Welcome to Cape Town…
With Table Mountain as her centerpiece, Cape Town is a blueprint for what any city strives to be. According to The Guardian, Cape Town is the #1 tourist destination in the world. She fosters an incredible setting, friendly people, fantastic food, a bustling hipster culture and all accessible at a remarkably cost-effective rate. Welcome to Cape Town.
Since emancipation from Apartheid in 1994, South Africa has seen much global participation with mines up north, the automobile industry in the east and farm-exports throughout the country. Cape Town represents the lion’s share of tourism/hospitality and the newly burgeoning technology “start-up” industry, which is drawing many foreigners to set up shop there.
The start-up landscape
Most of the startups in Cape Town are tech businesses. Globally, this is where opportunity seems to live. Most of these teams come out of digital/tech agencies. These agencies may have acquired enough hours in a specific vertical, identified a gap and pursued this to spin out a separate business. Or individuals may moonlight, build an offer/site/app and organically build this out as they accrue more resources while the offer gains traction.
In Cape Town (at the time of press) there is a limited pool of mentors, angel investors, funders and accelerators. Therefore, finding a team, putting together a prototype, getting some users and building this into a sellable business in 5 years is very hard. As a result there are lots of pitchers and less doers.
Therefore, the start-ups that do get traction and make opportunity work for them are strong businesses. They have really struggled to get to where they are at, in that there is low liquidity in the capital markets and potential consumers are not buying. It really is rather Darwinian.
Like much of the world, the co-work revolution exists in Cape Town and many early stage businesses reside within these. The range of these co-work spaces go from high-end to middle-end, to space where the underprivileged can skill-up to help them find employment.
The higher-end spaces: e.g. Inner City Ideas Cartel offer a great location, with polished interior design and private offices. These have full-scale coffee shops/bars on-tap for social meetings and evening drinks. Many of the inhabitants are small online analytics businesses that have some solid market-traction and seasoned creative strategy freelancers, etc. These are for businesses who can afford the rentals or need to impress clients.
Then the middle-end: e.g. Cape Town Garage find themselves in the slightly cheaper side of the city. However, they continue to provide good service. These co-work spaces often draw a younger team who have ambitious goals. Often they are community-based b2c businesses that are pre-revenue or on the early stage of the growth curve. There are quite a few freelance copywriters and film editors, etc. who frequent these spots too. The inhabitants are ordinarily businesses that are pre-stability and are using the co-work space as a stepping stone to their own office space, en route to mega-success (as the story usually goes). Some of these co-work spaces also offer accelerator programs, where mentors and angel investors get involved.
There are also spaces that provide spaces for the underprivileged, marginalised community to learn skills that would help them find employment: e.g. rLabs. One in particular was founded by a community member who started his professional life as an educator and got tired of seeing good people on the streets. He brought onboard convicted felons and empowered them to no longer rely on crime. This has grown into a globally regarded business that is blossoming.
Some start-ups out of Cape Town
At the time of going to press, some inspirational start-ups doing good things in Cape Town include:
- Bozza a trusted place where artists can share their videos, music and poetry. This is largely Africa focused, with a strong focus on helping developing economies. They are in the process of crowd-funding.
- diarize.me: appointment management SaaS that helps make intelligent meeting times for professionals.
- eKaya: a home rental search portal with reviews, payment gateways and a twist on deposits. Think Craiglist/Gumtree meets airBNB for long-term rentals.
- Dream Mobile: a manufacturer and distributor of top end, cost-effective mobile communication devices.
- goMetro: an up-to-date link of transportation systems to mobile phones via an app. Think Google Maps for public transport in the 3rd World where these systems are not integrated and information is not accurate.
- LifeQ: a backend engine that integrates with wearables to track real time and predictive data of individual bio-stats, to fundamentally improve the individual’s life.
- Peach Payments: an online payment processor focusing on the African markets.
- SleekGeek: this is a non-tech startup that focuses on creating and developing communities for office workers (“geeks”). The aim is to foster health and wellbeing to get them into a better personal condition.
- Snapplify: a content and media technology company focusing on content distribution and mobile publishing, providing publishers with a platform for distribution, reading and retail of eBooks, magazines and newspapers.
