Budget speech commentary by the Southern African Venture Capital and Private Equity Association (SAVCA) - Grovest

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Budget speech commentary by the Southern African Venture Capital and Private Equity Association (SAVCA)

25 February 2016

  • A welcome reference by the Finance Minister to reduce the regulatory burden for business investors;
  • SAVCA hails the intention by National Treasury to evaluate the workability of aspects of the Section 12J Venture Capital Company Regime;
  • The hike in capital gains tax for companies will have implications for investor returns upon the disposal of assets; future adjustments in this tax regime ought to factor in the inhibiting effect it could have on the willingness of investors to take on the risk of allocating capital to growth assets.

The stated intention by Government to reduce the regulatory burden for business investors, as announced by the South African Finance Minister Pravin Gordhan in the 2016 Budget Speech, will help attract foreign and local investment into the South African economy – including investment by private equity and venture capital.

According to Erika van der Merwe, CEO of the Southern Africa Venture Capital and Private Equity Association (SAVCA), this was one of the positive elements of the annual fiscal policy statement, whose clear overall intent was to boost investor confidence in the South African market.

“From the perspective of the private equity and venture capital industry, we welcome measures to ensure that appropriate regulation is in place; that is, regulation that provides peace of mind to investors into private equity and venture capital funds — while not being unnecessarily onerous and impractical.”

Also encouraging was the assurance provided that National Treasury will examine measures to encourage venture capital funding for small businesses, through an assessment of its Section 12J Venture Capital Company (VCC) Regime. The VCC incentives were introduced in 2008 to provide tax relief for investors into venture capital and SME investments.

“Following the well-received engagement by SAVCA with National Treasury in 2015, relating to the Section 12J incentives and their workability, we are pleased to note that Government has acknowledged that certain provisions in the legislation may be deterring potential investors,” van der Merwe says.

According to Samantha Pokroy, a SAVCA director and CEO of Sanari Capital, although there has been a positive uptake of the VCC regime since the amendments to the incentive became effective in January 2015, certain practical constraints remain, which SAVCA and its member practitioners have brought to the attention of National Treasury.

Pokroy says that SAVCA and its members hope to see further amendments to the legislation, particularly in the following areas:

  • Allowing for transferability of tax benefits on an apportionment basis if investors dispose of their holdings within the stipulated five-year period, to enhance liquidity in the asset class.
  • Clarification of certain clauses in Section 12J that are open to interpretation, which could expose the VCC to unintended breach in compliance. Clarification will aid in fund managers’ engagement with prospective investments.
  • Waiving Capital Gains Tax (CGT) on the disposal of assets in the VCC.  Currently CGT is paid in the company in addition to Dividend Withholding Tax, which dilutes the VCC incentive. That is, a “double tax” is paid as compared to investing via traditional fund structures or in direct investments. Some technical matters referring to calculation of base cost also need to be addressed.
  • Expanding permitted business forms as this enables more traditional fund management structures.
  • Amendment to the connected person test. The connected person test applied at each subscription complicates capital raising as no single investor may hold 20% or more of the equity – making it a challenging balancing act to raise sufficient capital. Whilst this regulation helps avoid abuse of the vehicle, SAVCA proposes that the connected person calculation be back-ended (i.e. measured after three years) to allow the VCC to raise the capital in tranches.
  • Salaried executives have less incentive to invest due to the delay and complication in filing and receiving their returns (as compared to provisional tax payers). This complicates capital raising, linking it largely to the tax year end.  SAVCA proposes certain measures to enable tax deductions from PAYE, enabling immediate benefit from the tax-deductible investment for salaried individuals.

The commentary in the Budget Review opens the door for SAVCA to continue to engage and support National Treasury in this regard, Pokroy says.

“We see this piece of policy as one leg of a broader government programme to enhance policy for venture capital and SME investing in South Africa. We were equally encouraged by Minister Pravin Gordhan’s mention of one of the key workstreams to promote inclusive growth, being the establishment of a new fund to invest in and develop SMEs; as well President Zuma’s State of the Nation address regarding finalisation of the Department of Science and Technology’s Sovereign Innovation fund, a public-private funding partnership aimed at commercialising innovations.”

Pokroy says that “private equity and venture capital plays a critical role in helping to formulate effective and useful policy in partnership with government, and in drawing on its investment expertise and experience to raise and deploy investment funds for the purpose of inclusive growth and economic prosperity”.

Van der Merwe goes on to note that the announcement of increased capital gains tax rate for companies will have implications for investor returns from the disposal of assets.

