If you think about the South African tech startup ecosystem, you would be forgiven for equating it with that of Cape Town.
A lot of this is down to excellent marketing, but Cape Town has been banking on startups for a while to shed its “weekend city” image, using its touristic appeal in its favour when it comes to attracting entrepreneurs, investors, and talent.
Its recent declaration that it has the most productive tech sector in Africa may need to be taken with a pinch of salt, but all the evidence does point to the city being the major hub for startups in South Africa – the flow of quality startups, the Bandwidth Barn, Silicon Cape, the huge numbers of accelerators and investors that call Cape Town home…
All of this has rather put Johannesburg, the business capital of South Africa – and perhaps even Africa as a whole – in the shade, but the city is gradually carving out a renowned tech startup ecosystem all of its own.
Fighting back
Even Johannesburg-based entrepreneurs admit the city has fallen behind Cape Town when it comes to being the heart of the South African tech scene. Shane Curran is co-founder of fintech startup InvestSure. He says Cape Town has a more entrepreneurial vibe, especially when it comes to tech.
“We struggled to hire a developer in Johannesburg due to a lot of the tech skills being based or wanting to be based in Cape Town,” he said.
“It seems that a lot more of the early stage, seed funding and Series A investors are based in Cape Town, so I guess proximity and awareness often go hand-in-hand in a business’s early stages, thus potentially giving a Cape Town startup a higher likelihood of being recognised and obtaining seed and Series A funding.”
Matthew Elan Smith, co-founder of another Johannesburg-based fintech startup, Pineapple, agrees.
“Johannesburg does have less of an entrepreneurial spirit compared to Cape Town. My belief is that this is due to Jozi having more of a corporate focused lifestyle and culture,” he said.
Yet trailing Cape Town in the startup stakes is not necessarily to Johannesburg’s discredit, and there are signs the city is staking a claim of its own. Abu Cassim, founder of angel investment group Jozi Angels, says the local tech startup scene is on a par with those in Lagos and Nairobi, and growing.
“Support for startups in the Johannesburg market is improving all the time, there’s never been a better time to be a startup here,” he said.
Smith echoes this view, saying the city is “hot on Cape Town’s heels”.
“There is also a large drive in Jozi to grow the space due to the corporate influence,” he said.
Corporate influence
This corporate influence could well be key to the space’s development, and attracting startups to launch in the city. The key example of an initiative linking startups and corporates is AlphaCode, but there are plenty of others, and Johannesburg may well be in the process of establishing itself as a fintech hub alongside its existing reputation as an economic one.
“From what we’ve seen and experienced there is a more active approach to corporate partnership in the startup scene in Jozi. This may, however, be due to startup’s who settle here having business models which are more B2B, partnership-focused, thus they choose Jozi,” said Smith.
Cassim says Johannesburg’s status as one of Africa’s economic powerhouses makes it a huge market for certain types of startups.
“If you’re a B2B business model you’ll eventually need to have some sort of presence in this market,” he said.
Llewellyn Morkel, chief executive officer (CEO) of real estate investment platform DreamBlock, goes so far as to say that Johannesburg is “the African entrepreneur’s Mecca”.
“At some point every growing business undertakes a trip to the financial hub of the continent to grow their business,” he said.
Aside from the well-known benefits of being near to corporates, Morkel cites more common startup hub pull factors as being ready and waiting in Johannesburg, including access to incubators, talent and funding, all of which are assumed to be more prevalent in Cape Town.
“The city offers an array of startup support services, some offered and funded by local government but most run completely independently by corporates and NGOs,” he said.
What next?
Johannesburg, then, is certainly growing as a tech startup ecosystem, but how much more needs to be done? Plenty, by the sounds of it. Curran believes there is a need for bigger incubators and accelerators in terms of the amount of funding provided, while Smith says the city’s startups need more large VCs to pay them attention.
There are other problems that run deeper, however. Salome Kgoale is marketing director of Johannesburg-based logistics startup Empty Trips. She highlights issues that are preventing the city from reaching its full potential.
“Firstly, issues of corporate bureaucracy and legacies inhibit startups from growing their product base and customers. Competitiveness is key and aggressive,” she said.
“Secondly, Johannesburg has a high number of graduates, yet these graduates are not employable in many cases, with limited practical expertise that are valued within a startup. Lastly, the pay-scale in Johannesburg is often unaffordable for startups to employ top talent, a key stumbling block.”
While being at the centre of an institutional and corporate hub comes with its own advantages, including information, expertise and access to resources, she said many Johannesburg corporates prefer to develop innovative and technological ideas internally, sometime pilfering young concepts, instead of partnering with agile startups.
“This hinders the ecosystem, because many startups cannot compete with their balance sheets, and often their credibility. The few corporates that recognise that many flagship startups build, deploy and implement technologies faster, cheaper and better than they ever could, are the type of companies we look to elevate,” she said.
There are increasing signs, however, that more and more corporates are recognising this, and it is these growing linkages between the corporate and startup worlds that could yet see Johannesburg carve out a sizeable niche for itself, especially in the fintech space.
