Investing in a startup can sometimes lead to some unexpected issues with the tax man, but that is exactly why Seed Engine, the WDB Investment Holdings (WDBIH) and Grovest decided to launch a startup fund with significant tax advantages.
Geared towards corporates, the section 12J Venture Capital Company impact fund will also have advantages concerning Broad-Based Black Economic Empowerment (B-BBEE) points. The tax benefit is 28% for businesses and 41% for individuals and trusts.
“The fund allows organisations to achieve an above-average targeted internal rate of return of 20% on their investment in enterprise and supplier development programmes with a focus on black women and youth-owned businesses,” explained Donna Rachelson, CEO of Seed Engine.
If your company wants to invest in a business that falls within the fund’s scope, it can select a business from the ICT, Education, Healthcare, Services, Retail, Manufacturing, Logistics, Agriculture and Agri-Processing sectors.
Once a business has been selected, three types of shares are available (which, by the way allow for returns to be re-invested): enterprise development; supplier development; and impact shares.
“We believe that the impact of WDB Seed Fund will be significant as the partners bring specialised experience. The WDBIH has funded and supported female entrepreneurs and is experienced in impact investments. Grovest has pioneered Section 12J companies and Seed Engine and Seed Academy has a track record in training and supporting entrepreneurs,” Rachelson said.
As far as the B-BBEE points are concerned, investing into the impact fund is classified as Enterprise Development and Supplier Development spend, which contributes towards the B-BBEE scorecard.
“The intention of Section 12J funds is to incentivise investment in the development of SMEs, and the WDB Seed Fund will generate not only financial returns for our investors but social, environmental and economic impacts as well,” Jeff Miller, CEO of Venture Capital Company Grovest explained.
[Image – CC by 2.0/Mait Jüriado]