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The South African Support System for Start-Up Companies: Assessing the Khula Indemnity Scheme

2012; SAGE Publishing; Volume: 16; Issue: 1 Linguagem: Inglês

10.1179/1024529411z.0000000001

1477-2221

Thomas Gstraunthaler, Peter K. Cramer,

Private Equity and Venture Capital

This article examines the South African financial system for start-up companies, and focuses particularly on the support provided by the Khula indemnification scheme. Most research rests on the assumption that a lack of finance is the sole impediment to success of start-ups; however, it is unclear whether such government intervention can indeed foster successful entrepreneurial activity. We show that the current system provides profit-making opportunities for both banks and consultants, but lacks a focus on sustainable business development. There are incentives to create companies not in an attempt to be profitable, but rather as a means to gain access to government or government-backed money. We question whether a lack of finance is the primary obstacle to the formation of businesses. Instead, we argue that it is a lack of accountability and an insufficient application of business tools such as basic cost accounting that make entrepreneurs less creditworthy.