South Africa is a tough place for people who are looking for angel or venture capital funding. The market is small and uncompetitive, but this needs to change if we want to grow the vibrant entrepreneurial sector that is so crucial to local economic growth. MANDY DE WAAL speaks to UK business angel and start-up mentor Permjot Valia about money, entrepreneurs and poverty.
Listening to angel investor Permjot Valia talk, it’s obvious he’s unlikely to be a big Milton Friedman fan. Friedman once famously asked, “Do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible?” And answered himself, “No, they do not.”
Permjot Valia, the man who started his first business at 14, instead quotes John F. Kennedy. He quoted Kennedy the night I met him at the pre-conference dinner for NetProphet, which he has attended both as a speaker and a mentor to start-ups. And the quotation he used that night, he repeated in the interview with Daily Maverick.
“To those people in the huts and villages of half the globe struggling to break the bonds of mass misery, we pledge our best efforts to help them help themselves, for whatever period is required – not because the communists may be doing it, not because we seek their votes, but because it is right. If a free society cannot help the many who are poor, it cannot save the few who are rich.”
To be exact, the part Valia quotes often is that last line. It’s a gut-puncher and in part what made that speech, delivered by Kennedy in Washington DC on 20 January 1961, arguably one of the most memorable inaugural speeches of all time.
“What is not plausible is this theory that capitalism should go unfettered,” Valia tells Daily Maverick in Cape Town, fresh from guiding young businesses in knowing their numbers, validating their ideas and not looking for money from the get-go. “If the last two or three years taught us anything, it is that unfettered market-based capitalism doesn’t work.”
Anyone who promotes capitalism as an absolute right doesn’t understand capitalism, Valia says.
Kennedy talked often about freedom in that famed address which sketched a Camelot built on US patriotism. Valia talks about entrepreneurs as the creators of any kind of Camelot.
“Entrepreneurs and democracies feed off each other. Entrepreneurs need democracy, and democracies need entrepreneurs,” he says. “Entrepreneurs spread wealth. True entrepreneurship, on the other hand, is a great leveller: while it creates opportunities, it destroys old businesses and creates new ones. In an emerging, vibrant, democratic society, you need more opportunities so that more people can share in new wealth.”
Which raises the question: how can a country like South Africa create an ecosystem that seeds a vibrant and growing entrepreneurial sector? For Valia, it is all about culture, but his caveat is that culture is difficult to transport, replicate or create. “The one thing you need to be careful of is having too many government programmes – which might sound ironic, because I am funded by government programmes,” he says.
Valia believes that people find it easy to wax evangelical about the wealthy and how they should be angel investors, but that it is not always that simple. “Statistically, angel investing is a bad thing to do. There are very few angels who make money. So it is not the role of government to encourage people to make private losses,” he explains. “What governments should and can do is to create tax systems whereby angel investing is rewarded in terms of the risk-taking.”
Through his business Help With Sales, Valia has worked with a number of provincial governments in Canada as well as Canadian federal agencies. “Government programmes tend to foster a kind of ‘the pie isn’t going to grow’ mentality, so let’s take whatever we can. What you need to do in the private sector is to create a culture where people genuinely want to help each other because they get that doing so enlarges the pie,” says Valia, who also sits on the board of the UK’s Enterprise Investment Scheme Association (EISA). An independent, non-profit organisation, EISA assists with capital flow to small and medium-sized businesses in Britain.
Global connectivity is important, Valia believes. “South Africa has a small domestic population and it is very hard to build sustainable businesses only serving the local market. You have to scale up – you have to have global connectivity,” he stresses.
Another important ingredient to creating an environment that’s more entrepreneur-friendly is creating a system where ideas get validated. But ideas aren’t everything; people are, says Valia. “Entrepreneurs too quickly come up with ‘We want money, we want money’. But you’ll hear from all the VCs and all the angel investors: ‘We back good people.’ Sometimes people aren’t backable even though they have a really good idea. That’s why it is important that the ecosystem gets people with great entrepreneurial skills to mix with people who have great ideas,” he says.
“Then you need money infusion. A lot of governments around the world do promote and support angel networks. I don’t think that governments should be supporting angel networks, but there needs to be an angel network and VC structure for a competitive market to come into existence. That helps the really good ideas or people who are good entrepreneurs to find money,” says Valia.
The local angel and venture capital market is small. FM reports that this sector, which provides crucial funding for emerging enterprises, only invested R2,6-billion in the past ten years. The article adds that Treasury has relaxed requirements for the qualification of tax incentives that encourage venture capital investment.
Valia says entrepreneurs look for money too quickly off the back of an idea, and adds that VCs or angels always back good people. He himself has put his money where his mouth is by backing MyOws.com, a strongly ethics-driven intellectual property rights service for creative workers.
MyOws.com was founded by Chris Human and Max Guedy, who both operate boutique agencies in the Cape marketing sector. Human’s agency develops logos and other brand work, and has experienced the theft of intellectual property.
“Another company with a very similar name to ours lifted our name and elements of our identity,” says Human. “That is theft of property. If there is something you’ve made and someone else sells it, it usually precludes you from selling it afterwards. If you’ve developed a great identity or wonderful website template or layout, and someone else sells it for half the price, it is your work. It is like someone stealing a jeweller’s jewels.”
The problem with intellectual property is that it can be replicated quite easily and copyright is difficult to assert. “Our research showed that more and more creative people have this problem. Professional photographers see their work for sale on other sites for a twentieth of what they’re selling it for – less than what it costs to take the photo,” Human explains.
