EVALUATION & NETWORK ANALYSIS OF THE CAPE TOWN-STELLENBOSCH TECH SECTOR - AUGUST 2018
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
AUGUST 2018 EVALUATION & NETWORK ANALYSIS OF THE CAPE TOWN- STELLENBOSCH TECH SECTOR
ABOUT ENDEAVOR INSIGHT:
Endeavor Insight is the research division of Endeavor, a non-profit organization that supports high-
impact entrepreneurs across the world.
Our work seeks to answer three questions:
1 How do entrepreneurs reach scale individually at their companies?
2 How do entrepreneurs reach scale collectively in local networks and ecosystems?
3 W
hat can policymakers, philanthropic leaders, investors, support organizations, and other
stakeholders do to empower more entrepreneurs to scale?
Over the last five years, Insight’s work across five continents has been supported by a broad
range of foundations and other organizations. The methodology utilized in this study builds
on previous Endeavor Insight research supported by the Omidyar Network, the Kauffman
Foundation, the World Bank, the Inter-American Development Bank, as well as partners
within the Global Entrepreneurship Research Network.
SPECIAL THANKS
This project was commissioned and developed with the assistance of the Cape Innovation
and Technology Initiative (CiTi) (which runs the Bandwidth Barn hubs), Allan Gray Orbis
Foundation, and Wesgro - with kind support from the Western Cape Government. As well
as assistance from Silicon Cape and members of the Endeavor South Africa team, especially
Andrea Neiman and Catherine Townshend. This project was conducted as part of the
Global Entrepreneurship Research Network’s initiative to map entrepreneur communities.
In addition, the following research assistants and analysts were critical to the project’s
success: Kathryn O’Neill, Scott Unwin, Penmai Chongtoua, and Yuniya Khan.
AUTHORS:
Maha AbdelAzim, Associate at Endeavor Insight (maha.abdelazim@endeavor.org)
Rhett Morris, Director of Endeavor Insight (rhett.morris@endeavor.org)
I NTRO DU C T I O N
The findings summarized in this report South Africa, Cape Innovation and Though the size of the local tech sector
are drawn from interviews with more Technology Initiative (CiTi), and Silicon does not allow for the deepest forms
than 150 technology entrepreneurs Cape. The methodologies used in of network or econometric analyses,
in the Cape Town metropolitan area, this research have been developed comparative metrics were utilized to
as well as secondary data on over by Endeavor Insight along with other compare Greater Cape Town’s tech
450 local tech founders and their organizations that participate in the entrepreneurship community to several
companies*. For the purposes of this Global Entrepreneurship Research peer cities on the African continent.
research, software and technology firms Network and are implemented in
The following sections of this report
were defined as those whose primary dozens of cities across the world.
will share findings on the size and
business activity fell into the categories
The goal of this project was to productivity of the entrepreneurship
of either software development, fintech,
answer two research questions: community, motivations of local
or e-commerce. In addition, the Cape
entrepreneurs, network analysis
Town-Stellenbosch area was defined 1. What is the current state of
of the sector, key challenges that
to include both the Cape Town and the software entrepreneur
impact opportunities for growth, and
Stellenbosch metropolitan areas, and is community in the Cape Town and
recommendations for future expansion.
also referred to as “Greater Cape Town” Stellenbosch metropolitan areas?
or simply “Cape Town” in the text.
2. Where do opportunities exist to
These interviews were conducted further the growth of this community
in late 2017 and early 2018 with the so that it continues to generate jobs
assistance and support of Endeavor and economic value for the region?
* Unless otherwise noted, all figures reflect year-end totals for 2017.
3
GREATER CA PE TOW N HA S A CO M M U NIT Y O F M O R E
THAN 450 EN T RE PRE N E U R IA L SO FT WA R E CO M PA NI ES
WI T H A RE LAT I VE LY H I G H FO CU S O N E - CO M M E RCE AND
SOF TWAR E A S A S ERVI CE
Analysis by Endeavor Insight indicates that the Cape Town area GLOBAL INNOVATIVE FIRMS
tech sector includes between 450 and 550 entrepreneurial Cape Town has produced multiple firms that have stood
companies working in software development, e-commerce, out for their innovative breakthroughs and who have a
or fintech. These firms are typically led by small teams of strong global presence as a result. Clickatell, for example,
founders, averaging to about 1.7 cofounders per company. developed the first mobile messaging API and was hired by
the US State Department to send text message excerpts
FOCUS ON E-COMMERCE AND SAAS.
to global citizens during Obama’s 2009 speeches in Cairo
Of the entrepreneurs interviewed for this project, roughly
and Accra1. The data mining firm BrandsEye is also known
20 percent were each working in the e-commerce and
for its prediction of both the British exit from the European
SaaS sectors. The next largest industry was fintech,
Union, and the outcome United States presidential election
with about 15 percent of respondents. Many of these
in 20162. Finally, what is perhaps the most obvious example
companies have a direct-to-consumer focus.
4
of Cape Town’s impact in the tech sector is the internet THERE IS A VERY HIGH PREVALENCE OF VC
giant Naspers, Africa’s highest-valued tech company3 FUNDING IN CAPE TOWN. Roughly one third of
and a massive tech investor on a global scale. the companies in this study have received some form
of angel investment or venture funding. This number
Getsmarter, an Edtech firm that provides online certification
is higher on average than the rates in comparable
courses in partnership with some of the world’s top
cities like Lagos, Nairobi, and Johannesburg.
universities, is another more recent example of these firms.
Last year, the company was acquired by the Edtech giant
2U for $103 million4, the equivalent of over 1 billion rand.
