SA Startups get UK backing and support

The South African startup ecosystem has received a financial boost and backing by the British High Commission’s UK-SA Tech hub. This comes in the form of funding (non-disclosed) to support the SA Startup Act Movement (SUA). Through the significant financial and technical support, its intent is to help propel the efforts of the SUA towards the adoption and implementation of the Startup act. It’s believed that the implementation of this policy will play a role towards supporting South African high-growth startups to grow exponentially, in turn uplifting the entire economy.

The investment by the UK-SA Tech Hub comes at a crucial time as the SUA – which has been in the making since 2020 with a view to amend policy that hinders the growth of local high-growth entrepreneurs - is at a critical stage, and its purpose is to drive interest among national treasury and other governmental institutions to make policy decisions that could make an impactful difference to the success and scalability of fast-growing SMEs in the country.

This, as it has become evident that existing policies and red-tape are impeding the growth and impact of innovation-driven startups in the country and, consequently, their ability to contribute to skills development, job creation and economic stability, and most importantly, attract investment into the country.

According to Matsi Modise (Vice-Chairperson-Simodisa), the Startup Act Movement has made progress in as far as getting support from the highest office in the land.

The SUA is a collective of South African startup investors, incubators, accelerators and founders. Together they are calling on the government to relax policies that are It is driven by a Steering Committee, made up of leaders in SA’s entrepreneurship development sector, and to date has been extremely successful in attracting support from key players internationally, such as the UK-SA Tech Hub, the World Bank and FSD Africa.

“I think that the Startup Act Movement has a vital role to play in steering the policy framework in South Africa,” says Milisa Mabinza, Director of the UK-SA Tech Hub. “This is the impetus behind our decision to put funding behind this endeavour for a second year. In the short time since the collective was established in 2020, there has been noteworthy growth. Startup visas are firmly on the President’s radar, the Deputy Finance Minister has adopted some of the business case studies that have been shared, and the SUA has also garnered support from the World Bank.

“We believe the efforts of the Startup Act Movement are key to the country moving towards a more supportive policy environment that enables high-growth startups to grow, and we want this to succeed. We have taken a look at what can be achieved in the future, and believe that, with a few key policy changes, South Africa can create a flourishing startup ecosystem that will have a positive fiscal impact, elevating South Africa’s high-growth entrepreneurs to attract international VC while encouraging the development of more high-growth startups locally,” she adds.

Many countries are emphasising the role of startups in their respective national development and economic policies. For example, Nigeria, Tunisia and Kenya are among the African countries that have good policy frameworks in place, alongside the introduction of their own Start-up Act efforts. Their burgeoning startup ecosystem characterised by an increase in unicorns compared to SA reflects this.

“The UK-SA Tech Hub is committed to supporting the development of SA's tech entrepreneurship ecosystem and actively looks for gaps in the market where support is needed. The organisation identified a need in the local tech landscape to help us drive policy reform and enable the growth and expansion of emerging businesses. Taking into consideration the policy framework in the country, the structure of the economy, as well as issues with the energy crisis, the SUA recognises that policy reform is at the core of creating a thriving SME ecosystem – but that this is dependent on a framework being implemented that supports high-growth startups in South Africa,” explains Matsi Modise, Chairperson of the SA Startup Act Movement.

The key policy reforms that have been proposed by the Startup Act Movement aim to address the following challenges experienced by high-growth startups:

– The current IP legislation imposes onerous and costly restrictions on transferring IP offshore - a core requirement for startups to attract capital from the global VC market;

– The cumbersome and costly exchange control restrictions imposed when a startup establishes their global HQ - likewise a requirement to raise capital from the global VC market;

– Capital gains tax which is triggered well before the startup’s potential future liquidity event, making it more costly for SA startups compared to other nations; and

– A Startup and Remote Worker Visa to attract international high-growth startup founders and enable entrepreneurs to hire a handful of highly experienced foreign talent to share their knowledge and expertise with their teams and drive growth.

In terms of progress, SiMODiSA has been advocating for visa reforms since 2014 and has been clear on its position that an influx of diverse, highly skilled, innovative and dynamic entrepreneurs would offer the country significant gains. This caught the interest of the Presidency and in April 2023, President Cyril Ramaphosa’s opening address of the 5th South Africa Investment Conference, demonstrated the government's commitment to enabling change in this arena. While not referring to the Act per se, the president did mention that new visa categories are set to be introduced for remote workers and startups. He also noted an “overhaul” of the work visa system, which he believes will offer a boost to foreign investment.

The UK-SA Tech Hub is invested in the long run with its investment in the SUA. “Our role is to support South Africa’s high-growth startups – whether in the tech industry or by enabling SMEs in rural and township communities to become tech enabled businesses - to maximise the value and impact they have on the South African economy and job creation. We believe the country has the potential to cultivate the emergence of the next unicorn on the continent, and through this second round of funding, look forward to being part of these important efforts,” concludes Mabinza.