Black-owned tech startups in South Africa face a funding gap not experienced by their white-owned counterparts, according to a provisional report by the country’s competition regulator the Competition Commission (CompCom).
The CompCom report, which is generally focused on dominance abuse and anti-competitive behaviour with regard to B2C platforms in South Africa, looked at the extent to which “historically disadvantaged persons” (HDPs) were excluded within parts of the digital ecosystem.
It found that HDPs, mostly blacks, in South Africa’s digital economy suffered from the compounding results of the apartheid system, with the lack of funding available to such people resulting from exclusion from business networks and a relative scarcity of wealth.
“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’, unlike their white counterparts,” the report said.
It went on to say that HDP-founded startups in South Africa faced greater pre- and post-revenue funding barriers compared to white entrepreneurs, with many VCs unwilling to support startups from townships, in particular, unless they were specifically mandated to.
“At the stage where the VC industry gets involved, HDP startups continue to face far greater barriers to funding support than white entrepreneurs. The VC industry concedes that it lacks transformation itself, that it perceives the risks in township economies to be higher than they actually are, and that it does not actively seek out HDP opportunities unless there is a mandate to do so from funders,” the report said.