5TECH ENT REPREN E URS CH O OS E TO STA RT T H E IR
COMPANIE S I N CA PE TOW N B ECAU S E O F T H E L IFE ST YLE
A ND ITS VA LU E A S A T ECH H U B.
What makes the Cape Town area an living in the area wanted to continue a great environment to feed off of from
attractive location for launching a living there and start their business there other entrepreneurs and startups.”
technology company? Endeavor Insight for the quality of life and ecosystem.
The importance of the local tech
asked local tech entrepreneurs why These factors often overlapped in the
business community can also be seen
they chose to start their businesses in responses. As one founder noted “I was
in the frequency of specific words that
this community during the interviews living in Stellenbosch at the time and it is
entrepreneurs used when discussing
conducted for the study. Results show an incredibly inspirational place to start
why they selected the city as the
that there are some characteristics a business.” Another founder responded
location for their firms. Terms such as
of the city in particular that are highly that “it is the start up capital of South
“business,” “tech,” and “companies”
valued by these entrepreneurs. Africa and I had just finished studying
were mentioned more than almost
at UCT so it was a perfect match.”
The most commonly cited reason for any other words by the respondents.
launching a firm in the Cape Town area The second most commonly cited Additionally, the word “business” was
was a practical one: the area was where reason was the perception of Cape often directly associated with the word
entrepreneurs were living when they Town as a tech hub. One founder “tech,” suggesting that many businesses
first decided to start their companies. responded that Cape Town has an are interconnected with this sector.
This rationale is actually common and incredible tech and startup scene with
has been seen in other cities studied creative and innovative minds because
by Endeavor Insight. What stands out “people are willing to take a leap of
is the recurring logic - many founders faith and put themselves out there; it’s
EXAMPLE RESPONSES ON LOCATION DECISIONS
AMONG LOCAL SOFTWARE FOUNDERS
“ THERE IS A BETTER TECH SCENE IN CAPE TOWN, A BETTER MEETUP ECOSYSTEM AROUND
TECH. FOR EXAMPLE, I HELPED SET UP A DEEP LEARNING MEETUP HERE THAT WOULD NOT
HAPPEN IN PLACES LIKE JOHANNESBURG. MOST OF THE TECH CONFERENCES HAPPEN IN CAPE
TOWN BECAUSE IT IS MORE OF A TECH HUB.”
“IT WAS CONVENIENT BECAUSE I ALREADY LIVED HERE. IT IS A GOOD ECOSYSTEM TO BE IN
BECAUSE CAPE TOWN IS A CREATIVE HUB. I HAD BUILT A STRONG NETWORK ALREADY WHICH
MADE IT EASIER.”
“WE WERE HERE. EVERYTHING WAS HERE. FINANCES WERE HERE. THERE’S SOMETHING
ABOUT STELLENBOSCH AND ENTREPRENEURSHIP, OPPORTUNITIES AND FUNDS. CAPE TOWN
HAS A DIFFERENT FEEL TO IT.”
“PRIMARILY BECAUSE I HAVE A GOOD NETWORK HERE AND ALSO BECAUSE IT’S A VERY
CONDUCIVE ENVIRONMENT – GOOD INFRASTRUCTURE, GREAT LIFESTYLE AND LOTS OF
WEALTHY INDIVIDUALS AND INVESTORS.”
6“WHY DID YOU CHOOSE TO START YOUR BUSINESS IN
CAPE TOWN OR STELLENBOSCH?”
MOST COMMONLY MENTIONED WORDS AMONG TECH FOUNDERS
LISTED FROM MOST FREQUENT TO LEAST FREQUENT
Living Place Hub
Business University Moved
Tech Ecosystem Support
People Africa Access
Lifestyle/Quality of Life Talent
Based Market
Companies Work
Lifestyle was the next most frequently Different characteristics of the lifestyle a lot from coffee shops along the coast.”
mentioned factor for why founders chose in Cape Town attracted founders in
It is also important to note that local
to start their companies in Cape Town. various ways. Some respondents found
universities and major companies
One founder responded that “the lifestyle that the lifestyle was less corporate
were also cited frequently as
of Cape Town promotes creativity, than other places in South Africa. One
bringing significant numbers of
innovation, and inspiration because of founder noted that “Cape Town is
educated or soon-to-be-educated
the mountains, ocean and nature. People more of a tech hub than Johannesburg
residents to the city. This may play
are coming here to be creative and with a less corporate feel and a bigger
an important role in contributing to
innovative. They’re drawn to it. There’s concentration of tech companies and
the number of new tech founders.
a tech culture that has boomed here support organizations.” Another founder
with technically innovative products.” reported that “no one goes to the office
on the same day and instead we all work
7PRODUCTIVITY AMONG ENTREPRENEURS IN CAPE TOWN
COMES FROM A SMALL NUMBER OF COMPANIES THAT
REACH SCALE
Entrepreneur communities do not benefit 1. THE MAJORITY OF
Most of the local their cities simply by creating large ENTREPRENEURIAL TECH COMPANIES
entrepreneurship numbers of companies. The value that WORLDWIDE ARE EARLY STAGE WITH
support organizations they provide comes from entrepreneurs VERY LOW RATES OF PRODUCTIVITY.
generating economic productivity. THIS IS ALSO THE CASE IN CAPE TOWN.
working in the
Cape Town area Entrepreneurial productivity can be measured Generally speaking, the majority of tech
target early-stage in a number of ways. Analysis from previous companies are small early-stage companies
research suggests that many of these metrics with little tangible impact on local job creation,
companies.
tend to correlate with each other, especially economic growth, or other measures of
among companies operating in the same productivity6. In Cape Town, the majority of
community and in the same industry5. local companies interviewed for this study
The most productive entrepreneurs raise are micro-businesses with five or fewer
more capital, hire more employees, and employees that have raised no venture capital.
generate more sales than less productive Though data was not collected on sales,
founders working in the same regions. these firms are likely to be generating very
low revenues at this point in time. The small
For the purposes of its research, Endeavor
contribution each of these companies makes
Insight measures entrepreneurial productivity
to productivity is likely to shrink even further,
primarily by comparing the number of
as firms at this stage have a high rate of failure.
employees at each company. This metric
was selected from the set of correlated As the next section shows, the significance
measures of entrepreneurship productivity of these companies is therefore less in
because it was both widely applicable – e.g., their combined productivity and more
not all tech firms require outside capital on their potential impact if they are
– and was the metric that founders were able to successfully reach scale.
most willing to share during interviews.
