Only 3% of SA startups get funding from angel and venture capital

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Although opportunities for startups to receive funding from angel investors and venture capital are gradually becoming more widely available, a very small percentage of entrepreneurs are able to pursue these opportunities and actually get funded through them.

This was revealed in the Seed Academy startup survey 2015 which polled more than 900 entrepreneurs running startups that are less than five years old, with the aim of getting a national snapshot of the startup scene in South Africa.

The respondents were mostly made up of men (65%) between the ages of 25 to 44 (71%) with a university degree (30%), residing in Gauteng (51%) and having more than 10 years working experience (35%).

When starting their business, 83% of respondents said they used their own money for funding and 70% said they need more funding to grow their business.

“Only a small percentage of entrepreneurs have funded their businesses from the funding vehicles formally established to support them. This raises a spotlight on the accessibility and eeffectiveness of funding programmes,” Seed Academy said in the survey report.

Friends and family came up as the second biggest source of funding (7%), followed by banks (4%) and 3% from development finance institutions (DFIs) such as the Industrial Development Corporation.

“DFIs play a key role in the ecosystem,” Seed Academy said. “Although there are a number of DFIs, they need to better market their services so entrepreneurs have clarity about requirements and can experience a streamlined process to acquire funds. They also need to develop their capacity to mentor startup businesses and offer post investment management.”

On the up side though, despite these challenges, 42% of entrepreneurs said that they were “very optimistic” about their business outlook for the next 12 months and 29% said they were “somewhat optimistic”.

“The focus on entrepreneurial support and development is heavily targeted at early stage startups. If we are striving to create sustainable businesses and job creation, focus needs to centre on building an integrated and co-ordinated entrepreneurial ecosystem.  We need to identify ways of enhancing the angel network in South Africa. Initiatives, for example, could include tax incentives to angels to encourage early stage investments, and the establishment of more innovative solutions such as online angel investing platforms which connect investors and entrepreneurs,” the survey concludes.

View more findings on the Seed Academy startup survey 2015 on the Seed Academy website.

[Image – Shutterstock]