On 16 September 2021, a collective consisting of investors, incubators, accelerators and founders, representing the South African entrepreneurship ecosystem, revealed their plans and latest findings towards the creation of the proposed South African Startup Act (the “Act”). These findings have been gathered over the past six months via focus groups and in-depth research methods which the aim of establishing bespoke legislation to cater for startup businesses. This article considers the proposed details of the Act and the benefits which it may bring to startup businesses in South Africa.

Details of the Startup Act:

The core motivation behind the creation of the Act is to develop an economic bill that will help stimulate socio-economic development in South Africa. The Act prioritises businesses with high growth potential, specifically those businesses that promote intellectual and technological innovation, and which need to raise investment both rapidly and sustainably. The purpose of the Act can therefore be said to make it easier for startups to establish, grow and scale their business.

Research to identify problems which are currently impacting or hindering the growth of startups is being conducted by the steering committee (“Steering Committee”), made up of members from Digital Collective Africa, Endeavor South Africa, i4Policy, Loudhailer, the Southern African Venture Capital and Private Equity Association, Silicon Cape, SiMODiSA and Wesgro.

The current findings of the Steering Committee purpose that startups, with an annual turnover of less than one hundred million Rand, be exempt from the limitations of existing policies and “red-tape” that constrains their growth and ability to create jobs. Additional relaxations provided for in the Steering Committees findings include, amongst other things:

• simplifying the procurement policies which directly relate to scaling up the involvement of startups in the national economy;
• direct funding of startup businesses through automatic reinvestment of pay-as-you-earn and value-added tax; and
• easing of immigration policies and labour laws that limit the access to foreign workers in order to nurture the availability of and access to high-skilled workers.

The findings of the Steering Committee also support the introduction of incentives to stimulate capital contributions from early-stage funding entities.

Concluding Remarks:

It is clear from the aforementioned that, moving forward, the proposed Act still requires a lot of development and discussion. The implementation of the Act is however to be welcomed as it has the potential to stimulate socio-economic development and increase the number of startup businesses in South Africa. VDMA looks forward to monitoring the progress being made on the Act as well as to actively participate in the legislative process.

VDMA’s team of experts are available to assist you and your business with the drafting of all the required documentation necessary to establish your startup or new business.

Published 27 September 2021