41% tax cut for tech startup investors in South Africa

South Africans looking to pay less tax may consider investing in Grotech, a fund of Grovest Venture Capital Company (VCC) where investors are entitled to deduct the full amount of their investment from their taxable income in the tax year ending 28 February 2016. The tax relief is 41% for individuals and trusts and 28% for companies which mitigates the investment risk and significantly enhances the potential return.

Grotech intends to raise between R50 – R100 million with the option to increase to R200 million by 15 February 2016. The targeted returns of the fund are more than 30% per annum and a minimum of five times money invested over a five to seven years.

Grotech will invest in, build and exit a portfolio of disruptive technology companies. It will invest minority stakes in established high-growth companies using stringent investment criteria including strong management teams, highly competitive positioning, scaleable business models with revenues and high growth potential.

Grotech has assembled a highly credible board of directors with extensive experience, knowledge and relationships in the technology ecosystem to source attractive deal flow and implement the strategy. They are committing R7 million of their own funds and will be actively involved post investment to reduce risk.

Craig McLeod, a tech veteran who has founded a number of high impact startup companies, is CEO. Clive Butkow, former COO of Accenture South Africa serves on the board and serves as chief investment officer. Clive also held the position of managing director of Accenture’s technology business, for many years prior to taking on the COO role. Private equity veteran Malcolm Segal, and seasoned business executive Fatima Habib will serve on the board with Malcolm as chairman.

Says Clive Butkow, chief investment officer of Grotech, “Our strategy is to build a portfolio of innovative digital companies that provide technology based solutions with innovative business models to existing and emerging institutions and their clients. Grotech will invest in entrepreneurs who are looking for growth capital to scale their businesses which are disrupting traditional industries such as banking, insurance, health and wellness, retail, media and entertainment. The tax deduction makes this alternative asset class an extremely compelling investment choice.”

According to the latest South African Venture Capital Association (SAVCA) survey, the South African venture capital (VC) industry is experiencing significant growth with an encouraging rise in the number of new fund managers, an increase in deal flow and in profitable exits.

SAVCA CEO Erika van der Merwe says: “The survey results confirm that the South African VC industry continues to expand in line with the increase in entrepreneurial high-tech activity in the market, a deepening pool of skills and experience, a growing exit track record and lower barriers to entry for VC-type deals, especially for those that target businesses that involve the use of digital technology to expand service offerings.”

Through Section 12J Venture Capital Companies, Government aims to stimulate the economy and promote investment in South African small and medium-sized businesses, whilst providing tax benefits to investors.

A Grotech investor is eligible for a 41% tax break (for an individual tax payer at maximum marginal rate) at the time of investment. If the investment in Grotech is held for a minimum of 5 years, there is no recoupment of the tax benefit when the investment is realised.