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Jonathan was recently part of a team that traveled around South Africa actively searching for potential investments as they recruited entrepreneurs to the Canadian government’s Startup Visa Program, a scheme to assist qualified entrepreneurs interested in relocating to Canada. Here’s his perspective on what they found.
In the next five years, South Africa is going to produce successful breakout companies whose exciting stories will be told and re-told as inspiring startup legends. Among them will be some of the 50+ smart, focused, serious and ambitious entrepreneurs we recently met in South Africa. But for us it is not just their soon-to-be-proven success that will make them inspiring legends. No, it is their perseverance in the face of odds that sometimes had our North American jaws dropping in astonishment.
The reality is that on our side of the world being an entrepreneur is a relatively safe experience. We have government programs that offer us financial support. We have incubators, accelerators and angel investor networks that are willing to mentor us and fund our projects. And we have venture capitalists who fall over themselves to invest in our companies as soon as they start to show traction.
Not only that, these investors are also willing to make us independently wealthy in secondary financings so that we can focus on the real prize of taking our companies stratospheric.
Can you imagine that, given all this support, North American entrepreneurs like to think they have a hard time of it? We’re out there taking risks and going against the grain as we work long hours to climb the mountain of success. We think we have it tough. We don’t begin to know how lucky we are.
South African entrepreneurs operate in a world where the only people that they can rely on are themselves. Their families and friends aren’t rich enough to offer significant financial help. There are no organised incubator and accelerator groups willing to give them a hand up the success mountain by risking capital with them, and there are certainly no government grants.
Please understand, we’re not getting at the South African government. Your country has made great progress over the past 20 years but the government still faces major developing-world issues and, understandably, has to focus on dealing with those. Under the circumstances, they can be forgiven for not allocating as much money to technology grants and subsidies as first-world countries do.
Against this adversarial background, what struck us all was the local startup culture that seems to be thriving in South Africa. We saw many great examples but one we all liked very much was Bandwidth Barn in Cape Town. It’s an open, artsy building in the middle of Woodstock with two world-class coffee shops and more than 50 innovative little technology companies doing fascinating things. In North America some of these companies would be on the front pages of the tech press, announcing financings and big partnerships. They would be winning pitch competitions and scoring angel investments.
But they’re in South Africa so, instead of spending someone else’s money, they’re making their own. These entrepreneurs are working hard to find their customers because the only way they can succeed is to sell their products. It’s all about getting the revenues in and making a profit in the process. Their absolute priority is to ensure that their customers are happy. This is not a sentimental nice-to-have; in South Africa it is a matter of the life and death of a company. They don’t have the safety nets that we’re all so used to in North America, they just have will and a work ethic.
The downside to this is the very interesting way in which the South African entrepreneur has developed. Whereas we tend to operate quite boldly, these little companies are not able to take as many chances and consequently they are growing at a slower rate than their North American counterparts. The world of risk capital is stunningly absent. Venture capitalists in South Africa are more like the North American version of private equity: they lend when you are banging out a nice profit margin, or if you have tangible assets that can be used as collateral for their loans. This is neither the best nor the fastest way to create breakout companies, but it is the only way when no one is willing to take risks.
As entrepreneurs in North America, we never think of taking risks as a luxury. We constantly talk about failing fast. We celebrate pivots – startups that change direction quickly, but stay grounded in what they’ve learned. We applaud an approach to business that we call “swinging for the fences”, a baseball term for attempting home runs that in business equates to trying to earn large returns on the stock market.
The reality is that we have an amazing safety net and ecosystem that allow us to indulge in risky behaviour. Compared to South African entrepreneurs, it is relatively easy for us to look and act hardcore. But under your circumstances, what would we do? Where would we be without grants, angel networks and VC funding? Would we believe in our ideas enough to keep going? Would we still want to be entrepreneurs so badly?
Yet you South African entrepreneurs are doing just that – and what an inspiration you are! On the one hand, it makes us realise how lucky we are to live and work in North America. On the other hand, it also makes us think that we had better get our heads down and start to work our asses off. We should stop focusing on what we do not have, and focus more on what we do have.
Our South African experience re-invigorated our entrepreneurial spirit. Entrepreneurism is truly a worldwide movement that celebrates creativity, vision and execution. We want to invest in countries like South Africa; in people who are the true embodiment of inspiring and hardcore entrepreneurship.
Soon enough, more investors and venture capitalists are going to be paying attention to the South African breakout success stories that we’re going to start nurturing as a direct result of our visit to your beautiful country. And as their stories are told, so local angel investors will start writing cheques and local venture capitalists will become more willing to take risks. That’s when South Africa’s startup ecosystem will become a force in its own right. As for us, we salute you South African entrepreneurs. We’re thrilled to be joining your journey on the ground floor.