Who Really Wins? Rethinking Venture Capital’s Role in South African SME Growth

By Ragmah Jappie
Entrepreneur | SME Advocate | Woman in Business

In recent years, the phrase “empowering SMEs” has become a comfortable buzzword in the South African investment landscape. Venture capital firms, private equity funds, and Section 12J vehicles have positioned themselves as partners in growth, flying banners of support for small businesses, youth entrepreneurs, and women-led enterprises.

But on the ground, in boardrooms and balance sheets, the lived experience of many SMEs paints a more complex — and often uncomfortable — picture.

The Imbalance Beneath the Surface

A 2023 report by the Gordon Institute of Business Science (GIBS) on SMMEs and the Ethical Ecosystem raised red flags. It showed that small businesses often find themselves locked into unfair contractual relationships with larger players, where their voices are diminished and their value extracted with little post-investment support. [GIBS, 2023]

Section 12J: Did It Really Deliver?

South Africa’s now-phased-out Section 12J incentive programme was introduced to stimulate SME growth by allowing tax-deductible investments into qualifying small businesses.

But a critical thesis from the University of Cape Town argued that the benefits largely flowed upwards ~ to the investors — rather than into the operations or sustainability of the businesses themselves. [Mynhardt, 2020]

Governance Matters: Shareholders Still Have Rights

A recent ruling in the Western Cape High Court affirmed that shareholder rights cannot be sidelined for convenience. In Moors and Others v Veldskoen Capital (2025), the court upheld that material share transactions must be properly approved, minuted, and communicated to all shareholders. [ZAWCHC 259/2025]

🌍 Global Data, Local Consequences

According to the World Bank’s 2021 enterprise survey, SMEs in developing countries ~ including South Africa ~ consistently struggle to access fair and ethical finance. The study highlights that corruption, opaque deals, and unequal power dynamics continue to block the very entrepreneurs meant to be empowered. [World Bank, 2021]

A Moment of National Reflection

South Africa is home to thousands of resilient, talented, and visionary entrepreneurs ~ many of them women, many of them previously disadvantaged.

We must ask ourselves:

• Are our investment structures truly supporting their growth?
• Or are we unintentionally enabling a new form of extraction ~ one dressed in the language of empowerment?

The goal here isn’t to vilify venture capital, but to hold space for honest conversation. Because if we do not course-correct, we risk reinforcing the very patterns our democracy was meant to dismantle.

What Responsible Investing Should Look Like

• Transparent transactions
• Proper shareholder consultation
• Clear value for all parties
• Post-investment mentorship and support
• Fair exit mechanisms and governance compliance

We can ~ and must ~ do better.

Let this be a gentle wake-up call. Not all partnerships are built on fairness. Not all empowerment is empowering. And not every small business story ends with growth.

But it should.

Ragmah Jappie
Entrepreneur | Advocate for Ethical SME Investment
📍 Cape Town, South Africa