“The tax hike highlights the difficult balancing act faced by the fiscal authorities, in ensuring that sufficient tax revenue is raised without inhibiting the risk-taking and growth-generating activities of business owners and investors. We trust that any future adjustments to the capital gains tax rate will take into account that these actions mean that there is reduced incentive for investors to allocate capital to growth assets.”

About SAVCA:

The Southern African Venture Capital and Private Equity Association (SAVCA) is the industry body and public policy advocate for private equity and venture capital in Southern Africa, representing about R170 billion in assets under management, through nearly 150 members. SAVCA promotes Southern Africa private equity by engaging with regulators and legislators on a range of matters affecting the industry, providing relevant and insightful research on aspects of the industry, offering training on private equity and creating meaningful networking opportunities for industry players.

Malcolm Segal | B.Com CA (SA) CPA (ISR) | Non Executive Chairman

After qualifying as a Chartered Accountant, Malcolm practised as a partner of Grant Thornton (Chartered Accountant and Business Advisors) and was elected Managing partner of the Johannesburg office in 1986 and National Executive Chairman in 1989. Malcolm established MDM Private Equity Investment Fund in 1997 which he managed until acquired by Sasfin Holdings Limited in 2005. In February 2012, Malcolm resigned from the boards of both Sasfin Holdings Limited and Sasfin Bank Limited to enable him to pursue his passion – entrepreneurship and entrepreneurial funding activities. Malcolm currently sits on the boards of various companies in which he holds a private equity investment and, inter alia, is also an External Member of the Special Credit Committee of the IDC (Industrial Development Corporation of South Africa Limited) and a member of the Listings Advisory Committee of AltX (Alternate Exchange of the Johannesburg Securities Exchange).

Jeff Miller | B.Com B.Acc CA (SA) | Chief Executive Officer

Jeffrey is a Chartered Accountant having completed his articles at Grant Thornton and has over 30 years’ experience investing in unquoted companies across numerous industries. Jeffrey co-founded Brandcorp, which was listed on the Johannesburg Stock Exchange in 1997. He brings many years of operational and investment skills to the company. He was a co-founder of KNR Flatrock, Balboa Finance, Born Free Properties, Eurosuit, Bride & Co., Seed Engine, Seed Academy and VCMS. Jeffrey is a pioneer of Section 12J Venture Capital Companies in South Africa and is an active member of various subcommittees of SAVCA and Simodisa, both of which focus their efforts on the South African Venture Capital industry.

Daniel Rubenstein | BCom (Hon), CA(SA) | Non-executive director

Daniel is a Chartered Accountant. He qualified in 2009 after completing his Articles at PKF. He has been involved in property from a young age and is well networked in the property industry. Daniel was one of the founders of Annuity Properties Limited, a property fund which was started in 2010 and listed on the JSE in 2012. Annuity Properties Limited was sold to Redefine Properties Limited in 2014. Daniel was instrumental in creating a property portfolio valued at R2 billion in a period of three years. Since Redefine’s acquisition of Annuity, Daniel has been involved in various property transactions within South Africa and Europe. During the past twelve months Daniel established Glenrock International which has acquired commercial property in Germany at a cost price of twenty five million Euros. He has a proven track record of sourcing attractive property investment opportunities, structuring transactions and raising acquisition finance, both locally and abroad.

Jarod Kolman | (Hon), Finance. HDip Co.Law. | Non-executive director

Jarod attended Wits university where he qualified with a B.Com (Hon) Finance and an HDip Co.Law. In 2008, Jarod co founded The Capital Group with Marc Wachsburger and successfully sold out his equity interest in 2011. Jarod is the founder of Limestone Property Group, which has successfully developed over 400 sectional title units and has to date sold in exess of 7000 buy-to-let properties. In 2014, Jarod co-founded The Luxury Lifestyle Group which focuses on the management and servicing of fully furnished self catering apartment hotels. Jarod has a track record of finding opportunities in the apartment hotel market and understands the needs of his guests and constantly designs new products to meet the every changing demands of the hotel guest.

Ran Neu-Ner CFA Non-executive director

In 2001 Ran co-founded The Creative Counsel. The company is today (since 2011) South Africa’s largest agency group. In 2015, TCC was sold in the largest agency transaction in Southern Africa for over R1 billion where he remains in the capacity of Co-Group CEO.Ran is an active investor in the property, hospitality and technology space and has access to a large network of deals.Ran is on the board of YPO and an active member of EO.

