Red tape and funding challenge myths debunked

Cape Town – Myths that funding and red tape are the two biggest challenges faced by emerging companies and entrepreneurs have been debunked by a report released on Tuesday.

PwC’s report, Emerging Companies and the Ecosystem, said market access was cited as the largest commercial challenge by most respondents who took part in its survey.

“Although red tape was cited as a growth inhibitor by entrepreneurs, it only ranked fourth out of 10 as a growth stopper, with only 9% of respondents choosing this option,” the report explains.

A third myth, which was proved to be true, was that the main inhibitor of business growth is cash constraints.

A staggering 81% of the respondents had never applied for government funding opportunities, with 41% of those saying that they were unaware of any opportunities.

Of the 743 participants surveyed, 58% were not part of any start-up support programme and 60% were in the technology sector.

“Applicants appear to be less successful in raising funding without professional assistance,” the report found.

AUDIO: Interview with Silicon Cape chairperson Daniel Guasco, vice-chairperson Alex Fraser and PwC Accelerator’s Maija de Rijk-Uys

Importance of debunking myths

PwC Accelerator’s Maija de Rijk-Uys told Fin24 that it was important to debunk the myths about what challenges start-ups face. “We’ve substantiated the debunking of some of the myths,” she said.

“It’s encouraging to some of our emerging businesses to know that actually there is help out there, we can get access to this funding and maybe we just need a little bit of help from other people to get access to it and to know who to access it from,” she said.

“It’s also encouraging for our funders, whatever type of investor they are, whatever part of the spectrum they are.”

Fraser said the report, which was done in partnership with Silicon Cape, was an important tool for entrepreneurs and funders.

Guasco said the summary of the myths that came out were absolutely valid. “What’s come out of this research ... supports what I find both as an entrepreneur and an investor. There’s certainly no lack of money, it’s … driving business forward where the challenge exists.”  

(From left to right): Silicon Cape's chairperson Daniel Guasco and vice-chairperson Alex Fraser and Toby Chance, a Democratic Alliance MP and shadow minister of the Small Business Development Ministry at the launch of the Emerging Companies and the Ecosystem report at the FNB Portside Building in Cape Town on Tuesday. (Photo: Matthew le Cordeur)

DA: Mismatch between the mandates of funders and businesses

Toby Chance, a Democratic Alliance MP and shadow minister of the Small Business Development Ministry, said there were two contradictory findings.

“One is that access to funding is a problem, which they say is not such a problem; and then they said that cash-flow management is a problem, which essentially is funding,” he said.

AUDIO: Interview with Toby Chance

“Working capital is no doubt a big problem for companies, particularly small and growing companies, trying to grow and necessarily having the payment terms from the customers that they need,” said Chance, who attended the report’s launch.

He said the findings show that there is a mismatch between the mandates of the funders out there and the businesses that are funding.

Writing on his personal blog, Chance said the survey is an important segment of the total emerging business landscape.

"(However), more research is needed to include businesses in other sectors such as agriculture, manufacturing, tourism, finance, retail/wholesale and other services," he wrote.

READ: Toby Chance's blog discussing the survey results

The entrepreneurial ecosystem survey was launched to create a deeper understanding of the environment emerging businesses operate in.

It was spearheaded by PwC and partnered by Silicon Cape Initiative, Microsoft BizSpark, Wesgro and the City of Tshwane.

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