VC in South Africa: Where are we now? [Net Prophet]

“If this elevator goes down, so does the Cape Town VC industry.” That’s what Justin Stanford, co-founder of investment management group 4Di and 4Di Capital, told fellow Venture Capital investor, Keet van Zyl a few years ago on the way to an event. That’s how small the VC space is in the Cape.

Speaking to the Net Prophet 2013 audience Stanford, who is also the co-founder of the Silicon Cape initiative, spoke of the current state of the Cape Town VC space.

“Where are we now? Lacent… but it’s growing.”

Stanford seems upbeat and optimistic about the Cape’s ecosystem, even in the last three years he has noticed more private money (mainly Angel investors), and quality startups join the space.

Yet the Cape VC life is a lonely one. Stanford notes that 4Di has been run like a startup, and argues that raising money for a VC fund is as important as for a startup, but much harder to do because of government regulations and red tape.

Stanford states that for a more developed ecosystem, you’ll see the various stages of funding, from early stage to seed/incubation, to late stage.

But he doesn’t believe that that whole exists in the Cape, only parts. In its place is a portfolio approach to VC, “You have to spread your risk.”

He adds, “We can’t have a reliance on funding and exits. We need a greater focus on more sustainable, feasible businesses”

In this light, Stanford raised what he thought the Cape is doing wrong. “We read too much TechCrunch.” While he doesn’t refute the quality of the Europe-based publication, he argues that it covers a lot of “sexy” consumer-ready businesses that don’t suit the Cape’s young ecosystem. The Cape needs to focus on its own strengthes, its own voices and perspectives that overseas players don’t see.

He believes that we have strong B2B and distribution channels, as well as great talent to build fantastic products.

One piece of advice that is being aired more and more lately, is that funding is not the most important thing for a startup.

For Stanford, a startup needs to find the right balance that will align everyone’s interests rather than just focus on the “how much.” He also notes that for him and 4Di, the most important part of an early stage business is the team. “The first thing that happens is the plan gets scrapped… the people are the one constant.”

He continues that VC is not necessarily right for everyone, and an entrepreneur should look at what kind of business they want to run, because VCs normally take a seven to ten year view and have certain requirements they have to uphold.

So what will help the local ecosystem? More entrepreneur VCs would allow for communication on a level playing field for both entrepreneur and potential funder. More people with business expertise joining the ecosystem is also essential to its growth.