Silicon Cape creates real 'buzz'

In a move that could signal the beginning of a '15-year dream', the Silicon Cape Initiative was unveiled this week. It aims to promote the Western Cape as a hub for IT innovation and entrepreneurship.

The brainchild of Vinny Lingham, a South African entrepreneur whose company, Yola, has attracted $25 million of funding that took him to Silicon Valley, and Justin Stanford, a partner in 4Di Capital, Silicon Cape started as a small idea.

It has grown into a launch event that secured speakers like Helen Zille, premier of the Western Cape; Dr Mamphela Ramphele, chairperson of the Technology Innovation Agency; and Johann Rupert, chairman of luxury goods company Richemont.

A crowd of 500 entrepreneurs, venture capitalists and potential angel funders were at the Bay Hotel, in Camps Bay, to hear them.

A steering committee, nominated and elected by the attendees and the online community that formed around the project on www.siliconcape.com, will take Silicon Cape forward. It aims to capitalise on the initial enthusiasm, and follow through with action and liaison among national and provincial government, academia, investors, entrepreneurs and corporate SA.

Said Lingham: “It's not about building a local version of Silicon Valley. The market won't support that.”

Stanford agrees: “It's an ecosystem, consisting of a few core elements.”

Those elements, both concluded independently, exist in and around Cape Town. A key realisation, they say, is that it's about people, not buildings. “You don't construct it. The question is who are the right people, and how do you get them to move here?” asked Stanford, quoting Paul Graham, who has written about the factors that made Silicon Valley the iconic start-up haven it has become.

They are convinced it is possible to build companies that aim at the global market in SA, and take them global successfully. The usual barriers that are cited, like expensive and scarce bandwidth, they say, are not impossible obstacles to overcome.

“Silicon Cape is a five-, 10-, 20-year dream,” said Stanford. “But we'll see the makings of it in the next five years. It won't happen overnight, but it can happen, if all of us here work together to make it happen. We've seen it happen.”

Lingham added that intellectual property can, and should, be the future of SA's export revenue one day.

A dose of realism followed, in the form of Andrea Bohmert, of Hasso Plattner Ventures, a venture capital firm. “It's not as easy as they make it sound,” said Bohmert, a foreigner herself. “You cannot ignore the international perception of SA. You cannot ignore your distance from other hotspots, where you can't just quickly fly to. You cannot ignore that Cape Town, unlike Johannesburg, is cliquey. Nobody has ever mentioned a South African university to me as a top global research university. They may be wrong, but if they are, universities are SA's best-kept secret.”

A lot needs to happen, in terms of people, marketing and regulation, she said. “Lack of skills, lack of large anchor corporates that provide management training, lack of professional services firms available and affordable for the start-up market, lack of angel funding networks, all these are critical for the ecosystem,” Bohmert added.

“Can you take your money back out of SA? Can you move intellectual property around globally? These are critical barriers, and they suggest to investors that they'd rather place their money somewhere else,” she said.

The crux of the problem is the legal and regulatory environment, and that is the one factor that no entrepreneur, and no investor, can change, she noted.

That's why in 2008, SA registered only 10 766 patents, of which 7 166 were filed by foreigners, she added. “How many success stories do we have? And how easy were they to find? We either need people to come forward and talk about them, or we need to generate more, because there simply are not enough of them. Silicon Valley has 500 active VC funds. SA has six or seven.”

Laurence Olivier, a venture capitalist who left SA Africa for the US, as a partner in Veritas, a major fund with a solid track record, described entrepreneurs as the chocolate in the biscuit, between the product or technology, and the venture capital.

Dozens of other attempts to replicate Silicon Valley exist, he said, some successful. But he added that unlike anywhere else, the key thing Silicon Valley had that nobody else had was a sense of local networking and community. “And this is the first thing Silicon Cape has,” he declared. “Surely, technology and money are not enough."

Rupert struck an ominous tone, warning that he expected taxes to rise dramatically in the English-speaking world. He noted why some countries have grown successfully in the past, and others have not. In some cases, such as East and West Germany, or North and South Korea, the starting points and social stock were identical.

“The reasons some countries have succeeded, while others have not, has everything to do with the rules by which we organise our lives. Respect for and free transfer of property, flexible labour markets, valued entrepreneurship, democracy, free speech, honesty and transparency in government, the rule of law,” he enumerated. “These are the countries that went from agriculture through industrial to the information or knowledge economy.”

He noted the shift from raw materials, to manufactured goods, to services and intellectual capital. “The magic ingredient is brain power. Societies that do not protect and encourage the creation of intellectual property willbecome poorer.

“Because people who own the intellectual property are mobile, they get to choose where they live, and they'll choose to live where their intellectual property is most highly valued. That's where they will create economic growth. In the Western Cape, if we create the proper economic incentivisation, there will be money.

“I'm glad to see the premier here, Premier Zille. I've already discussed this notion with senior ANC people: Let's create a tax-free zone in the Western Cape,” he concluded.

Having raised both excitement about the opportunities, and caution about the challenges, Ramphele took the stage. “I'd just like to say how proud I am to be South African. What happened here this morning is an affirmation of what we're capable of when we just dig a little deeper and make an effort.”

She said: “The most important thing is that government must create an enabling environment, and tackle the regulatory barriers.” Citing the difficulty of trading globally from a South African base, due to exchange control and tax regulations, she exclaimed: "I can't believe that we can't sell to people who pay in dollars. How stupid is that? How can we grow our economy?”

Ramphele explained there's a misalignment between what government wants to do and what it does do, and where it can take the lead, it should do so. “For example, our school system is not delivering, and neither is our higher education system.”

Another factor was the unintended consequences of black empowerment. “It appears that patronage has been an inhibitor to innovation. We need to get people back to SA by recognising and celebrating their contribution. We must do that.”

This is the role, she believes, that the Technology Innovation Agency should be playing, as an enabler, and an agent in removing the barriers that are highlighted by initiatives like Silicon Cape.

Zille said: "When we look back in 10 years time, this will have been an historical gathering. It's not often that I get the real buzz that I had today.

“We heard a lot about the geeks, and the VCs, but very little about the politicians. And that is because we're usually regarded as a necessary evil. We heard about constraints and problems in the ecosystem. And every one of them are problems and constraints that can be changed through policy and positive action. We have the capacity to change the rules, change the policies, to enable an environment where people feel attracted to put their capital at risk and innovate.

“This event gives us an opportunity to have an intelligent conversation about how we can change the rules, and take it out of the political domain of party politics. You heard Johann Rupert's concern about party politics. It doesn't have to be that way, and it shouldn't be that way.

“If we want to take our people out of poverty, then we'd better treat our intellectual capital very well. You have to keep and develop your skills, and your people. Especially in the knowledge economy, this is crucial. We have tried to do that, mostly in the Western Cape, and I'd like to think that is a part of the reason why you're having this conversation here, today.”

It is government's role to change policy and remove barriers, both economic and political, she noted. “When Andrea Bohmert poured cold water on Vinny [Lingham] and Justin [Stanford]'s enthusiasm, I thought: 'Good. Problems enthuse me. Obstacles get me going.'

“I see my job as removing barriers to access. Not only for entrepreneurs, but also for the most important factor of all, education. Justin and Vinny said we're at the start of a 15-year dream, and they're right. That's what it takes. I'll keep on this. I'll get more involved. I'll tweet more than I do. I'll help build this. Afri-can.”