7 KEY CHALLENGES FACING THE

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7 KEY CHALLENGES FACING THE PRIVATE EQUITY AND
VENTURE CAPITAL INDUSTRY IN SOUTH AFRICA
MALCOLM SEGAL Chairman SAVCA Executive Director
Sasfin Bank Limited Head Sasfin
Capital Private Equity
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• CHALLENGE 1
• COMPETITION FOR DEALS
• - significant undrawn commitments of
• independents plus balance sheets of
• the captives
• - competition for quality BEE deals
• - upward trend in entry multiples

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• CHALLENGE 2
• IPOS AS AN EXIT MECHANISM
• 2004 One
• 2005 None to date
• SAVCA working with JSE Securities
• Exchange to understand the constraints
• several ideas being considered to encourage
  IPOs

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• CHALLENGE 3
• GOVERNMENT / PARA GOVERNMENT FUNDS
• - Industrial Development Corporation (IDC)
• - Khula Enterprises
• - National Empowerment Fund (NEF)
• - Umsobomvu Youth Fund
• - Development Bank of SA (DBSA)
• SAVCA view outsource the management of these
• funds to the industry on a Public Private
  Partnership
• (PPP) basis

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• CHALLENGE 4
• RETURNS EXPECTED BY INVESTORS - 25 IRR
• However - CPI currently 3 - 5 pa
• - GDP growth 4 - 5 pa
• 7 -
  10pa
• Recent performance of JSE Securities Exchange

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CHALLENGE 5 ABSENCE OF SEED FUNDING -
Overwhelmingly a growth / development and buyout
industry SAVCA / KPMG report SAVCA view
need to improve the fiscal incentives
for investors and R D
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• CHALLENGE 6
• EXCESSIVE REGULATIONS AND GOVERNANCE IS
• STIFLING AND COSTLY FOR (SMALL) BUSINESS
• Companies Act
• Competition Act
• King II on Corporate Governance
• Financial Standards Board
• Securities Regulation Panel (SRP)
• IFRS
• Taxation related 16 different taxes, imposts
  and duties
• SAVCA response working with sponsors to make
• recommendations to Government

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• CHALLENGE 7
• LOW LEVEL OF INVESTMENT BY RETIREMENT FUNDING
  INDUSTRY IN THE ASSET CLASS
• Regulatory ceiling 5 of assets
• Trustees of Pension funds lack of education
  and
• understanding concerned about risk and
  personal
• accountability.
• SAVCA response Investor relations information
  and
• education program.

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SAVCA envisages a significant improvement in the
industry profile over the next 5 years

• More assets under management by the PE industry
• More profitable industry for all players
• More players, more BEE players, and more BEE
  investees
• More capital available for start-ups and early
  stage ventures
• Supportive tax and regulatory environment
• Favourable exit markets, including JSE

Target PE Industry Profile - 2010

• Improve certainty on BEE Charter / Rules for PE
  firms
• Improve tax and regulatory environment for both
  PE firms and investors in PE funds
• Improve understanding of, and support for, the PE
  asset class among key players and investors
• Improve reporting standards and disclosure of
  performance
• Improve market for VC and early stage capital
• Improve conditions in exit markets, including the
  JSE

Strategic Initiatives

• Profitable industry for a select number of
  players
• Growing number of well positioned BEE players
• Poor / limited understanding of, and support for,
  the PE industry among investors and other key
  decision makers
• Limited attractiveness of the tax and regulatory
  environment
• Uncertainty on impact of BEE on PE industry
• Poorly developed VC market for start-ups and
  early stage entrepreneurs

Current PE Industry Profile - 2005
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SAVCAs strategic objectives coincide with the
national interest
National Benefits
Industry Objectives

• National economic development
• Broad based BEE
• Entrepreneur development
• Skills development
• Innovation and value creation at investee company
  level
• Good corporate governance

• Creating an environment that is conducive to the
  effective development and profitable growth of
  the SA Venture Capital and Private Equity
  industry
• Creating benefits for all players and
  stakeholders in the industry
• Creating a sustainable industry with
  opportunities for both current and future players

In this context, the role of SAVCA is to create a
strategic platform for the benefit of both the
VC/PE industry as well as the broader SA society
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THANK YOU