Funding hurts SA tech start-ups

2013-02-21 14:12
Local firms need funding to develop new technologies.

Local firms need funding to develop new technologies. (Duncan Alfreds, News24)

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Stellenbosch - Money is the biggest inhibitor to the development of technology entrepreneurs, an industry insider has said.

Students at Stellenbosch are being encouraged to begin technology start-ups through a Stellenbosch Idea Competition and funders believe that beyond the hard work of running a technology company, cash is a large barrier to entry.

"I think we have some great entrepreneurs in South Africa at the moment. Our biggest challenge in that space, however, is that we don't have enough funding," André Hugo, director of Deloitte Digital, told News24 at the event.

The company is one of the sponsors of the programme open to university students being challenged to invent an Android application, meet an industry challenge or come up with a "world changing" idea, according to the organisers.

Hugo, who runs an internal venture capital fund, said that local start-ups were hamstrung by cash shortfalls and Dr Edwin Hertzog told students that business plans often had to be significantly adapted to the real-world environment.

Success

Hertzog shared his experience of leading the development of Medi-Clinic in the 1983 and told of how he had to face tense shareholder meetings when the company showed losses for the first three years.

"People are looking overseas to do funding instead of looking locally and actually investing in locally grown products," said Hugo.

He cited the example of WayTag that offers location-based services. The company had to search for international funding despite having a solid business model and several commercial agreements.

Mxit is a local success story that began in the local start-up environment and competes in the global social network scene dominated by Facebook.

Hugo said that local start-ups had an opportunity to grow but that funding would be required to drive a large-scale project.

"You're looking at somewhere in between. I think the opportunity is there for them to get as bid as a Mxit/Facebook in a totally different area.

"There growth will be exponential when they get to the tipping point; the problem is they've got have funding to get to that tipping point," Hugo said.

Private sector

Education is the key to develop the skills for technology expansion in SA and Hugo said that the school system was not up the task.

"I think the education system at a primary and secondary level is failing. There are opportunities within South Africa that are great examples of education solutions that need to get to scale."

Samsung runs an engineering academy in SA, Kenya and Nigeria to train workers and BMW South Africa's Mathematics, Science and Technology Excellence Project produced 37 distinctions in physical science and mathematics in the 2012 senior certificate examinations.

Hugo said that private sector initiatives are critical to raining the standard of technology education, but that funding remained a stumbling block.

"Those are solutions that are underneath the radar that are doing phenomenal work that aren't getting to scale to come back to our earlier question: Do they have funding? No, and that's where we're stuck in the mix in South Africa."


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