A look at 2017: the year that was for South Africa’s tech startup ecosystem

This year saw one of the biggest acquisitions of a South African startup – with the over $100-million GetSmarter deal.

A chance meeting with 2U CEO Chip Paucek in October last year set the Cape Town based edtech startup on the road to being acquired by the US firm in a $103-million deal signed in May, but only concluded in October.

But 2017 was also a year in which two new major acceleration programmes launched on the continent.

Global accelerator Startupbootcamp launched a three-month programme in Cape Town in September — the organisation’s first such initiative in Africa.

The inaugural programme helped bridge the gap between corporates and startups, with the initiative’s first cohort of ten startups having secured 32 agreements with large companies.

Then there was the announcement made in July by Google’s CEO Sundar Pichai in Lagos, Nigeria. He revealed that Google will provide more than $3-million in equity-free funding, mentorship, working space and access to expert advisers to more than 60 African startups over three years.

The tech giant this year opened applications for its first Google Accelerator Africa, set to start in early 2018 in Lagos.

2017 saw one of the biggest acquisitions of a South African startup, but it was also a year in which two major accelerators launched in Africa

Earlier this year Google opened its Launchpad Accelerator programme, in existence since 2015, to African startups for the first time. JUMO became the first SA company to be selected by Google for the programme.

The fintech startup in November announced a $24-million funding deal, in a loan facility arranged by Gemcorp Capital. The company graduated in December at a ceremony in Warsaw, Poland which Ventureburn attended (see this and this story).

Over $137m in deals

Indeed 2017 was a big year for deals. By the end of October, SA tech startups had concluded deals valued at over $137.7-million, data tracked by Ventureburn showed.

In addition, the 2017 VC survey (opens as a PDF) by the Southern African Venture Capital and Private Equity Association (Savca) revealed that the value of venture capital (VC) investments rose by a whopping 134% to R872-million in 2016 over 2015 (read some key facts from the survey here).

Driving the increase has been a significant uptake by investors in the country’s 12J VC tax incentive. The increase in the top marginal income tax rate to 45% for high earners is driving more South African investors to seek out the 12J venture capital (VC) incentive to offset their taxable income, say fund managers.

Under the incentive, which is managed by the South African Revenue Service (Sars), investors that invest in venture capital companies (VCCs) that in turn invest in qualifying small enterprises, can write off the full investment made in any one year from their taxable income.

In September, SA VC company Knife Capital announced that the funder had expanded into London after introducing UK-based Draper-Gain Investments as a strategic investor. It followed Knife Capital’s management buyout from JSE-listed African Dawn Capital.

Former SA rugby star Bob Skinstad, who is based in London, will act as Knife Capital’s point man in London. Skinstad helped to broker a R22-million investment in a Swedish startup that is backed by the developers of the famed Candy Crush game. It is Knife Capital’s first overseas VC deal.

Bitcoin fever

It was also a year in which initial coin offerings (ICOs) and Bitcoin mania took hold. There were several such ICOs — from SA startups such as Augmentors, Prosperiprop, Wala and eKasi bucks. They all failed to meet their targeted investment amounts. In the wake of ICOs being banned in China in September, the Reserve Bank, which is studying how to deal with cryptocurrency, said it offers investors no protection.

Local commentators, such as Bitcoin Foundation head Llew Claasen meanwhile in December cautioned investors to buy and hold when investing in Bitcoin.

Government’s mixed bag of results

It was a mixed bag of results from the government however. On the one hand, the state’s Technology Innovation Agency (TIA) revealed earlier this year that it had channeled R74.3-million in 2016/17 to 133 innovative projects — up from R66.5-million in the 2015/16 year — through its seed fund.

The seed fund, which the agency launched in 2013, provides entrepreneurs and innovators that develop innovative solutions with grant funding of up to R500 000 to R650 000 per project.

Tech entrepreneurs also welcomed an announcement in the 2017 Budget Review, in which the National Treasury revealed that intellectual property (IP) exchange control would be relaxed, which is good news for startups (see here).

Thanks to this, Silicon Valley based SA entrepreneur Vinny Lingham in May revealed that he plans to open an office in Cape Town to hire developers for his new startup Civic.

However, in general the government disappointed in failing to honour a commitment to match private-sector funding in a R1.5-billion SME fund and in dragging its feet over crafting rules for equity crowdfunding, which would have encouraged more platforms to consider funding SMEs via the web.

In July, the Financial Services Board (FSB) even missed a self-imposed deadline to consider whether to regulate equity crowdfunding or not. This however hasn’t stopped two equity crowdfunding platforms from going ahead. While both — EasyEquities and Uprise.Africa — this year made public the projects they will open to investors — they have yet to begin accepting investments.

Yet perhaps the best news this year came from Ventureburn’s tech startup survey powered by Telkom Futuremakers.

Released in November, the survey revealed that the tech startup world is becoming more diverse in terms of race and geographic location in South Africa.

While the Western Cape might still be the most popular region in South Africa in which to run a tech startup, the province is losing ground to the country’s richest province — Gauteng. In addition, the number of black tech startups is on the rise. Here’s to 2018!

Featured image: Geralt via Pixabay