Start-ups find winning formula in Cape Town, Joburg

Simnikiwe Mzekandaba
By Simnikiwe Mzekandaba, IT in government editor
Johannesburg, 27 Sept 2021

Africa’s start-up ecosystems are collectively worth $6.6 billion (R99 billion). Of that, $6 billion (R90 billion) is concentrated in the top five African cities: Cape Town, Lagos, Johannesburg, Nairobi and Accra.

This is one of the key findings in the latest Global Start-up Ecosystem Report 2021 (GSER 2021), compiled by Startup Genome and the Global Entrepreneurship Network.

The 2021 GSER is based on the assessment of 280 ecosystems worldwide. It analyses and evaluates the start-up ecosystems based on experience and talent, performance, funding, market reach and resource attraction.

According to the report, the average early-stage funding in African start-up ecosystems in this GSER period, between 2018 and 2020, totalled $46.5 million (R700 million), double the amount observed last year.

The report further notes fintech dominates early-stage investment in Africa, with over $206 million (R3 billion) invested in the sub-sector between January 2018 and June 2020.

“Entrepreneurs, policymakers and community leaders are working hard all over the world to build productive and inclusive technology ecosystems that are engines of economic growth and job creation for all,” says JF Gauthier, founder and CEO of Startup Genome.

“The Global Start-up Ecosystem Report is the foundation of knowledge where we, as a global network, come together to identify what policies actually produce economic impact and in what context.”

Overall, the global start-up economy is worth over $3.8 trillion in ecosystem value, reveals the report, noting this is more than the individual gross domestic product of most G7 (Group of Seven) economies, not including the value of exits prior to 2018.

Mother City leads

The report ranked the top 40 global start-up ecosystems, as well as 100 emerging start-up ecosystems.

Three of the top five African cities made the list of the top 100 emerging start-up ecosystems, namely Lagos, Nairobi and Cape Town. Last year, the Mother City also emerged among the top-ranked start-up ecosystems in Africa.

Cape Town has come up tops in the latest standings, ranked the number one African ecosystem in talent and experience.

Talent and experience measures long-term trends over the most significant performance factors, and the ability to generate and keep talent in the start-up ecosystem.

In terms of performance, which measures the size and performance of an ecosystem based on the accumulated tech start-up value created from exits and funding, Cape Town took the number three ranking.

When it comes to funding, which measures innovation through early-stage funding and investor activity, the city also ranks in the third spot.

Cape Town boasts a thriving tech ecosystem, being the home of tech heavyweights such as Naspers, Takealot, Aerobotics, Clickatell, GetSmarter, Yoco and Sweepsouth, to name a few.

In April, it was announced that the Cape Town-based R4.5 billion River Club Development will be the new home of Amazon. The US retail giant already has an office in Cape Town through its cloud computing subsidiary Amazon Web Services, which first established its presence in the city in 2004.

The report also highlights Cape Town’s fintech and edtech environment among the strengths of its start-up ecosystem.

It states: “As the home of some of SA’s largest financial institutions, Cape Town is a natural choice for innovative institutions; it is a natural choice for innovative fintech companies within the country.

“Payments start-up Yoco has raised a total of $106 million over five rounds, including a Series C in July. Mobile financial services platform Jumo has raised $156.7 million over 11 rounds. Their latest round was a $55 million Series C in February 2020.

“The acquisition of GetSmarter by 2U in 2017 catalysed the growth of the edtech sub-sector in Cape Town. Other local success stories include talent development and e-learning company Groundfloor Labs and Construct Education, and the University of Cape Town recently partnering with Valenture Institute to deliver SA’s first accredited online high school.”

Vusi Thembekwayo, Silicon Cape co-chairperson, comments: “A report like this is confirmation that Cape Town, and by extension South Africa, is Africa's Tech Capital. It also highlights the enormous opportunity that the city and country present for foreign investors.”