South African Competition Commission’s provisional report of its online intermediation platforms inquiry has found a distinct lack of participation by historically disadvantaged peoples (HDPs) in online platform markets.
According to the report, the lack of wealth accumulation by HDPs, due to exclusion from the economy under apartheid, has created a substantial barrier to accessing pre-revenue funding from a family or associate ‘angel investor’ to build an online platform, unlike their white counterparts.
HDPs in South Africa are defined as South African citizens who, due to the Apartheid policy that had been in place, had no franchise in national elections prior to the 1983 or 1993 constitutions. Over 80% of this population segment comprises black people.
Citing interviews with HDP entrepreneurs, the report states that most of them reached out to government funding sources and experienced a mixture of non-responses or applicants being informed that the agency does not fund online ventures.
At the post-revenue (Series A, B & C funding rounds) stage where the VC industry gets much involved, HDP-owned startups continue to face far greater barriers to funding support than white entrepreneurs.
The report goes on to mention that in South Africa the VC fund which had a mandate to support HDP start-up entrepreneurs was the SA SME Fund which has dedicated 75% of its funding to HDP entrepreneurs. The SA SME Fund is a joint initiative by the government and the CEO initiative of large corporations. South Africa’s largest VC funder, Naspers Foundry, could only cite one small investment in an HDP entrepreneur.
Another obstacle many HDP entrepreneurs face, according to the report, is getting their startup platform to secure contracts with large businesses and enterprises. Business and enterprise clients are essential in moving a startup into the post-revenue phase where VC funding comes into play. They are also essential in enabling post-revenue growth to move into later series of funding.
In the ecommerce sector, for example, HDP businesses face greater challenges in securing domestic distribution agreements for products where there are existing long-standing distributors and securing working capital finance to invest in stock.
Despite the obvious lack of diversity, the report found that minimal means of redressing the additional barriers to participation and competition faced by HDP businesses were enacted by online intermediation platforms. The only instances of support for HDP entrepreneurs identified by the report were Airbnb and Safaricom supporting a few listings in township areas, and Property24 reducing fees for a few HDP estate agencies.
The lack of diversity in South Africa’s venture capital funding landscape continues to be a cause for concern. According to data from Ventureburn’s Tech Startup Survey, in the country, where the total white population is 8% of the overall population, 24% of white-founder-led startups reported raising R1 million (approximately $58,000) or more to fund their businesses, compared to just 2.5% of black African founders.