Jeffrey Livingstone | B.Com CA (SA) HDip Tax Law | Non Executive Director

Jeffrey is a practising Chartered++Accountant and Chairman of Light & Livingstone Inc., Registered Accountants and Auditors. He qualified in 1976 after completing his articles at PKF and completed the Higher Diploma in Tax Law in 1981. Jeff provides a wide range of professional services to a broad spectrum of industries and has acted as a director and consultant to several public and private companies. He was instrumental in the listing of Net1 Applied Technology Holdings Limited on the Venture Capital Market of the Johannesburg Stock Exchange in 1997 and together with Jeff Miller, played a significant role in the listing of Brandcorp Holdings Limited on the Johannesburg Stock Exchange in 1997.Jeff is currently a non-executive director of ADvTECH Limited, VCMS (Pty) Ltd and a director of numerous other companies, as well as a trustee of numerous trusts.

Clive Butkow | B.Sc Computer Science and Applied Mathematics | Chief Executive Officer

Clive is the former Chief Operating Officer (COO) of Accenture South Africa and has 28 years management consulting experience. During his tenure at Accenture (formerly Arthur Anderson and Anderson Consulting), he played numerous leadership roles including Managing Director of Accenture South Africa’s Technology business as well as Managing Director of Accenture’s Resources and Utilities businesses. In addition to his COO role, during the last 6 years, he led sales for Accenture’s Technology business, cultivating an entrepreneurial mindset which helped grow Accenture into one of the top emerging markets globally. Clive has deep technology skills from working across multiple industries including Financial Services, Resources, Retail, Automotive and Communications. He has leveraged these technology and business transformation skills and helped drive significant shareholder value for many South African clients. Since January 2013, he has supported and mentored many technology businesses, assisting them in driving growth. Clive joined Arthur Anderson in 1985 (now Accenture) after graduating from the University of the Witwatersrand with a B.Sc degree in Computer Science and Applied Mathematics.

Fatima Habib | Mcom Economics, Bcom (Hon) Applied Physcology, B.Sc Social Sciences

Fatima Habib, has a strong academic pedigree, and holds a MSoc Sci (economics and industrial and labor studies) from The University of Natal, Honors in Applied Psychology from The University of Witwatersrand and a BSoc Sci from The University of Natal. Fatima successfully began her career with Deloitte and Touche, progressing to very senior positions in both corporate SA and the SA government, as time progressed. A seasoned executive, with 20 years’ experience within both the public and private sector that spanned various environments from telecommunications, to a Wall Street firm in New York, and then private banking; following which a career move to contributing to the public sector. Fatima has over 20 years of experience within all areas of business - HR, Finance, IT, Operations, Strategy. She has held a number of Executive positions in her diverse career, including being the Executive Director: Corporate Services at the City of Cape Town , Executive: Corporate Services at the JDA, Regional HR executive at Telkom, GM of Absa Private Bank, Chief of Shared Services at SITA, Assistant GM at Smarte Carte, inter alia.

Gil Oved | • B.Com Economics and Marketing (Cum Laude), CFA | Non-Executive Director

A serial entrepreneur and astute businessman, Gil Oved is group co-CEO of The Creative Counsel (TCC) which he co-founded in 2001. What started as a tiny promotions company has grown into South Africa’s largest agency group with an annual turnover of R700 million. Employing just over 1 500 full time staff and thousands of temporary staff, TCC runs sales and marketing campaigns for the largest multi-nationals and large local marketing spenders. Over this time Gil has been involved in many successful start-up businesses and has invested in many others. TCC was recently bought by Publicis Groupe, a leading global marketing, communication, and business transformation company in the largest deal in advertising history in South Africa and the continent. Gil feels passionately about entrepreneurship and mentorship and invests much of his spare time in advising, guiding and inspiring entrepreneurs on the continent. He was one of the Dragons in the launch series of Dragons Den South Africa and has co-authored a book, I’M IN with the other four dragons on the show. The book seeks to inspire entrepreneurs through their collective lessons learnt in business with the other four dragons, all proceeds of which go to an entrepreneurial charity.

Arnold Basserabie | Non-Executive Director

Arnold was the Group Chief Executive of Fedsure Financial Services Group from 1988 – 2001, during which time its asset base grew by 25% pa compound to R40b and its share price by about 20% pa compound. Since then he has been a Strategic Business Consultant, focussing on strategy and business development, mergers and acquisitions, and related activities, in a diverse range of industries. Arnold obtained a B.Sc (Math & Math Stats) from Wits University, is a qualified actuary and a certified financial planner. His awards include Insurance Man of the Year, IMM Marketing Man of the Year, Jewish Business Achiever of the Year and Lifetime Achiever, and the World Presidents Organisation’s International Best of the Best Regional Chair.

