, you’ll need to register on their website, and then follow their instructions on how to complete and submit your application. SEFA can supply loans anywhere from R50,000 all the way to R15 million, depending on the type of applications made.
If you’re successful, SEFA will also supply support and advice to help you get started and map out the future moves needed to keep your business going and growing.
The notion of appealing to a crowd of people to fund an idea crystallised online in 2009 with the launch of the website Kickstarter.com.
Basically, people use Kickstarter to pitch their ideas online and offer backers various rewards for backing them. It’s brilliant, because the internet can reach millions of people all over the world, and lots of people making small contributions each can result in a decent cash injection for the Kickstarted idea.
For example, a sequel to a popular videogame from the 80s was Kickstarted back in 2012, raising just under $3 million from a crowd of nostalgia-hungry older gamers. Traditional publishers weren’t interested, so the developer turned to their fans for the cash they needed. It worked, and in 2014, the game was released to much acclaim.
The South African equivalent of Kickstarter is Thundafund.africa, a website where people can pitch ideas and offer the audience rewards for contributing. Like on Kickstarter, the pitches can be a combination of text and videos, and success depends on how convincing these are, as well as the value of the idea itself. The pitcher sets a funding target, and only if it’s met does anyone actually pay the money they pledged.
If your idea doesn’t get enough backers and the campaign does not reach the funding target, nothing happens and so nothing is lost. It’s only when you hit your funding target but then you struggle to meet the promises you made during the funding campaign that things can get a bit hairy, legally speaking.
Still, if you have a great idea that you can make a very good case for, crowdfunding is a good way to raise some funds while retaining full control of the idea and without giving away shares in your company.
Go for it
The thing with securing funding is you essentially have to convince someone that your idea has the potential to make money, employ people, and/or do some economic good. If you’re at the point where your idea is fully fleshed out and you have a clear idea of what you need the money for, by all means, go looking for funding.
We hope this article has helped your journey in some small way, and we wish you all the best with your idea and hope that you find the funding success you need to make your dreams a reality.