SA tech start-ups may be sabotaging themselves

2013-10-08 08:10
Smartphones. (Duncan Alfreds, News24)

Smartphones. (Duncan Alfreds, News24)

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Cape Town - South Africa technology start-ups may be shooting themselves in the foot when it comes to getting funding to scale businesses.

According to venture capitalists, some start-ups are able to articulate their business goals in a coherent fashion to attract investment.

"It's not one. It's a combination of: Not understanding their core offering and route to get this to market (how they sell their product) along with overvaluing the business early on which dissuades investors and advisors," venture capitalist Brett Commaille, CEO of AngelHub told News24 when asked about the single biggest failure of start-ups.

Start-ups are usually composed of small teams of around four to five people and typically fund the early stages of the business out of their own (or their parents') pockets.

Once the idea begins to take off, funding is critical to expand the idea and generate market share.


However, a lack of understanding of the value of the concept and its impact in the market may sabotage many entrepreneurs' efforts to grow a successful technology company.

"The biggest thing is overvaluing the idea. If you can't articulate your idea and share your idea, how is anyone going to be able to back you? Or they believe their idea is worth so much - whereas ideas aren't really worth so much without some sense of execution," said Wesley Lynch, CEO of Realmdigital.

One of the proven ways that a start-up can learn to gain traction is through the incubator process.

Gauteng and the Western Cape are beginning to emerge as incubator hubs where start-ups can gain access to a knowledge base, internet access, as well as funding in many cases.

"It [incubators] provides a close environment to observe the skills and work ethic of a developer.  They also allow you to stay close to the developers and ensure cross-collaboration and sharing of skill sets," said Commaille.

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"We believe in the great market opportunity of investing in start-ups targeting emerging market Africa. South Africa is the biggest and most developed market in Africa with high number of high net worth individuals who will be key for funding early stage mobile web start-ups in Africa," 88mph managing director Kresten Buch told News24 about the need for local incubators.

Western Cape MEC for finance, economic development and tourism, Alan Winde, will be meeting entrepreneurs at the Bandwidth Barn on Wednesday and Thursday for a chat about their business ideas.

"I'm inviting all ICT entrepreneurs to come see me. I'd like to discuss their ideas and see how the Western Cape Government can assist. Small businesses are a key job creator and it's important we give them the support they need to make a meaningful contribution to our economy," said Winde.


The Western Cape provincial government has allocated R50m to develop technology solutions in the industry over the next three years.

For start-ups the landscape has changed dramatically from the past: Costs to start and run a business - especially a technology enterprise - has declined significantly.

"If you think about it, if you started any kind of  IT-based business 10 to 15 years ago, then you would have had to buy a server. You couldn’t just store everything in the cloud. There wasn’t a proliferation of open source software where you could use Google Docs or Gmail," said Alexandra Fraser, head of Business Development at Invenfin.


She advised potential funding recipients to check that their business matched the criteria of the venture capital firm so that it was easier to secure funding.

An industry expert said that in Africa particularly, start-ups needed to focus their development on mobile devices as these were the predominant technology used to access the internet.

"We often say, if you produce something and it's not working on mobile, it means it's broken. Mobile is of course, one of the priorities of all of the interactive news applications we would like to see produced," Antoine Laurent, Global Editors' Network deputy director, in charge of innovation told News24 about the importance of mobile app development.

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