Founder’s Guide to Fundraising in South Africa

Startups are a key driver of economic growth and digital transformation in Africa. Investment into Africa’s startup founders is on the rise. Disclosed funding is on its way to $4bn in 2022. South Africa has been amongst the few countries receiving the lion's share. Since 2015, startups in South Africa have raised over $2.7bn. 20 startups have raised more than $20m each and 7 startups have raised over $100m. Funding reaches across a range of sectors including fintech, climatech and cleantech, ecommerce, healthtech and edtech. It has a well developed local investment landscape, numerous government initiatives and a range of international funders from impact investors to Development Finance Institutions (DFIs). It is one of the most mature ecosystems in Africa. 

However, even South Africa struggles with funding for early-stage startups. A major challenge we hear from founders is navigating and accessing the different options. Many government options go unused and investors complain about the lack of investable opportunities. Entrepreneurial support organisations (ESOs) are plentiful, but the nature of their offering and focus differs, making it more difficult for founders to find the right ones.

In response to this, the GIZ project Make-IT in Africa and Briter Bridges partnered to develop guidance for early-stage startups looking to fundraising in South Africa. The Founder’s Guide to Fundraising in South Africa brings together lessons and best practices on fundraising in Africa, information on the preferences and focus of investors in South Africa and insights on the funding and technical support available to startups operating in South Africa. The guide aims to provide startups with the information they need to successfully raise funds. It is anchored in the unique context of South Africa.

The guide identified 4 key insights that every founder looking to fundraising in South Africa should know. 

1. Startups in South Africa prioritise building traction before fundraising. 

• Don’t rush to raise! South Africa has a well-developed corporate sector, a strong urban retail market, as well as access to international markets. There are many avenues and paths for you to build traction before fundraising.

• Explore bringing corporate sector partners as clients or as distribution partners for your products. 

• Use South Africa’s vast urban retail market as a test-bed for scaling  internationally. 

• Tap into the high level of digitalisation and internationalisation of the South African market to sell your products internationally. 

2. Ecosystem support is plentiful; the challenge is making the most of it for your startup. 

• Know your ecosystem and the actors offering support, from how to navigate offshoring IP, to getting investor ready, or understanding the regulatory environment. 

• Discover what hubs have to offer, particularly as they expand into new areas. They can help connect you with events, mentors and other startups. 

• Don’t reinvent the wheel. Use off-the-shelf resources to assist you with everything from your pitch-deck to your cap table or your ESOP. 

• Spend time choosing the right accelerator for you. You don’t need to participate in an accelerator to raise funding. The wrong

• Accelerators can end up distracting you and your team from actually building the business. Figure out what you need and pick the accelerator that best addresses those needs. 

3. Startups benefit from exploring different funding options at different stages of their growth journey. 

• Equity remains the most common funding instrument, but it is by no means the only one – nor is it always the right one

• Explore your options. South Africa has a large and local venture capital landscape with a rapidly growing angel and early investors, several government initiatives offering affordable credit, a range of new innovative financing instruments, as well as grants offered by a range of ecosystem support organisations. 

• Online marketplaces can connect you with financing. The Angel Investment Network of South Africa, FinFind and Business Partners all offer a new way of accessing financial assistance in South Africa. It also boasts several funding options specifically focused on female startup founders. 

• Don’t overlook government support. It may be difficult to access and navigate,  but often provides some of the lowest cost capital for startups.

4. There is no current regulation supporting startups, but there are many government initiatives aimed at reducing red tape. 

• Stringent IP regulations and exchange controls present a barrier to fundraising from international investors. This often requires startups to look to offshore their IP early, particularly if they are looking to expand internationally. 

• Black Economic Empowerment (BEE)  regulations often create hurdles for startups as they can require local partners to help them comply if they want to work with large corporations or governments. Many startups struggle to attract pan-African and global talent due to difficult visa requirements and processes. 

• The Section 12J amendment to the South Africa tax code targeting investors was discontinued and the only relevant tax breaks for startups are related to a general provision for research and development. 

• A Startup Act movement is underway and the government is committed to supporting the ecosystem. 

• The Western Cape Government has a red tape reduction unit and the government is proactively working with startups through their government agencies.