Slowing economy is biting into startups’ profit reveals Ventureburn survey

South Africa may have seen an explosion in venture capital (VC) deals of late — with the value of VC deals having increased by 134% in 2016 over 2015 — but just 10% of tech startups are turning a profit, reveals the Ventureburn Tech Startup Survey powered by Telkom Futuremakers.

The figure of 10% revealed by the survey — which sampled 260 startup founders from across the country in an online survey in October — is down from 17% in a survey of 197 founders conducted by Ventureburn in 2015.

Gross domestic product (GDP) growth is expected to remain under two percent a year until at least 2020, according to estimates by the Treasury contained in the Medium-term Budget Policy Statement presented last month in Parliament.

In addition, more startups are also battling to raise finance. In the 2015 survey, 74% of startups reported that they are looking to raise finance. This figure has grown to 83% in 2017.

Linked to this, while startup founders continue to list funding as their biggest challenge, the percentage who single it out as their main challenge has grown from 43% in 2015 to 52% this year (see below graphs).

In addition, a number of other signs indicate that startups are struggling. These include:

• Fewer startups now rent or own offices: The percentage that operate from rented office space has dropped from 23% to 16% between 2015 and this year. This, while more startups are operating from incubators — 10%, up from six percent in 2015.
• Fewer startups are servicing consumers: The percentage of startups in the B2B sector has increased from 45% to 58% of all startups.
• Fewer founders list the motivation for starting their own business as one to pursue a gap in the market or opportunity. This remains one of the biggest reasons founders list for starting a business, but just 13% list this as the main reason for starting their business — down from 17% in 2015.
• Perhaps because the local market is showing little growth, more startups plan to distribute their products and services into the rest of Africa. In all, 41% of startups report that their market is Africa, up from just 13% in 2015. Those that describe South Africa as their principle market has fallen to 39%, from 65%.

More information on the Ventureburn Startup Survey:

A picture of two worlds – black tech startups struggling, finds new survey
White males in Western Cape the most successful startup founders – survey
Slowing economy is biting into startups’ profit reveals Ventureburn survey
Startups hold unrealistic view on securing VC, angel funding suggests new survey
New survey suggests SA startups could be out of touch in paying employees
Infographic: the 2017 Ventureburn Tech Startup Survey
View the full 2017 Ventureburn Tech Startup Survey presentation