More black entrepreneurs are launching tech startups in South Africa but few of these new businesses are making a profit or attracting venture capital investors, according to a new Survey conducted by Ventureburn on the “true picture of SA’s startups landscape”.
The survey, which sampled 200 startups in South Africa, defines a tech startup as a company with annual revenues below 20 million rands (about $165,000) and has less than 100 employees.
It showed that entrepreneurs are motivated by more than just making money, as only 17 percent were making any profit, and were increasingly driven by the need to “innovate”, “be a pioneer” or “personal development”.
“The survey reveals a marked change in the SA startup landscape, with a surge in black entrepreneurs, more than that recorded by any other startup survey to date,” Ventureburn said.
“The survey indicated that 17% of startups in the country had black founders. This is a significant increase from a national survey undertaken in 2012 where just over six percent of startup founders were black.”
Funding still remains the biggest challenge, with nearly half of all South Africa’s tech startups being unable to access any form of financing. For these startups, bootstrapping was the main way of raising initial capital followed by soft loans from family and friends.
Despite the hype over increasing numbers of angel investors, venture capitalists and private equity firms, the survey showed that less than a tenth of the estimated 5,000 startups in the country managed to get any funding from these institutions.
It further showed that crowdfunding was “non-existent” in South Africa with zero entrepreneurs indicating that they had ever raised money through this funding source.
However most of the surveyed startups said they were looking to raise funds within the next three years, with a third of them saying they hoped to tap into venture capital, angle investors and private equity investment rounds.
“Of those looking for funding, most (45%) hope to raise between R1-million and R25-million within this period. A select few (6%) want a R25-million-plus payday,” Ventureburn said.
Here is a infographic that summarizes the survey on South Africa’s startup landscape.