Analysis of the data collected for this
study on hundreds of local founders
suggests two important conclusions on
the generation of productivity among
tech entrepreneurs in Cape Town.
8EMPLOYMENT CONTRIBUTION AMONG
CAPE TOWN TECH COMPANIES
100%
Companies with 100+ employees
90%
80%
70%
60%
Companies with 100+ employees
50%
Companies with 1 to 99 employees
40%
30%
20%
10% Companies with 1 to 99 employees
0%
FIRMS EMPLOYMENT
2. THE MOST IMPORTANT SOURCE significantly more employment than all However, even when controlling for the
OF PRODUCTIVITY AMONG the other companies in the local tech size of Naspers, companies with 100 or
TECH ENTREPRENEURS IN CAPE community. more employees still generate almost
TOWN IS A SMALL NUMBER half of the employment in the sector. This
Within these companies, Naspers
OF COMPANIES THAT REACH highlights the importance of Cape Town’s
alone accounts for about 80 percent of
SIGNIFICANT SCALE. scaled companies in driving productivity,
employment in the sector - easily the
and potentially the need for more
Local companies that reach highest contribution of an individual
companies like this to drive Cape Town’s
significant scale are responsible for tech company to a tech sector out of the
growth without relying too heavily on one
a disproportionate amount of the cities previously studied by Endeavor
company.
productivity in Cape Town’s entrepreneur Insight. By comparison, Bangalore’s tech
community. As the chart above sector has produced roughly 500,000
illustrates, around 15 entrepreneurial jobs and the combination of its three
companies in city’s tech sector have largest companies - Wipro, Infosys and
grown to have 100 or more employees. Flipkart, is only about 40 percent of total
However, these firms have produced employment7.
9OVERALL, CAPE TOWN’S TECH SECTOR IS DISTINCTIVELY
PRODUCTIVE COMPARED TO OTHER AFRICAN TECH
SECTORS
In 2017 and 2018, Endeavor Insight gathered higher if employment is used as a measure.
Cape Town data on software founders in Nairobi as As the graphic on the following page
outperforms these well as Lagos as part of a study for the Bill illustrates, Nairobi has nearly twice as many
& Melinda Gates Foundation, which will software companies but has less than a
cities in relative
be released later in 2018. Initial analyses fifth of the employment. Lagos also has
productivity because of the data from that study shows that the over twice as many software firms as the
it has fostered Cape Town area compares favorably to Cape Town area but has only generated
the development these two other African tech centers. less than a quarter of the employment9.
of more firms at Both Nairobi and Lagos have more software
Even if the impact of Naspers is excluded,
significant scale the average company size in Cape Town
companies than the Cape Town area with
is still larger than both these cities.
2017 estimates ranging from 700-800
in Nairobi and 800-900 in Lagos8. Cape Greater Cape Town outperforms these
Town has generated an objectively higher cities in relative productivity because it
level of productivity than Lagos and Nairobi has fostered the development of more of
combined if employment is used as a measure. the firms at significant scale discussed
Cape Town’s tech sector has generated in the previous section. Approximately 1
over 40,000 employees compared to over percent of software companies in Nairobi
9000 in Lagos and 7000 in Nairobi. have reached 100 or more employees and
only 2 percent of software firms reach that
COMPARATIVE ENTREPRENEURIAL
level of scale in Lagos. In the Cape Town
PRODUCTIVITY.
area, between 3 and 4 percent of local
Greater Cape Town has a smaller number
tech firms reach this level of scale10.
of tech firms than Nairobi and Lagos, but
its relative productivity is significantly
10COMPARISON: NUMBER AND PRODUCTIVITY OF SOFTWARE ENTREPRENEURS IN CAPE
TOWN, LAGOS,& NAIROBI
NUMBER OF SOFTWARE
COMPANIES
800 - 900 FIRMS
700 - 800 FIRMS
350 - 450 FIRMS
EMPLOYMENT AT SOFTWARE
COMPANIES
12,000 - 14,000
JOBS
7000 - 9000
JOBS
10,500 - 12,500
JOBS
11GREATER CAPE TOWN’S TECH SECTOR IS NOTABLY DYNAMIC, WITH
A HIGH PERCENTAGE OF COMPANIES REACHING SCALE IN THE
PAST DECADE AND ACTIVELY SUPPORTING OTHER LOCAL TECH
COMPANIES
OUTGOING CONNECTIONS OF CAPE TOWN TECH COMPANIES
Entrepreneurial tech communities with not necessarily affect a company’s mentorship, and investment †.
a high percentage of companies that performance, but connections from By studying the relationships in
have reached scale can often be skewed founders at scale, especially mentorship entrepreneurship networks, it is
towards older companies. In Cape or former work experience, can possible to follow the movement of
Town, however, this higher proportion significantly increase a company’s people, knowledge, and capital, and
of scaled companies also remains likelihood of reaching scale. Mentorship use this to draw lessons on the state
true for all companies founded in the from the founder of a scaled company, of the entrepreneurship community.
