When was the last time you sent an SMS in your personal capacity? Chances are that it’s been a while. Now, think about how…
“Gyft was mostly built out of Cape Town,” Vinny Lingham told the audience at a recent Silicon Cape event where a big funding announcement was made. The announcement was hailed as the financial commitment that would change everything for the Western Cape’s startup ecosystem.
But the ecosystem is already changing. It began changing when the early stage employees of Gyft found out about the startup’s exit worth more than US$50-million. Why? Because the developers based in Cape Town were given share options in the company. Five out of eight of Gyft’s developers are South African and are all founding members of the company.
Gyft is actually a really simple product. It is a mobile gift card app that allows customers to buy, store, send, and redeem gift cards conveniently from their mobile device.
Lingham says that there is a missing opportunity to keep early stage employees in startups committed and interested by embracing wealth creation through share option programmes.
“I am not sure if we can share the specifics, but I got out a decent amount from this, but definitely not life-changing. I can at least now secure education for my nearly five-year-old daughter,” says Michael Brewer, one the early employees at Gyft.
Brewer joined Gyft because he had previously worked with one of the co-founders, Mark Levitt. Gyft was a project for outsourcing house Playlogix and the developers that worked on the project soon became full-time employees of the company.
Giving your employees five percent of nothing may sound easy but it requires risk from both sides. Both the founder and employees are relying on trust that they can build a successful company that will pay off later.
“I have never worked harder and longer on a project before this! It is been extremely resource intensive project,” says Brewer.
Martin Treurnicht agrees: “Startups are hard work, but they can pay off in a big way.”
Treurnicht was contemplating a job offer from Kalahari.com but ultimately chose Gyft because of the opportunities it presented, including the option of moving to the US and equity.
Matthew Slade, another early employee, had been retrenched from his job when the Gyft opportunity came along.
“My previous employer knew Mark Levitt and got me an interview at Playlogix, which was doing the Gyft development at the time,” he tells me. He recalls that a number of his friends already working there, which made working for the company and consulting more appealing.
“From there, Gyft became more than just a project that we were working on and the developers assigned to the project became essentially full-time Gyft employees as the company took off,” he says.
Working for equity and building wealth
The details around Gyft’s exit have been kepy quite hush hush, though it is rumoured to have been in the US$50-million dollar range. The standard employee equity in the Valley is between 10% and 20%. If we give the employees of Gyft a collective 15%, that’s US$7.5-million, or around R75-million for employees. On the lower scale of 10%, it comes to US$5-million or R50-million. At the time of exit Gyft had around 17 employees, five of whom are the founding developing team based in South Africa.
“I don’t know if I’m really allowed to say, because of all types of non-disclosure agreements. But it was a nice amount, the amount of money we got out was way more than I would’ve been able to save earning a good salary in SA over several years,” says Treurnicht.
Lingham clarifies that there is a difference between building a product-based startup and a serviced-based one, such as an agency. The dynamics of success change: if your product fails to take off so does your company. The employees in a product-based startup have to be prepared for the details. An employee stock ownership plan (ESOP) should really be part of all startups’ strategy, as way to keep interest for lower salaries.
Is there a future in outsourcing for South Africa?
Of course African startups can’t really compete in the same way a Silicon Valley company can. Exits in Africa can take anywhere from 18 months to 10 years. In Silicon Valley, exits are in the 12- to 24-month range. Heck, some companies even exit before they launch.
However, there is outsourcing potential for talent. If you think about India 15 years ago, no one was really looking at it as tech hub, but in the last 15 years the country has become the technology outsourcing capital of the world. As of the middle of 2013, the Credit Suisse Research Institute’s Global Wealth Report reports that India was also home to 1 760 individuals with wealth of more than US$50-million and 770 individuals worth than US$100-million.
Additionally India is likely to see a substantial jump of 53% in the number of millionaires to 84 000 by 2017, the report said.
Slade reckons that South African developers might prefer to work with Silicon Valley companies because of the benefits they provide. Share options and the dollar/rand exchange rate are just two of the biggest advantages that come from doing work for companies in the Valley.
“I think it’s not only an exciting opportunity to work for a Silicon Valley company, but it’s also very lucrative given the trend with the rand/dollar exchange and the expected salaries in Silicon Valley compared to SA,” he says.
Brewers agrees, but recognises the challenges as well:
“Working with a Silicon Valley from South Africa is challenging; working remotely is challenging by itself – with a nine-hour timezone difference this becomes even more so,” he says. “The key thing is to develop an effect method of communicating between the different teams. Implementing an initial system from SA is easier until the point you need to do integration or operational work.”
But there certainly are advantages for both sides when it comes to employing South Africans or working for a Silicon Valley company.
“It makes a lot of sense for Silicon Valley startups to outsource their software development to South Africa where the work is comparatively very cheap. SA employees can get the best of both worlds by receiving a respectable salary by South African standards and still be able to have the possible upside of being part of a successful startup,” says Slade.