Elevation-holdings in conjunction with the Gordon Institute for Business Science have released a new report on the state of tech and innovation startups in South Africa, how these companies can catapult themselves forward, and why one is yet to reach the coveted status of a $1 billion “unicorn” evaluation.
“The total value of all the tech and innovation startups in Joburg and Cape Town together, is about $1.5 billion: a similar size to Melbourne’s, smaller than Lagos’, and half the size of Sao Paolo’s,” according to Elevation’s Jason Levin, author of the report.
While there has been progress in the field, there is a question as to why South Africa feels like a middle-order contender rather than a podium occupant.
“This is especially true when considering South Africa has not produced a unicorn (a startup valued at $1 billion+) while Nigeria and Poland have.”
“We almost did in Mark Shuttleworth’s Thawte (its 1999 price tag of $575 million equates to about $850 million in modern money), and Nigeria has one in Africa Internet Group’s e-commerce marketplace, Jumia, which was reportedly worth $1.1 billion by mid-2016.”
“Mimecast, founded by South Africans Peter Bauer and Neil Murray, is a unicorn with a current market cap of $1.2 billion – but was created in 2003, a year after the pair left the country.”
In researching the report, Levin spoke to over 3o major players in the South African startup ecosystem in the space of a 6 month period.
While he received plenty of positive feedback regarding startups, he also found that the country was unlikely to produce anything north of a $1 billion valuation anytime soon.
“In fact, while we are making progress, we’re aren’t creating (and retaining) many new businesses valued at a quarter of that,” he noted.
One of the largest issues behind these failings is the current skills deficit the startup sector is facing.
Speaking to BusinessTech, Levin said it was something that was mentioned both anecdotally by founders, but also by reports like GEM (Global Entrepreneurship Monitor) and GEDI (Global Entrepreneurship & Development Institute) as well.
“Our formal education system and entrepreneurial training is weak compared to other countries, even other emerging markets. We have very strong pockets at some of the tertiary institutions though.”
When looking at the steps needed to encourage start up and work towards a unicorn evaluation growth, Levin indicated South Africa should look at the global recipes set out by groups such as GEM, GEDI and Startup Genome.
These firstly call firstly for “Activation” (entrepreneurial spirit, education, ease of doing business etc.), Globalisation (funding and global connectedness), “Expansion” (filling gaps and removal of barriers) and “Integration” (Global, historical and cultural integration).
According to Levin, in South Africa, we need to work specifically on
- Technology adoption,
- Access to early stage capital, and
- Global ambition and knowledge sharing
“That’s why the report says let’s look for ‘leapfrogs’ in parallel to try and advance part of the ecosystem more quickly.”
If we want to accelerate the SA startup ecosystem, and fast, we need to box clever, the report said.
“One route would be right now, without delay, to seek out 10 to 20 probable ‘rockstar’ stories: LifeQ, Giraffe, Snapplify, WiGroup, Jumo, Yoco, ID Work, Zoona and other appropriate ‘oonas,’ and put real guns behind them. This may galvanize the entire system.”
“Or create sufficient buzz that we begin, as a country, to hear and believe our own press, punch above our weight, and most importantly, work to create more of them.”
“If we want a generation of dynamic startup entrepreneurs, the system needs to captivate the Millennials coming up; they need role models; success stories and an easier ride than the system has provided to date. Only if we can harness their enthusiasm and ideas can we revolutionise rather than just evolve things.”
While Levin’s report focused primarily on role players in the industry there is also an undeniable fact that government has a role in whether South African start-ups will be successful – especially how they tackle the issue economically and politically.
“Government investment is meant to be more philanthropic and developmental in nature, but should still look for a positive real return: at the moment that capital is laborious to access, and poorly post-investment managed,” said Levin.
“There is quite a bit of international investment around in the impact investing/social entrepreneurship space, and South Africa could do a very good job of attracting that. But for general foreign capital inflows, we just need great businesses and a conducive business climate (and policy) – we’re not there with those things (yet).”
So when will we have our unicorn?
“Within the next 5 years,” says Levin.
“But in many ways, it’s the wrong question. We should be aiming to have ten $100 million ‘rockstar’ businesses, or even a hundred $10 million ‘gazelles’ instead.”
“South Africa is a very complex environment. It will take a long time to fix or advance things using the ‘formula’. We have to look at leapfrogging the system forward to compete globally more quickly.”