10 Things You Didn’t Know About South Africa’s Evolving Startup Landscape

By Peter Pedroncelli AFKI Original Published: December 13, 2017, 6:29 am
South Africa's tech startup landscape is expanding. Photo: ThinkstockSouth Africa's tech startup landscape is expanding. Photo: Thinkstock

The tech startup landscape in South Africa is constantly evolving, with entrepreneurs working hard to take their ideas and make them into viable and successful businesses.

This is not always an easy task, and funding is a major issue, as determined by a recent Ventureburn survey that was conducted among startup founders.

The 2017 Ventureburn Tech Startup Survey powered by Telkom Futuremakers gave a great deal of insight into the startup scene, with stats and numbers that paint a picture of a growing startup culture in the country, despite a number of challenges.

Here are the 10 things you didn’t know about South Africa’s evolving startup landscape.

Sources: Ventureburn, SAVCA.

Ellen Fischat is the managing director for the Silicon Cape Initiative. Photo - Twitter

Ellen Fischat is the managing director for the Silicon Cape Initiative. Photo – Twitter

Western Cape still top but losing ground

The Western Cape is still the most popular region in South Africa in which to run a tech startup, but the region is losing ground to the country’s richest province, Gauteng. The Ventureburn survey revealed that 44 percent of the 260 founders surveyed said they operated in Gauteng, behind the Western Cape’s 47 percent.

Africa's Tech Ecosystem

There are more black startup founders in South Africa than ever before. Photo: Yoco

Increase in black founders spurring Gauteng growth

The fact that Gauteng, which contains major cities Johannesburg and Pretoria, is challenging Cape Town and Stellenbosch’s Western Cape is down to the growth in black tech startup founders in the economically prosperous province.

tech startup

Black startup founders make up half of the SA tech entrepreneurs surveyed. (Photo: southafrica.cleantechopen.org)

Half of SA tech entrepreneurs are black

Half of the country’s tech startup founders are black, with major growth in this particular demographic over the last two years. The 2015 survey revealed that 26 percent of tech entrepreneurs were black, and this has grown to 50 percent in 2017. In this year’s results, 53 percent of black founders are based in Gauteng versus 42 percent in the Western Cape.

fintech opportunities

South African startups like fintech firm Zoona attracted investment in 2016. Photo: ilovezoona.com

Venture capital investment in SA startups on the rise

The value of venture capital investments in South African tech startups increased by 134 percent in 2016 compared to 2017. That means that a total of $63.6 million was invested in SA startups during the course of 2016.

VCs

Startups from Kenya, Uganda and South Africa participate in a workshop during the $200K Zambezi Prize Competition. Image: Venture Beat

Only a tenth of startups are profitable

Despite the increased number of venture capital investments focusing on South African tech startups, only 10 percent of these firms are profitable. When comparing this stat to 2015, when 17 percent claimed to be making a profit, the volume of new startups translates to a marked decline in the amount of tech startups currently turning a profit.

Mentorship program - African startups to benefit from a new Google Launchpad program. Photo - Google

African startups to benefit from a new Google Launchpad program. Photo – Google

Startup founders hoping for venture capital or angel investment

The survey points to an issue with how many startup founders believe they will grow their businesses, with around 27 percent of all South African founders having faith that they will be able to secure venture capital or funding from angel investors, but the same survey suggests that only about eight percent of these have been able to secure such funding.

Many startup entrepreneurs rely on money from family to fund their businesses. Photo: wikipedia.org

Own cash or friends and family over venture capital and angels

Despite belief that angel investment or venture capital will arrive to secure further growth for their businesses, only nine percent of those looking for angel investing and 20 percent aiming to attract venture capital have startups that are growing or turning a profit. Instead, it seems that 40 percent of South African tech startups use their own money to fund the business, followed by the 23 percent who fund their startups through loans and grants from friends and family.

African tech startups have the ability to achieve further success with more venture capital availability. Photo - AfriZap

African tech startups have the ability to achieve further success with more venture capital availability. Photo – AfriZap

When funding comes along, it’s less than you may expect

When South African tech startups are able to attract funding, most of them report small amounts compared to peers in more developed nations. Around 42 percent of startups report securing less than $3,650, while only 16 percent attracted $73,000 (R1 million) or more. The remaining 42 percent in the startup landscape received an amount between those two figures.

African Tech Start-Ups

Winners from five DEMO Africa startups join global startups for the Startup Grind Conference and Lions@frica Innovation Tour in Silicon Valley. Photo: Africa Technology Foundation/All Africa

Black founders are younger than white counterparts

The survey reveals that white startup founders in South Africa are older than black founders. Around 26 percent of white founders are 40 years or older, compared to just 13 percent of black founders. Almost three quarters of black founders are aged 35 and younger, compared to 62 percent of white founders in that same age bracket.

Start a business

Entrepreneurs at work on a startup idea. Photo: africanentrepreneurcollective

Pay at tech startups may be an issue

While around 31 percent of the startup founders believe that they pay their employees market-related salaries, 21 of the respondents list remuneration as the top reason employees leave, begging the question: are these founders really paying employees well enough to keep their talent from leaving?

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