Gauteng Leads with the Number of Tech Startups, But WCape Companies Are Still More Successful

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Gauteng has emerged as the most popular province to run a tech startup in the 2018 Ventureburn Tech Startup Survey released yesterday. 55% of the 153 founders surveyed said they operated in Gauteng, behind the Western Cape’s 37%. The percentage is up from 44% in a 2017 Ventureburn survey of 260 founders and 29% in a 2015 Ventureburn survey. The Western Cape may long have been held up as the centre of South Africa’s tech ecosystem, but it seems this is no more.

But despite this, tech startups in the Western Cape are still more successful than those in Gauteng. As the 2017 report revealed, successful startup founders are still most likely to be white males from the Western Cape.

Other key findings include:

Racial and geographical breakdown

  • Driving the rise in Gauteng tech startups is the increasing number of tech entrepreneurs who are black (black African, coloured, Indian or Chinese South African) – who now make up 56% or over half of the country’s tech startups, up from 46% in 2017 and 26% in 2015.
  • The majority of black startups, or 62% (2017: 53%) list Gauteng as their base, while 27% (2017:42%) say the Western Cape is their home. The remainder are based in the country’s seven other provinces.

Financial performance and funding

  • A higher percentage of tech startups in the Western Cape report making a profit or generating significant revenue than those based in Gauteng. The figure is 23% of Gauteng tech startups (2017: 22%), compared to 36% (2017: 32%) of startup founders in the Western Cape.
  • Across all participants that took part in the survey, 27% said they were either profitable or making significant revenue. Just 10% of startups said they were making a profit.
  • The majority were either not making any revenue or were generating a very small revenue. In all, 40% (2017: 45%) said they were not generating any revenue, while 33% (2017: 28%) said they were making an insignificant amount of revenue.
  • Just 21% (2017: 19%) of those surveyed said their startup was turning over R1-million a year. The remainder of firms, or 27% (2017: 18%), generate between R100 000 and R1-million a year.
  • Just seven percent of black tech startups turn a profit, versus 15% of their white counterparts.
  • The majority of SA tech startups or 38%, use their own cash to fund the business (2017: 40%), followed by loans and grants from friends and family at 22% (2017: 23%).
  • Over a quarter of startups plan to raise angel or VC funding, but only eight percent receive such funding. When it comes to access funding, more white founders (11%) have had angel funding than black startups (six percent), while white founders accounted for 50% of all those startups that reported having tapped angel (2017: 59%) funding.
  • When asked how they plan to raise funding in the future, 46% of white founders say they will do so by securing a private equity, VC or angel investment, versus 37% of black startups.

Challenges faced by black tech startups

  • Over half or 51% of black startups surveyed (2017: 61%) generate no revenue at all – because they are still working on their concept or are in the seed stage. Just 20% of white startups say they are yet to make money (2017: 30%).
  • In addition, while 39% of white startups (2017: 29%) bring in a revenue of over R1-million, just 14% of black startups do so (2017: 9%).
  • Almost two-thirds of black startups (2017: 75%) generate no revenue at all or less than R100 000 a year — compared to 37% of white startup founders who make under R100 000.
  • When it comes to access funding, more white founders (11%) have had angel funding than black startups (six percent), while white founders accounted for 50% of all those startups that reported having tapped angel (2017: 59%) funding. It suggests better resourced white startup founders who often have access to more capital, skills and experience and better networks are able to out-perform black startups.

Sector breakdown

  • Half of all startups surveyed were from three sectors, namely: Software as a Service (SaaS) (19%), fintech and insurtech (18%) and the media, advertising and marketing sector (13%).
  • Half of those surveyed own their own product or intellectual property (IP), while 38% are a service-orientated business (such as an agency or software development house). The remainder of startups are e-commerce businesses (8%) or license or use another’s product or IP (3%).
  • Most of the surveyed founders are aiming to service or are servicing, either the SA market only (40%) or the entire African market (41%). The remainder list the entire world as their market.
  • A far higher percentage of white startups operate in the money-spinning sectors of fintech and insurtech sector and Software as a Service (SaaS) than do black startups.

Founder experience

  • About a third of respondents founded their startup in the last year.
  • In all, 71% of founders (2017: 67%) surveyed said they had been involved in running a startup before, with most of those having been involved in either running one or two business previously (56% of all founders surveyed).
  • Most founders said they founded a startup to become a pioneer or innovate (15%) or after seeing an opportunity (13%). Only four percent said they started a business to make big money.
    Of the founders, 76% (2017: 73%) reported having worked in a corporate previous to starting their business.
  • Of the founders who describe themselves as successful – most are are over the age of 40 or between 30 and 35 years old – 38% of startup founders in these ages groups say they are successful (2017:36%). And most of those who say they are successful, run a fintech or insurtech or a SaaS startup.
  • Those that are successful are also more likely to have a business partner and a startup that is already over two years old (55% over two years old say they are successful versus just 11% under two years old).
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