South African financial services giant Old Mutual is struggling to disburse cash from its ZAR500 million (US$33.4 million) Enterprise and Supplier Development Fund as many of the startups it meets are too early-stage or not a good fit.
The fund was launched by Old Mutual to assist South African small, micro and medium-sized businesses that are existing or potential suppliers to Old Mutual.
But speaking on a panel at the AfricArena event in Cape Town earlier this week, Anton Kleingeld, head of strategic partnerships and alliances at Old Mutual, said the company was “struggling to spend the money” in spite of taking part in a raft of accelerator programmes and similar initiatives.
The problem, Kleingeld said, is that many of the companies that pitch to him are too early-stage, and even when a startup is developed enough there are still a whole host of challenges when it comes to establishing a corporate-startup partnership.
“Our biggest frustration is that the startups we see are not that developed, they don’t have the right documentation. In the US a lot of the startups have that and it is literally a plug-and-play solution. In Africa we are not there yet. I don’t know what the answer is but we need to address that,” he said.
Even once a startup has been identified for Old Mutual to work with, there are so many obstacles that mean the chance of a formal partnership ever being entered into are very slim indeed.
“So many things need to align for mutual benefit to be created between a startup and a corporate. The timing needs to be right, and the goals need to be aligned. It is very hard to execute,” Kleingeld said.
“I’m asking questions about whether a startup-corporate partnership model even works. Trying to make it work in the standard environment within a corporate, you’re going to kill it. If it doesn’t show value in a couple of years, it’s gone. It is going to fall down the list of priorities.”
Anton Van Vlaanderen, partner at the Cape Town-based 4Di Capital, expressed similar frustrations to Kleingeld when it came to the investment-readiness of many African tech startups.
“We see that problem a lot. We have to do a lot of cleaning up. Startups want funding but they haven’t got themselves ready for funding. A lot of the focus is on pitching and outside stuff, but you’ve got to look at the inside as well, and what’s going on behind the scenes,” he said.
When it comes to startup-corporate partnerships, Van Vlaanderen said there was a problem with different mentalities.
“Corporates are not really in it for the long haul, they get in and get out. In the startup game you need to be in it for the long haul,” he said.
Yet a lot of corporate wariness of startups is understandable, given corporates have a lot more on the line than their startup counterparts.
“A corporate has a lot to lose in terms of reputation damage, but a startup has nothing to lose. If it fails they just start again. Failure is very frowned upon within corporate culture,” Van Vlaanderen said.
Louw Barnardt, co-founder of cloud accounting company Outsourced CFO, said it was critical for young companies and big firms to work together, but accepted there were a lot of complexities.
“But if you can make it work there is a lot of value that can be created,” he said.
Ecosystem support players were required to play a role in ensuring that African startups, however early stage, are ready when it comes to dealing with corporates or investors, he said.
“We have to create a culture of entrepreneurship. There is a place for early stage incubators that can help you with setting up a business,” Barnardt said.