past decade. While only 1 percent of for example, can increase a company’s
Cape Town’s tech companies seem to be
companies founded in the past decade likelihood of reaching scale by nearly
seeking support in the right places. As the
have reached 100 employees or more double or more12. This applies to tech
chart above shows, a large percentage of
in Lagos, and less than 1 percent in sectors at various sizes including
support for tech entrepreneurs is coming
Nairobi and Johannesburg11, 3 percent New York, Bangalore, and Nairobi.
from Cape Town’s largest companies.
of the companies founded in the past
A HIGH PROPORTION OF CAPE Most notably, roughly 30 percent of
decade have reached this level of scale
TOWN’S FOUNDER TO FOUNDER founder to founder mentorship comes
in Cape Town. This is a critical indication
SUPPORT COMES FROM SCALED from companies with 100 or more
of the dynamism of the sector.
COMPANIES Endeavor Insight also employees, compared to only 12 percent
SUPPORT FROM THE FOUNDER analyzed the connections that exist in Lagos, 4 percent in Nairobi, and much
OF A SCALED COMPANY among software firms in the area using lower rates in Johannesburg, where
SIGNIFICANTLY INCREASES A a methodology developed by members scaled companies are typically older and
COMPANY’S LIKELIHOOD OF of the Global Entrepreneurship Research much less involved with supporting other
REACHING SCALE Network*. This methodology looks tech companies13. Some of the most
Previous research by Endeavor Insight at four specific relationships among active mentors in this category include
has found that connections with founders and their companies: serial the founders of Wigroup and Clickatell.
other entrepreneurs in general do entrepreneurship, former employment,
*This methodology was based on initial research conducted by Endeavor Insight and that primary member organizations involved in developing this methodology were Endeavor Insight, the
Kauffman Foundation, MaRS, Nesta, and the World Bank.
† Investment variables were included in the analysis of potential predictors even though investment itself can be considered a measure of productivity or market validation and is highly
12 correlated with reaching scale.Cape Town’s scaled companies are also ordering and delivery platforms15. These investment, former employee and serial
strongly involved as investors - roughly investments have also spanned other entrepreneurship connections, only
20% of investment from tech companies regions with a large number taking about a third are companies with 100 or
or founders comes from them. Within place in Brazil and the United States. more employees. This means that there
these, the majority of investment is still room for them to become more
THERE IS STILL ROOM FOR MORE
unsurprisingly comes from Naspers, a actively involved in the ecosystem.
ENGAGEMENT - CAPE TOWN’S
massive tech investor on a global scale.
SCALED COMPANIES ARE The following graphic illustrates the
Naspers has also made dozens of ACTIVELY INVOLVED, BUT THEY different types of connectivity in the
investments in tech companies ARE NOT THE MOST INFLUENTIAL sector over time and the outgoing
across the world, including Emirati COMPANIES influence of each company.
e-commerce giant Souq.com, which Out of the top ten percent of most
has been acquired by Amazon14, and influential companies, i.e. companies
Swiggy, one of India’s largest food with the most outgoing mentorship,
VISUALIZATION OF THE ENTREPRENEUR NETWORK AMONG SOFTWARE
COMPANIES IN GREATER CAPE TOWN
TECHNIRVANA ISPANI
SNAPNSAVE CRAFT
ACE SONGROLLER
IKASI NOTES
JUGGL EVENTERPRISE
EXPRESSION PROPERTY
SOURCE GROUP
CATALYST
MOJOREPORTER DIGITAL
KARRI
SPONTY
LIFEQ BRITECAP
BACKABUDDY
UPRISE
WUMWUM
SOULV THE
BET.CO.ZA
BETTECH SOFTWARE HAPPINESS
GAMING AFROZAAR
NETWORK
RECAST/LABS.FM RETHINK
FUMANA UMUNTU SOUNDSREAL
EDUCATION
UBUNTUDEAL MEDIA
PERK FRONTCREW
OPEN
LEASE 2GO
CLICK2SURE
HEALTHQ TEAMDOX
TECHNOLOGIES
PET
HEAVEN
UTHINI
HUBBLE
UNBRANDED THUNDAFUND STUDIOS
KABOOSE
DESIGNS SMSWEB
PLAYLOGIX
CREATE
WHITE
DOMESTLY HIRING INSTANT REDPANDA IT
WALL MAXXOR
BOUNTY AFRICA SOFTWARE ALL
WEB
DALI TEAMGAGE HI5
5OUNCES MIMIBOARD
TECHNOLOGIES
WALA
CHESSCUBE PADDOCKS
WYZETALK APPY
GETSMARTER
EVER
LULALEND PYPE.COM AFTER
COMPREHEND
IT VIRTUAL
CURIOUS
MOBILE LINUM
ENTERSEKT QUESTIONS OPEN GETWINE
TECHNOLOGIES LABS
CC BOX
CLANDESTINE REKINDLE
WUMDROP SOFTWARE
INSIGHTS LEARNING
WIGROUP VISUAL BIZCALL M4JAM
TOURS
MAGNETICHQ Before 2003- 2008- 2013- Year
SNAPPLIFY FUNDAMO
2002 2007 2012 2017 Founded
OFFERZEN GOMETRO CARZAR
URBIAN
GROWING INTERNET
AGILE PRO
CABLEKIOSK
SHOPPINGFEEDER LIBRYO
PRICECHECK THE NASPERS
MEMEBURN
DATING
LAB AIRBORNE
SA THE
FLORIST MYGATE GREATSOFT STUDENT
COMMUNICATIONS HUB/ERAONLINE
BRANDSEYE MYKINDAPRICES.CO.ZA
