With an unemployment rate of 27.1% at the end of last year, South Africa has much to gain from the venture capital (VC) industry, which not only encourages business development, but enables entrepreneurs to expand their businesses, driving employment opportunities.
This is according to Tanya van Lill, CEO of the South African Venture Capital Association (SAVCA), who presented a case study session on the topic at the first ever joint SAVCA Private Equity and Venture Capital in Southern Africa Conference, held in Stellenbosch at the end of February.
“While small businesses are vital job creators, many require growth capital to do this effectively. And because young companies generally don’t have access to more traditional sources of funding, investments by VC firms become an essential form of financing,” van Lill explained.
She referred to SAVCA’s 2018 Venture Capital Survey, which revealed that 97.1% of VC-backed businesses would have ceased to exist or developed slower, were it not for the VC investment. “The same study found that, for 77% of companies which have received investment from a VC firm, it has increased the business’ capability in terms of increasing the number of full-time positions.”
One of the case studies that van Lill explored was that of the successful tech startup, SweepSouth. An on-demand online platform for booking home cleaning services, SweepSouth has more than 11 000 cleaners registered on its platform.
SweepSouth Co-founder and CEO, Aisha Pandor – who was also speaking at the conference – said that the business is about so much more than giving jobs to domestic workers. “It’s about upskilling, educating and uplifting South Africans through employment. “Aside from the 11 000 SweepStars, we have also been able to build a team of about 42 in-house employees, ranging from call centre agents to tech developers. As we grow the base of domestic workers on the platform, we are also able to continually grow this internal team.”
Janice Johnston, who is the Fund Head of the Vumela Fund at Edge Growth – the fund that invested in SweepSouth – says that SweepSouth has shown that there is a lot of opportunity in the gig economy. “SweepSouth has allowed domestic workers to increase their earning potential and provides a flexible option for them to augment their existing working arrangements.”
Pandor notes that there have also been instances where domestic workers have progressed from being SweepStars to actually joining the company’s internal team. “Domestic workers who were able to acquire skills or educate themselves further while working part-time on the platform are better positioned to seek other employment opportunities. We’ve had multiple SweepStars progress to join our operations team and recently even had a SweepStar join our engineering team as a junior developer.”
This, van Lill says, is just one of many businesses across the country that have been able to make a positive impact on employment, as a result of VC funding. “At the end of 2017, the Southern African VC asset class had a total of R4.39 billion invested in 532 deals. In addition to funding, VC investors also provide valuable support and mentorship to their portfolio companies, which helps them to grow and ultimately employ more people.
“While VC is by no means a cure-all for unemployment in the region, its impact on creating work opportunities is certainly meaningful,” van Lill concludes.