Finance and Economic Opportunities

1. The Growth for Jobs strategy process has identified Technology and Innovation as a Priority Focus Area (PFA).  The objective statement for the Technology and Innovation PFA includes for the Western Cape to be the tech, start-up and venture capital, innovation and design capital of Africa, with one of the goals being to accumulate venture capital deals totalling R20 billion by 2035.

The Department has conducted preliminary research on funding for early-stage companies, particularly in the high-tech market space which shows local and international precedent for various types of catalytic capital investment approaches to stimulate the market - usually bridging credit gaps which have accelerated the breadth and depth of impact and complementing other investment approaches. Typically, these types of concessional funding are called credit enhancement strategies and can crowd in $3 for every $1 invested.

Given that this is a new area of work, a feasibility study is required.

2. The Feasibility Study will test our current working view that such as fund will be ideally targeted at technology-centric start-up companies that show the potential to scale and create employment opportunities. If such a fund can assist viable tech start-ups and SMMEs to scale and thrive, then it will attract investment, create employment, generate revenue, including foreign revenue through exports of goods and services. In addition, technology-centric start-up typically companies have a great potential to contribute to the complexity of the provincial economy and at the same time introduce new skills, which would enable economic growth.

The Department’s work in 2020/21 found over 1000 tech firms in the Western Cape, many in the start-up phase where funding is predominantly from ‘friends & family’.  With this, the Department believes that there is an opportunity for the WCG to act as a provider of credit enhancement to the Venture Capital (VC) market by partnering on a fund to provide catalytic first loss capital. The premise is that such a fund could be set up in partnership with other institutional and/or private sector investors to make the investment into tech and innovation less risky to VCs, and crowd in exponentially more VC investors who would traditionally not have appetite for high-risk ventures in tech and innovation space. Essentially, this would lower the barrier for entry for these VCs and allow more businesses to be supported and funded by these funders. This hypothesis needs to be developed further and tested.

The project is hence called the Venture Capital Credit Enhancement Fund Feasibility Study.

3. The Department would support the creation of such a fund if the feasibility study shows conclusively that the benefits to the economy of the Western Cape are significant, that the risks are balanced, and the quantum of funding is appropriate in the portfolio of projects managed by the Department.