With their recent announcement of a R472 million investment in local black owned software companies, Microsoft SA turned more than just a few heads. TechSmart talked to Kethan Parbhoo, the equity equivalence lead at Microsoft SA, to find out more about what this deal entails and which companies can qualify. 

How was the R472 million investment amount determined?

Kethan Parbhoo (KP): The figure was an agreement between the DTI and Microsoft based on several different factors, one of which is the size of the company’s business in South Africa. The figure needed to be substantial enough to make a difference in the country and really help develop the local software economy.

Will Microsoft be investing in new start-ups, or older, more settled companies?

KP: We aim to take small companies in good standing that have been in operation for a minimum of three years, not typically start-ups.

What are the other main selection criteria?

KP: In addition to being independent majority black-owned companies, they must also currently have a maximum of 30 employees (as per the National Small Business Amendment Act 2003) and turn over less than R10 million a year. They also need existing software companies, with strong entrepreneurial leadership.

When investing, will Microsoft receive a stake in the company? 

KB: Microsoft will not be taking a stake in these partners. We are looking to build partners in new, potential high-growth areas – and hopefully generate greater dynamism and competition in the South African technology industry overall. We envisage these new companies learning and collaborating with existing partners to package new solutions and approaches for new markets. If these companies then use the existing tried and tested partner channel, we think it will actually generate additional revenues across our partner ecosystem.

How will you monitor the performance or the companies you invest in?

KP: From the start, Microsoft will employ an independent consulting firm, KPMG, to assist in recruiting and validating the credentials of the responses of the potential beneficiaries. We will use a Venture Capitalists and private equity firms to conduct the initial needs assessments, understand where the partners need to be in seven years’ time and develop a gap analysis of what is required to achieve those goals. As part of the programme, the DTI and Microsoft will review progress and ensure the partners on the right track.

We’ll be doing everything possible to make sure these companies successfully navigate the pitfalls of growing businesses. This includes using top consulting firms and business schools to provide needs assessments and develop appropriate business plans.

Will any further training be provided for the companies you decide to invest in?

KP: Yes, Microsoft has dedicated people and resources to the partners in the form of trainers and mentors to assist in building these companies’ infrastructures. And they’ll have a strategic partnership with Microsoft, which will help them use our best practices in software development and sales marketing to meet their goals.

We’re aiming to create a new model for entrepreneurship, and set a new benchmark for developing talent in the industry. Through the success of this programme, the market will come to associate BBBEE with real entrepreneurship, job creation, business/enterprise development and skills enhancement. Microsoft is committed to supporting the human foundation of the knowledge-based economy; through training, support and investment at every stage in the innovation continuum.

South African talent will play a vital role in the development of a sustainable, more inclusive technology industry, and Microsoft supports individuals as students, technologists, innovators and entrepreneurs to realise their full potential. Existing staff will also be mentored and developed and Microsoft will help the companies to source graduate engineers, software develops and marketers to work in their companies.