The South African IT sector needs proper venture capital (VC) if it is to realise its full potential, representatives of BMI-TechKnowledge and Microsoft SA say.
BMI-TechKnowledge director Mark Walker and Microsoft SA developer and platform group director Danny Naidoo told ITWeb at a recent student software competition that SA lagged far behind other countries in developing the emerging talent seen at tertiary education institutions and turning them into viable businesses.
"The international norm is that at least one out of 10 emerging businesses will be funded through VC and become a viable and sustainable company. Not in SA. The ratio is far worse than that," Walker said.
Naidoo, who developed Microsoft SA`s "Project Firefly" software competition for South African students, said one of the big problems was that there was no real understanding of what venture capitalists did and how they interacted with emerging companies.
"There is no ownership and no proper leadership amongst local venture capitalists," he said.
Both said that in theory there were abundant funds available for start-up companies, but most of this money was linked to private equity firms that did not supply the first round of funding for a start-up company.
"Private equity places some onerous requirements on a company. These can include an already established revenue stream and sophisticated business plans. A start-up company of between one and five people struggles more ensuring it has a daily cash flow," Walker said.
Naidoo and Walker also expressed disappointment that no South African investment houses scouted local tertiary institutions looking for investment opportunities.
"It is all very well to look for individual talent to recruit into an organisation, but often there is an investment opportunity in taking a student project and developing it into a viable product or business," Naidoo said.
Walker said the South African IT industry had created an extremely efficient implementation and distribution model, but that it was based on selling and applying products and services created in other countries.
"We overlook the fact that many of our homegrown products and services are equal to, if not superior, to those that are imported," he said.
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