PIMP
SWIST MY
NUMBERBOOST JUMO.WORLD
TECHNOLOGY BOOK
FUNDAMENTAL THAWTE
SOFTWARE SOLUTIONS CLICKATELL CONSULTING
TRAVELSTART
LADYCOMPSHOP
TUYU SASA.FINANCE
SYNTHASITE/YOLA
FIREPAY/SNAPSCAN
MXIT
PIILO
AUTEEMATIC LESSFUSS HQ
AFRICA
WOOTHEMES
ELECTRIC OVER
EGG NIOCAD
JUMPIN EKAYA
RIDES URAHISI YEIGO
PROPERTY
TUBE TALLORDER
FONTERA AFRIGATOR ORDERTALK
RAINFIN SOLUTIONS
LEAP.LY
NICHESTREEM
EMERGE
EASY2MAP MOBILE
HEPSTAR
DATAPROPHET
QUICKET
SAMPLEBOARD
FLEXY
TWANGOO CITIDOC CLOUDONE.MOBI
ZLTO
THE
TRAINING PAYMENT24
MONEYSMART 5
SWEEPSOUTH ROOM PAGEMAN
GUST ROOMS
TAKEALOT RUNWAY ONLINE
DIARIZE.ME
PAY
SALE THE
DONT DROPOFF
HEALTHCENT PARTY BUZZFINDER
T/A
SIGNAPPS
ZAPACAB IKHOKHA
BSAVI
BETTR
FINANCE SPATIALEDGE
SUDONUM PICUP BOZZA
TECHNOLOGIES WASHR
FITKEY
THISISME
YETHU SKILLUP WHEREISMYTRANSPORT YOCO
8BIT TUTORS BLOCKCHAIN
YUEDILIGENCEACADEMY
BITSURE SPRINGLEAP
FLICKPAY RECEIPTFUL/CONVERSIO
WAHI
ENTITIES: TYPES OF CONNECTIONS:
ENTREPRENEURIAL COMPANIES Serial entrepreneurship
Size of the circle reflects the number of outgoing Former employment
connections from the founders of each entity.
Mentorship
Founders are represented by their most
prominent company. Angel investment
13ACCESS TO HUMAN CAPITAL IS THE MOST CRITICAL
OBSTACLE REPORTED BY TECH FOUNDERS IN THE CAPE
TOWN AREA.
Endeavor Insight evaluates the challenges ACCESS TO TALENT.
faced by local founders by assessing them Access to talent was the most
Only about half as across three key areas: access to customers, frequently cited challenge, with about
many respondents access to talent, and access to equity financing. 67 percent of respondents ranking it as
Founders are asked whether or not they a serious or very serious obstacle.
considered access consider these elements to be serious or very
to equity as a The majority of these respondents indicated
serious challenges to operating their business.
challenge compared that access to technical talent specifically
Typically, challenges are assessed by was a serious or very serious challenge. One
to access to talent.
examining those cited by all founders and founder claimed that “our core strength is in
those cited by founders at large companies our technology. Finding talented developers to
separately. Due to the relatively small size of help us build that technology is a major hurdle.”
the entrepreneurial tech sector in Cape Town,
Many founders attributed these difficulties to
the analysis in this report could only examine
offering competitive salaries compared to the
the challenges as reported among all founders.
most established firms. One founder noted
However, this yielded several interesting
that “larger tech companies are offering huge
findings. Most notably, compared to founders
salaries to developers and pricing the small
in Lagos and Nairobi, software entrepreneurs
start-ups out of the market for development
in the Cape Town area were much less likely to
talent.” Paralleling this sentiment, another
report that access to equity funding is a serious
founder stated that there is “difficulty in hiring
or very serious obstacle and were much more
good talent and paying competitive salaries.”
likely to identify access to talent accordingly.
The findings below are based on the
responses of the 150 entrepreneurs
who participated in this survey.
14“IS THE FOLLOWING A SERIOUS OR VERY SERIOUS
OBSTACLE TO OPERATING YOUR BUSINESS IN CAPE
TOWN/STELLENBOSCH?”
PERCENTAGE RESPONSES AMONG INTERVIEWED TECH FOUNDERS
ACCESS TO ACCESS TO ACCESS TO EQUITY
CUSTOMERS TALENT FINANCING
LEGEND:
= CHALLENGE
= NOT A CHALLENGE
EACH SQUARE REPRESENTS 1% OF RESPONDENTS
Source: Endeavor Insight.
ACCESS TO EQUITY FINANCING. Yet, those who did find raising funding to ACCESS TO CUSTOMERS.
Raising capital to start or grow a business be difficult often ranked it as their most The presence of the tech hub that
is rarely easy anywhere in the world. critical obstacle. One founder noted created many local businesses and
However, on average, only about half as that “the investment landscape in Cape clients was listed as a key strength
many respondents considered access Town still has a long way to go” perhaps by many of the entrepreneurs when
to equity as a challenge compared because of the slow and timely process explaining why they are located in
to access to talent. Roughly 32% that it takes to receive outside capital. Cape Town. Overall, only 20 percent
of the entrepreneurs interviewed of the founders interviewed listed
reported that access to equity was a access to customers as a serious
serious or very serious obstacle. or very serious challenge.
15I N O R D E R TO MA I N TAI N THE DYNAM IS M OF THE LOCAL
T EC H S EC TOR , LEAD ER S IN THE CAPE TOW N S EC TOR
SH O U L D TAK E ACTI O N I N FOUR ARE AS .
