SUBMISSION TO THE DEPARTMENT OF TRADE, INDUSTRY AND COMPETITION

Subject: Response to Draft Statement 400 of 2026 – Proposed Amendments to the B-BBEE Enterprise and Supplier Development Framework
Date: 27 March 2026
Submitted by: Tiisetso Maloma
On behalf of: Startup Picnic Venture Studio and Startup Picnic Academy 

EXECUTIVE SUMMARY

The Problem

The current ESD framework does not answer a basic question: What percentage of funds actually reaches entrepreneurs?

In practice, a large share of funding is absorbed by:

• Consultants
• Intermediaries
• Corporate programme costs

Entrepreneurs receive a minority share. The system has become an ESD industrial complex.

Core Reform Proposal

1. Mandate transparency
   1. Report % of funds reaching entrepreneurs vs overhead
2. Enforce capital allocation discipline
   1. 51–70% must go directly to entrepreneurs
   1. ?50% of that must be in cash or working capital
3. Limit support cost extraction
   1. Remaining budget capped for admin, consulting, and programmes

Structural Reform

• Introduce decentralised capital allocation via VC/PE funds
• Replace central pooling with corporate-elected investment funds
• Implement a disciplined Fund-of-Funds (FoF) model where applicable

Key Safeguards

• No extractive preference shares or voting control from public capital
• Mandatory co-investment (R1:R1) above allocation caps
• Profit recycling into a revolving fund
• ?20% of profits for fees/incentives; ?80% reinvested
• B-BBEE compliance required for all fund managers

Outcome

A system where: Capital reaches entrepreneurs, not intermediaries

1. Introduction and Credentials

I submit these comments on Draft Statement 400 of 2026 in both my personal capacity and on behalf of Startup Picnic Venture Studio and Startup Picnic Academy.

I am an innovation theorist, venture builder, and intellectual property entrepreneur focused on innovation systems, township economies, and emerging markets. I have operated both inside and outside the Enterprise and Supplier Development (ESD) ecosystem.

While the Department’s intent to improve accountability is acknowledged, the proposed amendments do not address the system’s core structural failure:

They do not ensure that capital reaches entrepreneurs.

Instead, they risk reinforcing a system where intermediaries benefit more than the intended beneficiaries.

2. The Core Structural Problem

2.1 No Visibility on Where the Money Goes

Companies are required to spend:

• 1% of NPAT on Enterprise Development
• 2% on Supplier Development

However, there is no requirement to disclose:

• What reaches entrepreneurs
• What is consumed by intermediaries

In practice, funding is absorbed by:

• Internal ESD staff
• Accelerators and incubators
• Consultants and reporting structures
• Administrative overhead
• Events and programme costs

The proposed amendments increase reporting requirements, but do not improve capital transparency.

Recommendation

Mandate disclosure of:

• % transferred directly to entrepreneurs (cash, working capital, equipment)
• % spent on administration and intermediaries

2.2 The 51–70% Principle

In functioning investment systems, most capital reaches the asset being funded.

ESD should follow the same principle.

Recommendation

• Minimum 51–70% of ED spend must go directly to entrepreneurs
• Of that, ?50% must be cash or working capital
• Remaining portion caps support costs

Without this: Entrepreneurs remain over-supported in theory, underfunded in reality

2.3 Rethinking Support Services

Support is necessary—but must be:

• Cost-efficient
• Context-relevant
• Outcome-driven

Current models are:

• Expensive
• Generic
• Detached from real operating environments

Recommendation

• Competitive procurement
• Low-cost, innovative delivery models
• Outcome-based measurement

3. The Transformation Fund: Risks and Conditions

3.1 Risk of Centralisation

Large, centralised funds create exposure to:

• Capture
• Misallocation
• Political interference

This risk is not theoretical—it is historically observable.

3.2 Required Investment Discipline

If implemented, the fund must:

• Allocate ?50% to revenue-generating SMEs
• Limit support costs to ?30%
• Deploy ?70% as direct capital
• Operate on VC/PE principles, not grant logic

3.3 Market Focus

Target the “missing middle”:

• Too large for microfinance
• Too small for DFIs

3.4 B-BBEE Compliance

All fund managers must be:

• Verified
• B-BBEE compliant

4. A Decentralised Alternative

Allow corporates to allocate their ESD contributions to accredited VC/PE funds.

Mechanism

• Corporates select qualifying funds
• Funds deploy capital into SMEs
• Returns flow into a revolving capital pool

Advantages

• Reduces central risk
• Encourages competition
• Aligns with real investment ecosystems
• Improves accountability

5. The Aggregate Fund (FoF Model)

If a central fund is implemented, it must operate as a disciplined Fund-of-Funds.

5.1 Fund Structure

• Allocate to privately managed VC/PE funds
• Cap allocations (e.g. R10 million per fund)

Above cap:

• Mandatory private co-investment
• R1:R1 matching

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5.2 Fees and Deployment

• FoF fees ?10%
• Setup fees ?5% (FoF + fund level)

Minimum 60% of capital must reach startups

5.3 Entrepreneur Protection

Prohibit:

• Extractive preference shares
• Investor-dominant voting rights

5.4 Recycling and Incentives

• Profits return to fund
• ?20% for fees/incentives
• ?80% reinvested

5.5 Governance

• Strict conflict-of-interest rules
• All firms:
  • ?50% Black/women ownership
  • B-BBEE compliant

5.6 Exit Protection

• Entrepreneurs may challenge exits
• Government-linked shares:
  • Non-voting
  • Non-controlling

5.7 Equitable Provincial Allocation

Capital must not concentrate in major metros.

The Fund must ensure that at least 20% of total deployed capital is allocated to provincial development, and that this allocation is distributed equally across all nine provinces, such that each province receives a minimum of 1/9 of the provincial allocation pool over the lifecycle of the Fund.

This ensures that no province is structurally favoured or excluded, while allowing deployment flexibility based on:

• pipeline readiness
• entrepreneurial density
• and economic activity

Without this:

Capital will reinforce existing geographic inequality rather than correct it.

6. ESD Implementation Pathways

Option 1: VC/PE Allocation

• Corporates allocate to investment funds
• ?30% lifecycle fees
• ?5% setup

Option 2: Traditional ED (Reformed)

• Majority of funds ? entrepreneurs
• Delivered in cash or equivalents

Mandatory reporting:

• Actual transfers
• Cost breakdown

7. Skin in the Game

Current system:

• Entrepreneurs carry risk
• Others are paid regardless

Recommendation

Tie incentives to:

• Revenue growth
• Job creation
• Sustainability

8. Language and Accountability

Replace vague language with:

• Measurable financial reporting
• Verifiable outcomes

9. Entrepreneur-Led Deployment

• In-house entrepreneurial leads
• Outsourced micro-funds

Principle:
Capital should be deployed by those who understand risk.

10. Conclusion: The Farmer and the Middlemen

A farmer received support through a system designed to help him—but most resources were consumed by intermediaries. When capital was placed directly in the hands of those doing the work, outcomes improved.

Capital works when those who deploy it share in the risk.

Submitted by:

Tiisetso Maloma

Startup Picnic Venture Studio / Startup Picnic Academy