- wiGroup: a platform provider specialising in POS integrated mobile transactions.
Some South Africa-centric start-up curve-balls
Some of the identified difficulties for startups in Cape Town include:
- Illiquidity of capital for fund-raising: early stage businesses have trouble unlocking funding as it is incredibly tough. Sources of capital are also exceedingly sparse.
- Inwardly focused: very few start-ups actually look to do business globally with any real commitment. It is very much a by South African-centric way of thinking – even with the minute market size. I am uncertain as to why this is the case – it could be a result of being far away from other markets. As a knock-on effect, unlocking global funds is also difficult.
- Legalities around IP can be problematic come exit. IP created in South African has a very hard time leaving South Africa as the government does not want to forego the tax incomes. Such protectionist methods means global exits are much harder to realise. (There are work-rounds, but they can be costly and bombarded with red-tape.)
- A small market with the wrong focus: the unemployment rate in South Africa is rather high at 26.4% (Fin24, 2015). Furthermore, the percentage of the population on very low income is also very large. Much of the potential market does not have much disposable income and is not yet very tech-savvy. Yet start-ups are mostly focusing on appealing to the few who have high-end smart devices and who purchase online. This market is very different to that of California – therefore using this as a guiding light is not a great option. However, it happens continuously.
- The business culture is incredibly conservative and as a result, selling disruptive options is difficult. Selling deals into corporates or playing in corporate venturing (innovation for corporations) is very hard.
- The broader base of the pyramid (the low-income market) is teeming with opportunity. However, it is seemingly far harder to unlock revenues in this market. They are extremely keen to participate in whatever the market presents them because they are so underserved.
- Start-ups are not playing pan-Africa, but they should.
- The South African government makes it increasingly difficult for foreigners to enter and live in South Africa.
What are some opportunities in the start-up scene?
South Africa is a strong mining country. It would make sense to have these large companies supported by start-ups exploring specific verticals within their businesses. This should get the entire start-up ecosystem involved in revolutionising these businesses – it should involve investors, mentors, accelerators and universities.
As we are seeing more corporate venturing globally; there is certainly a push for corporate investigation and utilising start-up teams to explore what is possible in finance/mining/insurance/retail.
The South African Government needs to relax the hold it has on IP to make foreign exits easier. This might encourage more foreigners looking to invest in Africa to come through South Africa. Africa is the next continent to grow (after Asia), therefore, making terms favourable for these investors makes commercial sense.
Global start-up teams building their businesses out of Cape Town are on the increase. The knowledge, capacity and cost is incredibly favourable. Cape Town also offers a great lifestyle and the ability to sell globally with ease, especially for English/German markets, as there are lots of native English and German speakers there.
Cape Town is worth visiting for a period of time. It’s especially worthwhile doing business there and enjoying the lifestyle. The city has seen an upsurge in expats seeking opportunities in Africa, setting business up and benefitting from the cost of living and the brain-power that resides there. It’s a great, bustling city that in the near future will become even more start-up friendly.
Notable Ideas & Innovations
- Solar backpacks provide light for evening study in areas of the world that don’t have access to electricity. Made from 100% recycled plastic bags. (repurposeschoolbags.com)
- Ad-Supported Free Transportation: Mellowcabs enable South African citizens to travel short distances by free in its advertising-supported, eco-friendly cycle cabs. (mellowcabs.com)
- Jet Fuel from Tobacco. Boeing and South African Airways are developing sustainable jet fuel from energy-rich nicotine-free tobacco crop called Solaris. (projectsolaris.co.za)
- FREE Pop-up Store. The Street Store is the world’s 1st free pop-up clothing store for the homeless. Started in Cape Town, it’s made its way to cities around the world. (thestreetstore.org)
By Alon Lichtenstein. Alon works with new product business initiatives. He enables businesses to package, test and commercialise from vision. He does this at HAN- GAR49 (HANGAR49.com) – on mostly technology opportunities. Alon loves solving human needs with product offers by: driving early-stage product-market fit; and go-to-market delivery (i.e. let’s build it, test it, and make cash).
Photo Credit: rlabs, Cape Town Garage, Ideas Cartel, the background: Mick Milligan