Cape Town is arguably the most productive skills needed to find, train and retain talent.
and impactful tech hub in sub-Saharan
There is also room for more of these
Cape Town is arguably Africa. It has generated the continent’s
organizations to focus on developing talent.
the most productive most highly valued tech company as well
Cape Town already has a strong potential
as other software businesses that have
and impactful tech hub talent pool given the strength of its local
reached scale, exited for significant sums,
in sub-Saharan Africa. universities and its attractive lifestyle and
or grown to become leading businesses
reputation as a tech hub. Existing coding
on the continent. However, the sector’s
schools, which help develop this talent but do
productivity is still highly skewed towards
not necessarily focus on helping entrepreneurs
Naspers and contains the potential to develop
find talent, could be more strongly
more successful, high-scaled companies.
integrated into the entrepreneurship support
In order to ensure that the Cape Town ecosystem as a resource for entrepreneurs.
area continues to produce productive Some initiatives such as CiTi’s CapaCiTi
tech entrepreneurs who generate large programme, CodeX and Code for Cape Town,
numbers of jobs and economic value for the already work with a focus on connecting
community, Endeavor Insight suggests that their students to potential employers16.
leaders should focus on the following four
RECOMMENDATION 2. AVOID THE
recommendations. These are drawn from
“MYTHS OF QUANTITY” – BELIEFS
research in entrepreneurship communities
THAT MORE STARTUPS, SUPPORT
across dozens of global cities as well as
ORGANIZATIONS, OR CONNECTIONS
Endeavor’s first-hand experience supporting
WILL GENERATE INCREASED
more than 1,000 fast-growing global
ENTREPRENEURIAL PRODUCTIVITY.
entrepreneurs and operating Endeavor
Catalyst, one of the most active venture capital It can be appealing to assume that the key to
funds investing outside of Silicon Valley. fostering a more productive entrepreneurship
community would be to increase the number
RECOMMENDATION 1.
of inputs to the local entrepreneurship system.
FOCUS ON TALENT.
Data from other cities shows that this is not the
While funding is a major challenge in most tech case. If a larger number of companies led to a
sectors including Cape Town, there is a much more productive community, then Nairobi and
stronger focus on funding than talent within Lagos, which have more than twice the number
Cape Town’s accelerators* and entrepreneur of tech firms and many more young, tech
support organizations - despite the fact that companies, should be significantly outpacing
talent was cited more frequently by founders the Cape Town area in terms of productivity.
as a challenge. Many of these organizations
Entrepreneurship plays a critical role
focus on helping their companies build
in countries like South Africa where
connections with potential investors and
unemployment is high. In many cases, South
mentors, but very few of them emphasize
Africans are forced into entrepreneurship as
connections with talent pools or building the
the only opportunity to create employment
*GALI defines accelerators as cohort-based, time-bound entrepreneurship support programs with specific start and end dates, typically between one to twelve
months, which is consistent with the definition used in this research.
16for themselves and may require support flipside, when experience and support the challenges that they identify as
in doing so. However, evidence from this comes from people who do not have obstacles to the growth of their firms
study shows that the type of support personal expertise in leading companies are likely to be true constraints of
that will have the strongest impact on to reach scale, they are associated the local entrepreneurship system,
job creation is in helping successful with little improvement in outcomes rather than the result of their lack of
businesses grow rather than establishing or even lower rates of performance. experience or other internal challenges.
larger numbers of micro-businesses.
By the same logic, these studies also This can be especially helpful in
This approach will also better allocate show that entrepreneurship support addressing talent shortages. Since these
local talent - a resource that is already organizations like accelerators are much founders are hiring more employees
in short supply - towards helping more effective when they help their than anyone else, they will have the
local companies succeed, rather than companies connect to these successful best sense of the types of technical
spreading it out over a large number founders. The most effective support talent and management talent that
of less productive companies. organizations are founded or run by are short in supply, i.e., knowledge of
people who have experience as founders specific programming languages or
RECOMMENDATION 3.
or C-Level executives of companies the ability to lead specific software
INCREASE THE PREVALENCE OF
that have reached scale18. Thus processes. These entrepreneurs are
MECHANISMS THAT FOUNDERS
focusing on the quality of connections also the most likely members of the
AT SCALE USE TO INFLUENCE
these organizations are building will community to have developed solutions
YOUNGER ENTREPRENEURS,
have a much stronger impact than to their human capital challenges that
SUCH AS MENTORSHIP &
simply increasing their number. can be scaled to benefit other firms.
ANGEL INVESTING.
The primary ways that the most Leaders should continue to seek the
In place of a focus on the quantity of
successful entrepreneurs in the feedback and input of local founders
inputs in the community, leaders in the
Cape Town area can support new on a regular basis, in order to identify
Cape Town area should seek to maximize
companies are by empowering their new constraints arising in the software
the quality of interactions among local
former employees leave to become community and to locate solutions to
software entrepreneurs. A large supply of
founders, by acting as local angel local problems that can be scaled.
knowledge, social capital, and potential
and venture capital investors, and
investment funding already exists
by mentoring entrepreneurs at
among the founders of the community’s
younger software companies.
most successful tech companies.
