A new venture capital fund, Grovest Venture Capital Company, was launched today, which intends to focus on “high growth businesses in the tech and mobile industries”.
According to a statement, it is SA’s first operational venture capital fund incorporated under section 12J of the Income Tax Act. Investors can get in on the fund with a minimum sum of R100 000, with up to 40% tax relief on the investment. So if an individual invests R100 000 and is paying tax at the maximum threshold, he will receive income tax relief of R40 000, making the net cost of the investment only R60 000. In addition to this tax break, which reduces risk capital to 60% of the investment, investors also enjoy tax-free dividends, says Grovest.
“The two main reasons for the failure of small companies: a lack of capital and suitably trained management,” says Jeff Miller, director of Grovest. “Banks are unlikely to finance young ventures, yet funding is the oxygen of entrepreneurs.”
The fund aims to achieve returns of between three to five times in a five to seven year time frame, equating to an investment rate of return (IR R) of between 25% – 37%.
Miller suggests that investors apply 5% – 7% of their portfolio to this asset class. With the tax benefit of 40% in hand for the individual (assuming marginal tax), the investor’s down side has been extremely reduced. Yet the investor is also positioned to take advantage of the potential upside.
For interested investors, shares in Grovest can be bought via financial advisors or directly from the company. Grovest is registered with the FSB in terms of section 7 of the FAIS Act as required by section 12J of the Income Tax Act. It is also registered with SARS as a venture capital company, according to a statement.
Whether the new fund will give a much-needed boost to SA’s aspiring technology entrepreneurs and fledgling startups remains to be seen, but it is certainly a step in the right direction.