Startup Act in South Africa Gets Nod From The Presidency

A group of well-meaning and hard-working South Africans worked around the clock to make life easier for South African startups by developing a Startup Act. After releasing the anticipated research findings in September, members of the South African Startup Act steering committee were invited, alongside other entrepreneurship activists, to a special meeting with the Presidency to discuss what is needed to eliminate red tape for SMEs.

Positioning principles for the Startup Act

The group guiding the Startup Act development includes AfricArena, Digital Collective Africa, Endeavor South Africa, i4Policy, Loudhailer, the Southern African Venture Capital, and Private Equity Association (SAVCA), Silicon Cape, SiMODiSA, and Wesgro.

This collective represents the SA entrepreneurship ecosystem and includes investors, incubators, and founders. Tunisia led Africa with startup-friendly policy adoption when it signed a Startup Act into law in 2018, with Senegal following in 2019.

With startup investment showing an eight percent year-on-year increase in Africa between 2019 and 2020, and an additional 109 new businesses receiving funding over the same period, trends indicate that this legislation could be a good bet for COVID-ravaged economies.

Following the Tunisian story closely reveals public/private collaboration, with a separate organisation Smart Capital interfacing with different government ministries and issuing the startup label which entitles companies to a set of defined benefits.

A number of successful deep-tech startups like Enova Robotics, RoamSmart, and Wattnow have emerged from this framework, with the country ranking second in Africa on the 2019 Global Entrepreneurship Index.

The SA Startup Act has set out in its positioning paper an initial emphasis on defining start-ups separately from small-medium enterprises along the following guidelines:

1. Legal definitions for startups, startup ecosystem, and high-growth enterprises.
2. Labelling (to distinguish from other labels such as small enterprises, tech(nology) enterprises, SMEs, entrepreneurial businesses, and many others).
3. Harmonisation of policies and acts that have a direct bearing on startups.
4. Outline specific interventions that are needed to support qualifying start-ups with the potential to become high-growth firms.

Justifying the ends

The proposed calls for relaxation of BBBEE scrutiny for qualifying start-ups have been widely criticised. But proponents say it’s important in the context of high-growth firms. A central piece component of the Act is to prioritise businesses with high anticipated growth that need to raise investment to scale exponentially.