These founders are very active but RECOMMENDATION 4. LISTEN TO
still underutilized in the community. FASTEST-GROWING FOUNDERS
TO IDENTIFY THE MOST CRITICAL
As previous and forthcoming research
CONSTRAINTS OF THE LOCAL
from Endeavor Insight has shown,
ENTREPRENEUR COMMUNITY.
when leaders of the fastest-growing
local firms connect with entrepreneurs The founders of fast-growing companies
at newer companies, it improves the are small in number, but critically
rates of high-performance of these important. Because they are the best
newer firms by double or more17. On the performers working in the community,
17METHODOLOGY
GLOSSARY: businesses whose primary activity is not graphic design firms, BPOs, etc., as well
Angel investment: an investment fintech and could be described as either as businesses in which internet and
made by an individual, not as part of an software development (for enterprises mobile-based platforms are secondary
organization in a company. or consumers) or internet/mobile-based platforms, such as print newspapers
retail or services. and brick-and-mortar retail stores.
Entrepreneurial firms: for-profit
businesses started by an individual SAMPLING FRAME: 3. The company is entrepreneurial.
(excludes government entities and local
Companies were considered as “targets” Entrepreneurial companies are
divisions of corporations based in other
and included in the sampling frame those started by individuals.
cities).
if they met the following criteria:
It excludes businesses
Fintech companies: for-profit
1. The company was founded or that began as either:
businesses whose primary activity is
headquartered in the Cape Town/
using new technologies to support or a) Government entities, such as
Stellenbosch metropolitan area. TTCL, which was privatized by the
enable financial services.
Companies were included if they were: government in Dar Es Salaam; or
Mentorship: a connection through
which a mentee will meet the mentor a) founded in the Cape Town/ b) Local divisions of corporations
at least three times for a minimum of Stellenbosch metropolitan area, or based in other cities, such as Nairobi’s
30 minutes to discuss critical business Safaricom, which began as a division
b) currently headquartered in the Cape of Telkom Kenya, a subsidiary of U.K.-
issues.
Town/Stellenbosch metropolitan area based and U.K.-founded Vodafone.
Metropolitan area: at the start of after they were founded elsewhere.
the mapping process, Endeavor Insight DATA COLLECTION:
Target companies also included The data collected for this project
works establishes the boundaries of a
businesses that have closed after
city’s metropolitan area using local input. comes primarily from surveys and
being founded or headquartered in the
The resulting area, therefore, may not interviews with local entrepreneurs and
metropolitan area, or those that have
always be perfectly within the statistical stakeholders.
been acquired after being founded
metro area.
or headquartered in the area. We began by building a primary
Serial entrepreneurship: the company list from multiple sources.
2.The company fits the definition
founding of a company by someone who These include databases like Pitchbook,
of a technology company.
previously founded another company. D&B Hoovers, and Crunchbase, as well as
Technology companies are defined as the portfolio companies of investors and
SMEs (Small and medium-sized
for-profit businesses whose primary entrepreneurship support organizations
enterprises): used to refer to any
activity could be described as either: operating in the city. We then reviewed
company founded more than three years
companies in the list to identify which
ago. a) Software development for enterprises
ones were targets based on the sampling
(e.g., CRM and logistics systems,
Spin-off: a company started by a frame in the previous section. Companies
security software, outsourced software
former employee of another company. must be founded or headquartered
and app development), or consumers
in the mapped city, entrepreneurially
Startups: companies that were (e.g., mobile apps, digital gaming), or
founded and in the selected industry to
founded a maximum of three years ago.
b) Internet-based or mobile-based retail be included.
Target companies: entrepreneurial or services (e.g., e-commerce, fintech,
Once the list was complete, we launched
firms, founded or currently delivery platforms, content platforms).
a mass outreach campaign asking the
headquartered in the city’s metropolitan
This definition excludes firms for whom entrepreneurs on the list to either fill out
area and in the industry being mapped.
software development is a secondary a survey online or set up an interview
Technology companies: for-profit activity, such as consulting firms, in-person or over the phone. The
18interviews contain the same questions regardless of whether or not they had create an edge list of connections
in the survey, but are adapted to be more been interviewed. The verification among organizations, along with a
conversational. email contains a summary of all their corresponding set of four outbound
connections, including those mentioned connections. We used that edge list
The survey is designed to take no more
by other founders (e.g. if another to create the network maps in D3.
than approximately 15 minutes for
interviewee they did not mention listed
entrepreneurs to fill out. It has remained For each network map, we assigned
them as a mentor). This allowed us to
relatively unchanged over the past few every founder to one company or
verify each connection on both sides. We
years, with only some updates made organization. Where an entrepreneur
collected and verified data on roughly
to reflect city-specific factors or the has founded multiple companies, his
90 additional founders through this
reticence of entrepreneurs in providing or her most prominent company based
process.
certain kinds of data. Endeavor main- on an index of founding date, number of
tains confidentiality, and collected data NETWORK MAPPING: employees, total investment, and exit
is accessible only to Endeavor and its Previous research by Endeavor Insight sizes represents his or her influence on
research partners. has found that there are four main the map. Where an entrepreneur has
connection types between. These are: founded an investment firm or support
In order to ensure that the company list
organization, their tech company takes
is comprehensive, we built a secondary
precedence if they founded one, followed
list of companies mentioned in the
1. Angel investment; by their investment firm, followed by
interviews and surveys that were not in
their accelerator or support organization.
the primary list. If an investor or support 2. Mentorship;
organization that was not in the primary We calculated the size of an
3. Serial entrepreneurship, and
list was mentioned in the survey, we organization’s circle based on
also looked up its portfolio companies 4. Former employee spinoffs. directed closeness centrality for
and added them to the secondary list. unconnected graphs. In other words,
To learn about these connections
The secondary list also included new the size of an organization is a function
between tech founders, the surveys
companies we found on LinkedIn while of the number of first-, second-,
and interviews discussed above
collecting data on entrepreneurs and third-, etc. degree connections the
focused on four core questions:
companies. After identifying targets organization and its entrepreneurs
in this second list, we then launched 1. Who invested in your company? have to others in the network.
another round of outreach. This process (This includes both angel and
There is no limit to the degrees of
was repeated multiple times depending institutional investors)
separation that factored into the
on the size of the city.
