Abstract:
The purpose of this study was to investigate the capacity of open innovation networks to improve access to finance for SMEs and stimulate innovative entrepreneurship in a way that supports profitability and job creation. The study was deductive and qualitative in nature involving a group of entrepreneurs and lending specialists through face-to-face semi-structured interviews to probe four research propositions.
The findings of the study varied across each of the four propositions due to the low maturity level of the local ecosystem and its high reliance on ESD networks. The study found the network to strongly facilitate more equity financing than loan finance, including some grant funding, DFI funding, and repeat funding as well.
However, there was also significant replicative innovation in the network resulting in low profitability for SMEs and poor job creation. This outcome was largely attributable to the high focus on regulatory compliance in the ESD networks and generally low levels of funding activity.
The study faced two salient limitations relating to the underdeveloped nature of networks and venture capital market in South Africa suggesting a strong implication to invest in both in the future. Two original insights emerged, viz. (i) the imperative to prioritise investment in the networks ahead of investment in the venture capital market to better support early-stage entrepreneurs, and (ii) the need to leverage the J12 incentives in the tax code into the ESD networks to build a platform for corporate venture capital to support R&D and innovation.