Nicholas Liebmann | Non-Executive Director

Nic completed a commerce degree majoring in finance at Bond University where after he gained some international exposure working abroad in the United Kingdom. Nic Established a Wealth Management Firm which was absorbed by Sasfin Bank where he also gained work experience for more than 4 years.
Nic has been in Finance for over 15 years and is currently the co-founder and joint-CEO of Caleo Capital, an asset manager whose expertise range across Private Equity, Wealth Management, Financial Advisory Property and Venture Capital. Caleo also manages a private equity stake in the renowned Maboneng Precinct in central Johannesburg.

Romeo Kumalo | Non-Executive Director

Romeo is currently the CEO of Washirika Holdings, an investment holding company with focus in communication, construction, energy and ICT infrastructure. He was previously the CEO of Vodacom/Vodafone International, responsible for all the Africa markets. An accomplished leader and commercial strategist, with over 20 years’ experience in Information, Communication and Telecoms industries, a proven track record of building teams, creating value and turning around underperforming businesses. An excellent communicator with well-established networks in Africa. He has worked, lived, and travelled extensively across the continent. He was appointed to the Board of Vodacom South Africa as Executive Commercial Director in 2007 and was a member of the Vodacom Executive Committee until 2015. He served as non-executive director of Vodacom Tanzania, Lesotho, Mozambique, DR Congo and other Vodacom group of companies. Romeo serves on various private company boards and holds a Master Degree in Commerce and executive management certificates from WITS, INSEAD, and HARVARD Business School.

Mafika Mkwanazi | Non-Executive Chairman

Mafika Edmund Mkwanazi was the Non –Executive Chairman of Transnet SOC from December 2010 to December 2014 and also non-executive director of Eskom from July 2011 to December 2014. He completed a B.Sc. degree in Mathematics and Applied Mathematics at the University of Zululand in 1978. He also graduated with a Bachelor of Science Electrical Engineering from the University of Natal (Howard College) in 1984. He was at some stage CEO of Transnet and Chairman of Letseng diamonds, Western areas gold mine and non-executive director of Nedbank for 9 years.
He is currently Non-Executive Chairman of HULAMIN, and is Non- Executive Director of MSC South Africa as well as Stefanutti and Stocks.

Dr Bonakele Mehlomakulu | Non-Executive Director

Dr Bonakele Mehlomakulu is the CEO of the South African Bureau of Standards (SABS). Under her leadership, the almost 70 year-old institution has undergone a significant transformation, gearing itself towards service relevance within the 21st century. She holds a PhD in Chemical Engineering and her leadership philosophy centres around the empowerment of those entrusted in her care. Her professional career started at Sasol before joining the Department of Science and Technology (DST) in 2003. In September, 2009 Dr Mehlomakulu took over as the Chief Executive of the SABS, South Africa’s foremost body, promoting and maintaining standards and quality. Dr Mehlomakulu was an Eskom non-executive director for more than 5 years. She was Chairman of the Sustainability subcommittee of the board.

Rodney Love | Non-Executive Director

Rodney is an experienced and dynamic businessman with a strong background in building intuitive and innovative business concepts focused on growth and expansion. Rodney also founded ESA in 2012 having identified the energy reduction opportunity management which has resulted in self reliance of energy allowance in Photo Voltaic solar energy plants.
Rodney started Suburban Services (Pty) Ltd over 20 years ago. Suburban Services provider to blue-chip clientele of soft services that include major retailers, listed property funds, national commercial portfolios. Rodney has a profound interest in the growing renewable energy space and is constantly analyzing ways of commercializing energy-based opportunities.

Paul Jenkins |Non-Executive Director

Paul qualified at Randse Afrikaanse Universiteit in 1981 with a BCom and LLB degree and was admitted as an attorney and notary in February 1986. He became a partner of Webber Wentzel in 1988 and left his position as senior commercial legal partner in 1999 to join the Johnnic group full time. In this capacity he served as a director of numerous listed companies and was CEO of Johnnic Entertainment. He is currently self-employed and provides business and legal advisory services to a select group of clients. He holds the position as non-executive Chairman of Caxton and CTP Publishers and Printers

Gil Sperling | Non-Executive Director

After graduating with a B.Sc Electrical Engineering from Wits University, Gil Sperling founded Popimedia at age 23. With his passion for tech, entrepreneurship and pure tenacity, Gil took Popimedia to being the only Facebook Marketing Partner in Africa, one of 40 companies around the world. As one of the leading Ad Tech companies, Popimedia serves fortune 500 brands globally using its proprietary platform meedee8. At age 30 Popimedia was sold to Publicis Group. Through his journey of entrepreneurship and scaling a company to exit, Gil invested, consults and mentors several technology companies, while also sitting on the board and investment committee of GroTech.