Seed Engine, WDB Investment Holdings (WDBIH) and Grovest have launched the WDB Seed Fund, aimed at filling the funding gap for early-stage startups and offering significant tax advantages and Broad-Based Black Economic Empowerment (B-BBEE) points to corporate investors.
The impact fund has been established as a section 12J Venture Capital Company, with investors able to deduct the full amount of their investment into the fund from their taxable income in the year in which the investment is made.
Corporate investors can select areas to support, including ICT, education, healthcare, services, retail, manufacturing, logistics, agriculture and agri-processing. Returns can be reinvested, with three kinds of shares available: enterprise development, supplier development and impact shares.
“The fund allows organisations to achieve an above average targeted internal rate of return of 20 per cent on their investment in enterprise and supplier development programmes with a focus on black women and youth-owned businesses,” said Donna Rachelson, chief executive officer (CEO) of Seed Engine, in which WDB and Grovest recently took stakes.
Investment into the fund is classified as Enterprise Development and Supplier Development spend, which contributes towards a company’s B-BBEE scorecard.
“We believe that the impact of WDB Seed Fund will be significant as the partners bring specialized experience. The WDBIH has funded and supported female entrepreneurs and is experienced in impact investments. Grovest has pioneered Section 12J companies and Seed Engine and Seed Academy has a track record in training and supporting entrepreneurs,” said Rachelson.
Faith Khanyile, CEO of WDBIH, said the fund will promote economic growth by unlocking barriers that prevent the SME sector from expanding and creating jobs.
“This will be achieved through capital, high impact mentorship combined with technical and business support, as well as support in accessing markets,” she said.
Grovest CEO Jeff Miller said the intention of Section 12J funds was to incentivise investment in the development of SMEs.
“The WDB Seed Fund will generate not only financial returns for our investors but social, environmental and economic impacts as well,” he said.