2. Who was your mentor during centrality score. For example, if one
Over the course of this process, we the growth and development mentor led to a chain of mentorship
reviewed over 1000 companies of your company? between entrepreneurs, the original
to determine if they met the mentor’s centrality score increased even
aforementioned criteria and identified 3. Have you founded other tech
if the mentor only directly mentored one
450 tech companies. Out of these, companies in your city?
entrepreneur. All connections on the
we were able to gather basic data and 4. Which of your former employees map were weighted equally. Financials
identify the founders of about 360 have gone on to found tech and employee counts did not factor
companies. In total, we interviewed 153 companies in your city? into the organization’s bubble size.
tech founders representing 170 tech
The survey also asked about work Each ring on the map represents a time
companies.
and education history and we used period and companies are located
Once all outreach was completed, LinkedIn to fill in the gaps for founders on a ring according to the year they
we sent a verification email to all who did not respond. We used the were founded. The oldest companies
founders of target companies, responses to these questions to are placed on the inner ring and the
19most recently founded companies are .5 years. We then set the mentorship operating were included in the map and
positioned on outer rings. The number year equal to the year the target analysis if it was possible to find enough
of rings on a map depends on the size company was founded, and add .5 years data to target them. For companies that
and development of the sector. to it, rounding to the nearest year. were acquired, we used the number of
employees at the time of acquisition.
Connections accrue to an organization Typically, companies are spread out
based on the time period in which the over the map to facilitate processing We do not currently compare maps
connections occurred. Where we do not the connections, and the proximity to randomly generated networks.
know the year a connection occurred, of companies on the map does However, maps, sub-networks and the
we take one of two different approaches. not necessarily reflect the degree strength of connections are compared
Where we do not have year information of connectivity between the two. to other benchmarks, including maps
for a former employee, investment, or However, the maps will occasionally of the same industry in other cities and
founder connection, we assume that feature clustering sub-networks maps of sectors of a similar size. These
the year of the connection between in order to emphasize the role of benchmark comparisons prove helpful
the source and the target companies is specific companies in the sector. in understanding a sector’s timeline
equal to the year the target company and characteristics of development.
was founded. To estimate when a NETWORK ANALYSIS
mentorship relationship started where Companies were only included in our LIMITATIONS
we are lacking a start year, we reviewed analysis if it was possible to identify their We recognize that omitted variables
mentorship relationships where we founding year. For companies whose might play a role in sampling and
do have start year information. employee count could not be found, we therefore tried to offset resulting
used the median number of employees adverse effects through our double
For the mentorship relationships where for companies founded in the same interview, verification, and analysis
this information is available, we find year, where companies founded over process. If gaps in or misinterpretations
that the mean elapsed time between ten years ago were combined into one of the data are revealed, the map and
company founding and mentorship is cohort. Companies that are no longer resulting analysis are corrected.
20END NOTES
1. “Clickatell Acknowledged by Mobile Marketing Association – Awarded Finalist in Two Categories” Clickatell. 2009, ac-
cessed July 20 2018
2. David McKenzie and Brent Swails. “Psychic software? How a small social media company predicted Donald Trump’s
victory” CNN. 15 November 2016, accessed July 20 2018.
3. Alexandra Wexler. “How a Small Bet on Tencent Made an African Firm One of the World’s Most Valuable.” The Wall Street
Journal.
4. Caroline Howard. “EdTech Giant 2U Acquires GetSmarter For $103 Million.” Forbes. 2 May 2017, accessed 16 July 2018.
November 30 2017, accessed July 20 2018
5. Endeavor Insight. “How to Foster Productive Entrepreneurship Communities: Critical Lessons for Generating Innovation and
Job Creation across the World.” Forthcoming, September 2018.
6. Endeavor Insight Analysis.
7. Endeavor Insight. “How to Foster Productive Entrepreneurship Communities: Critical Lessons for Generating Innovation and
Job Creation across the World.” Forthcoming, September 2018.
8. Endeavor Insight. “How to Foster Productive Entrepreneurship Communities: Critical Lessons for Generating Innovation and
Job Creation across the World.” Forthcoming, September 2018.
9. Endeavor Insight Analysis.
10. 9 Endeavor Insight. “How to Foster Productive Entrepreneurship Communities: Critical Lessons for Generating Innovation
and Job Creation across the World.” Forthcoming, September 2018.
11. Endeavor Insight. “How to Foster Productive Entrepreneurship Communities: Critical Lessons for Generating Innovation and
Job Creation across the World.” Forthcoming, September 2018.
12. Endeavor Insight. “The Power Of Entrepreneur Networks: How New York City Became the Role Model for Other Urban Tech
Hubs”. 2014.
13. Endeavor Insight. “Evaluation & Network Analysis of the Johannesburg Tech Sector.” Forthcoming, September 2018.
14. Jon Russell. “Amazon Completes Its Acquisition of Middle Eastern E-Commerce Firm Souq”. 3 July 2017, accessed June 20
2018
15. Naspers Website < https://www.naspers.com/companies> Accessed June 20 2018.
16. Endeavor Insight Analysis
17. Endeavor Insight. “The Power Of Entrepreneur Networks: How New York City Became the Role Model for Other Urban Tech
Hubs”. 2014.
18. Endeavor Insight. “How to Foster Productive Entrepreneurship Communities: Critical Lessons for Generating Innovation and
Job Creation across the World.” Forthcoming, September 2018.
21© Endeavor Insight
August 2018You can also read
