VC4A startup ecosystem report: South Africa, the most robust and developed on the continent

For the fifth consecutive year VC4A has produced annual research and analysis to improve the understanding of Africa’s startup movement. For the 2018 research cycle, with the support of the Mastercard Foundation, VC4A publishes a pan-African study including 6 country specific deep dives. The South Africa report is the second report we’ve published. The Nigeria report is also available.

VC4A conducts this research to share the progress of the VC4A network and to help document the journey of the African startup community at large. Last year the research looked at different factors that determine venture success. The 2018 effort looks at how startup ecosystems add value to successful venture creation.

South Africa has the most mature startup ecosystem in Africa, with a small but established venture capital industry (SAVCA celebrates its 20th anniversary this year), government investing in innovation for the past two decades, the oldest incubator in Africa (the Bandwidth Barn operated by the Cape Innovation and Technology Initiative (CITI) since 2000), and a growing pool of entrepreneurs and success stories.

Based on inputs from local expert Alexandra Fraser and face-to-face interviews we aim to answer the following research question: ‘How does the South Africa startup ecosystem add value?’

Read Alexandra Fraser’s analysis below:

Ecosystem growth unraveled

This growth has been driven by a number of factors, including: i) a strong effort from the private sector to organize through associations, e.g. Silicon Cape (established in 2009), SiMODiSA (2014) and SAVCA (1998) to engage with the government around policies and legislative changes to assist and stimulate the industry; ii) the growing realization from both the public and the private sector that entrepreneurship is needed to solve the dual challenges of sluggish economic growth and very high rates of under- and unemployment; iii) investment from corporate South Africa in accelerators, incubators and innovation programs; iv) a shift in Broad-Based Black Economic Empowerment (B-BBEE) legislation, which has made more funds available for skill development, enterprise development and supplier development of SMEs (specifically >51% South African are black-owned); v) increased investment from the government (local and international) in innovation funding and support; vi) and  an increase in the number and diversity of successful investors, entrepreneurs, and exits.

“The South African startup ecosystem is developing its own unique set of characteristics in response to the local and African context”

The results of these efforts have been seen across the country, although most of the activity is still concentrated in the two major economic hubs of Johannesburg and Cape Town. These efforts have resulted in: i) a vibrant and growing startup ecosystem led by the private sector; ii) growth in the number and size of funds (both local and international) available for early-stage investment, particularly at the VC stage due to changes in policy; iii) numerous startup support and acceleration programs; iv) more seed funding options available from the government; and v) more startups in a variety of tech sub-sectors such as Fintech, Traveltech and Edtech using innovative technologies e.g. the Internet of Things (IoT), artificial intelligence (AI), machine learning and blockchain technologies.

Regardless of this growth, there are still a number of significant challenges that need to be addressed, specifically around: i) exchange control policies which affect the movement of intellectual property (IP) and capital; ii) gaps at the seed funding stage, and encouragement of more angel investors; iii) increasing the pool of seasoned entrepreneurs and mentors with startup experience; and iv) increasing diversity in both the startup and investor communities.

About Alexandra Fraser
Alexandra Fraser has over 15 years of experience in the early-stage funding space, working with government, academia and corporates. Alexandra has invested in early-stage businesses and has raised millions of funding for a variety of startups from angels, VCs and institutional investors. Her fields of expertise include technology innovation, entrepreneurial skills development and investment. Before starting her own innovation consultancy, Alexandra spent over 5 years employed by one of South Africa’s leading VC funds and supports many initiatives growing the startup ecosystem in South Africa.

“These mapping studies help us learn how startup ecosystems are developing across the continent and identifies opportunities for their continued development.”
– Ben White, Founder VC4A

VC4A data showing indicators of growth

VC4A research on 686 ventures registered in the country shows a clear relationship between venture performance and the support these ventures receive from the South Africa startup ecosystem. For example, 50% of companies participating in ecosystem support programs secure investment. Even more interesting, the average investment secured is almost 3 times higher for the ventures receiving ecosystem support: USD $304K vs USD $126K. These companies are also more likely to create new jobs.

Graph 1: Venture overview per city in South Africa

More specifically, 68% of the South African ventures are creating jobs with an average of 5.8 FTE per venture. When taking a further look at the age groups, 59% of them are between 12 and 35 years which is a little below the percentage on a pan-African scale (60%). This is a considerable contribution to the country given its growing population and justifies further investment in the growth and development of the startup ecosystem and
the entrepreneurs it supports.

Graph 2: Average jobs created per age group in South Africa

About Venture Finance in Africa Research

VC4A research 2018 is made possible with support from the Mastercard Foundation and the Work in Progress Alliance. In addition to a pan-African view, the 2018 research deepens its annual analysis by adding six country deep dives in the following countries: Ghana, Kenya, Morocco, Nigeria, Senegal, and South Africa. These reports have been developed in collaboration with Dalberg Global Development Advisors and local experts in each country. The research explains in more detail what each startup ecosystem looks like and identifies opportunities for their continued development.

These mapping studies help us learn how startup ecosystems are developing across the continent. They include research and analysis on a variety of startup hubs, including Accra, Casablanca, Cape Town, Dakar, Johannesburg, Lagos, and Nairobi. Please contact the VC4A research team – thomas[at]vc4a[dot]com – if you are interested to discuss adding other African cities to this list.

A very special thanks to the people who we interviewed to write this analysis:

  • Abu Cassim – Founder, Jozi Angels
  • Alan Shenton – Co-Founder, Tysflo
  • Andrea Bohmert – Partner, Knife Capital
  • Anton van Vlaanderen – Partner + CEO, 4Di Capital
  • Brett Commaille – Lead Partner, AngelHub ventures
  • Chipo Mushwana – Head of Ecosystem and Strategy, AlphaCode
  • Christo Fourie – Head: New Industries SBU, IDC
  • Corrie Smit – Head of Technology Commercialisation Program, University of Johannesburg
  • Danai Musandu – Investment Associate, Goodwell Investments
  • Derrick Kotze – Executive Director, mLab Southern Africa
  • Douglas Cherry – Partner, 4Di Capital
  • Duncan Raftesath – CEO, Wits Enterprise
  • Gideon Potgieter – Senior Manager, University of Johannesburg
  • Jamie Martin – Founder, Injini EdTech Incubator
  • Justin Drennan – Co-Founder, Parcel Ninja + Angel investor
  • Katlego Maphai – Founder + CEO, Yoco
  • Matsi Modise – Managing Director, SiMODiSA
  • Michelle Matthews – Head of Innovation, Cape Innovation & Technology Initiative
  • Mike Quinn – CEO, Zoona
  • Saberi Marais – Technology Commercialisation Manager, University of Cape Town
  • Samantha Pokroy – Founder + CEO, Sanari Capital
  • Sarah-Anne Alman – Manager of the Solution Space, University of Cape Town Graduate School of Business
  • Sheeran Amod – Founder + CEO, RecoMed
  • Tanya van Lill – CEO, SAVCA

Want to learn more?

If you would like to download the report and receive full access to the Venture Finance in Africa research database with more country-specific reports and editions from previous years, register your VC4A Research Account now.

E-mail: service@vc4a.com

Tel: +31 20 779 55 74