Human and Guedy were taking a short course on intellectual property to get up to speed for their business when they had an epiphany. “Sitting at the law course at UCT and battling to get our minds around how the law deals with intellectual property and how one can prove what’s yours, we realised that there’s no registration system for copyrights – it is assumed,” says Human.
The duo came up with the idea of creating a repository where you can upload works as they are created, and register them to yourself in a fool-proof way that asserts evidence of ownership. “Subsequently MyOws.com has grown into a whole suite of services – the ability to issue contracts and licences; to show work to clients in a secure way; and to search for infringing work online. The long-term version is to make it an absolute integrated part of peoples’ lives,” he says.
Human and Guedy were joined by coding wizard Dave O’Reilly and attorney Steve Ferguson for a business that was self-funded two years ago, and which has gained 8,500 users even though it is still in beta. The team met Valia when he arrived in the Cape to mentor start-ups and it was a match.
“Start-ups tend to be obsessed with ideas and challenges, which is good and well, but the ability to monetise that and to create a real business is a whole different head space. Permjot has a good understanding of tech start-ups. His investment wasn’t particularly substantial; it wasn’t the point of what he was doing. It was more about his belief in us and what we wanted is for him to continue coaching us," says Human.
Intellectual property rights are becoming a hot topic, what with the massive growth of Pinterest and the general growth of the Web. Human tells the story of a US family who found a photo of their relatives on a billboard for a supermarket when they were travelling in Croatia. “The service is not just for creatives,” he says.
You don’t need to be an angel to see the potential of MyOws.com. With the right business drivers behind it, the online copyright protection service has the potential for massive global growth in a chaotic ‘wild west’ type Web where people will want to assert ownership of their works more effectively.
As for Valia, it didn’t take him long to become first a businessman, then a business angel. At 14, he was working in a bakery and convinced the owner to stock samoosas – then got his mother to make them. He sold them to the bakery for “a nice little margin”, to the delight of his parents, who were unemployed at the time. After that, he convinced the local fish and chip shops to stock the samoosas too and eventually, the family was even supplying Selfridge’s. Following a stint at Leeds University and a job at Ernst & Young – where he oversaw the London entrepreneurial services division – Valia again started his own business, soon becoming involved in angel funding.
“I ended up investing in many of the companies I was helping and I have now invested in 16 companies, ranging from mobile phone contract lead generation to interior design on the web, cafes producing fresh daily breads, to a company supplying the NHS with vegetarian condoms!” he writes on Business Angel – his blog.
And what does Valia look for in an entrepreneur? “Every angel will look for different things. I look for two things in my entrepreneurs. I like it if they are coachable, and ‘coachable’ doesn’t necessarily mean by me. One of my heroes is Charles Darwin, who is always, always, always misquoted. He never talked about the survival of the fittest – rather, he said that those who are the most adaptable will survive.”
“What I mean by ‘coachable’ or ‘adaptable’ is: can you recognise that circumstances have changed or that the old business plan or old mentality doesn’t make sense? Entrepreneurs need to change and respond,” he explains, adding that adaptability to new ideas and data is always crucial.
Valia also expects entrepreneurs to understand the relationship between numbers – the way in which tiny increases in sales can lead to a six-fold increase in valuation.
If you’re thinking of going to college or university to learn to become an entrepreneur, Valia says, you may as well forget it. “I do think that entrepreneurship cannot be taught. What you can do is take people who are already entrepreneurs and enable them to make better business decisions using different models, different case studies, and different practices. You can teach people how to become better entrepreneurs, but you cannot create an entrepreneur.
“To me, an entrepreneur is someone who has successfully raised money and brought resources together to enable a business to exist. It doesn’t mean they have to be successful – the entrepreneurial skill is in bringing the resources together to make something happen.”
The very first steps in this direction, Valia says, is in doing homework, projects and dissertations. “These are entrepreneurial activities. When you ask a student to put together a thesis or a project – and I really like the way scientists do this in in the US or Canada – kids are really being encouraged to do an entrepreneurial activity. They’re being asked to think of an idea, research the idea, bring together the resources, and to get their parents or peers to help them with the management of these resources.”
And that’s where the realisation of the SA tragedy strikes home. With the local education the way it is, what chances for those kids in a system that’s crumbling? It is five months into the new school year and learners in three provinces have yet to receive schoolbooks. In the Eastern Cape, where learners battled through 2011 without textbooks, it has been discovered that tons of textbooks, worth millions, were dumped for recycling.
So who’s going to get us out of this Catch-22 crisis that threatens to bankrupt our reserve of future entrepreneurs? So far, the task is falling to South Africa’s new wave of social entrepreneurs, for example Marlon Parker of Reconstructed Living Labs (RLabs), who helps re-engineer the lives of gangsters and drug pushers while creating a global tech business that’s doing good; or Yusuf Randera-Rees of the Awethu Project, who is changing South Africa one entrepreneur at a time.
It’s people like these, and every entrepreneur who opens his or her door to another person through employment, mentoring and empowerment, who will change the fabric of business in South Africa, where often, we dare not ask our government what it will do for us. What will make the real difference is – as Kennedy put it – letting the prosperous save themselves by saving the lives of others. DM
- SA's economy dependent on entrepreneurs in Mail & Guardian.
- Social enterprise: a verb, not a noun in The Guardian.
- African Social Entrepreneurs 2012 by Hilde Schwab in Huffington Post.
- SME outlook ‘is not as dire as it seems, but is still tough’ in Business Report.
- Africa goes hi-tech: But where are all those keen investors? on Daily Maverick.
- The key is to get one uniting vision for SA – Improving education is crucial to making SA one of the top 10 economies by 2030, writes Sipho Nkosi in Sunday Times.
Photo: Permjot Valia (Photo by Seedcamp photos)