DEVELOPMENT OF VENTURE CAPITAL AND PRIVATE EQUITY INDUSTRY IN SOUTH AFRICA.
[Dissertation (University of Nottingham only)]
The past decade has seen the development of private equity and venture capital in emerging markets reach unprecedented levels, especially in countries such as China, India and South Africa. Regulatory reforms by the governments in these countries, and change of government in South Africa in particular, has enabled increased foreign direct investment into the country. This development coupled with deliberate policies such as BEE, to encourage ownership and management of enterprise by the previously disadvantaged black population, has enabled the private equity industry in South Africa to be a force to be reckoned with. The industry reached ZAR100 billion mark for the first time in 2008.
Drawing from the framework (Wright et al, 1992) to do the analysis of private equity in South Africa and Central Europe, it reveals the factors influencing the development of the industry. The findings have policy and regulatory implications for legislators and practitioners. The key elements of western-style private equity, as identified by Wright et al (2004b), namely sourcing of deals, entrepreneurial culture, depth of management skills, experienced professional services such as lawyers and consultants, better supporting capital market infrastructure, particularly for debt, and the development and diversification of exit routes for private equity investors, were assessed.
This study was conducted on the basis of interviews and surveys done by SAVCA with practitioners in the private equity industry in South Africa and Europe, and extensive desk based research. The study has major implications for policy makers, practitioners and entrepreneurs. Policy makers need to make regulations and/or necessary amendments to existing laws and regulations, to encourage flow of funds into South Africa, and ensure active participation of foreign venture capitalists in the industry. Practitioners or venture capitalists interested in doing business in South Africa need to know the practices of local firms and be in a position to take advantage of synergies and growth opportunities, including being familiar with exit strategies available in the country, in order to maximise return on investment.
The study also presents an analysis of possible synergies and/or syndication for further development of the industry.
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