The two most frequently expressed needs by South African entrepreneurs are funding and market access. These are resources that corporates have in abundance, however what corporates lack are solutions to the myriad of problems they face in today’s disruptive and complex business landscape.
“Entrepreneurs are looking for access to markets and they are looking for funding, typically they are working on solutions for an important problem that needs to be solved, that can intersect as an opportunity for corporates and entrepreneurs to work together,” he says.
Some examples of successful collaborations between local startups and corporates are DataProphet, a Cape Town-based machine learning company, which developed an artificial intelligence system that is now being used by automotive company, Mercedes-Benz’s plants globally; and Massmart-owned retailer Makro which acquired a majority stake in the on-demand courier service, WumDrop in 2017. In an interview with SME South Africa, the retailer said the acquisition would help it shrink the window between a customer order and delivery from three days to three hours for clients located within 20km of a Makro store.
Adao on why startup-corporate collaboration could be a better business model on the African continent.
On how this type of collaboration can work
Corporates [should] use small business owners to solve their problems instead of just being a venture fund.
[They should say] ‘we’ll fund you to commercialise that solution.’
Corporates should say ‘these are the problems we need to be solved and as an entrepreneur, as a startup, if your solution solves that problem, what we will do is instead of just buying that service from you, we will fund you to make sure that the service goes to market and will have the impact that it should have.’
On the challenges of the local funding ecosystem
I think it’s important for us not to just discuss it in the construct of a funding mechanism, but rather in terms of the funding ecosystem – what is necessary in order to make funding work for entrepreneurs on the [African] continent? So we have to understand the various funding mechanisms, the route to market, the environment in which we trade, as well as the requirements of the entrepreneur.
If we can find harmony between these various components of the funding ecosystem, we have a better chance of ensuring success and achieving better results with the limited resources that we have, compared to developed markets.
On predictions for the future of funding
1. VCs will back startups for longer until they reach profitability.
2. More VCs will back the person rather than just the idea. This is because ideas can be replicated. These days it’s easy to replicate an idea, for example look at the likes of Uber and Lyft.
3. We need to look at other sources of funding like crowdfunding, cryptocurrency, equity funding. They are a good way to get money. This is also why we need harmonisation of regulation. Regulations are important.
On must-dos for small business owners looking for funding
1. Get funding for the right reason. It can’t be just to get more money.
2. Get as much feedback as possible. The problem is that too many entrepreneurs are emotionally involved in their businesses, so they don’t ask for feedback [after being rejected for funding].