Tech ‘unicorns’ are still mythological in SA

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 22 May 2023

While Africa’s tech start-up scene has a small but growing list of unicorn companies, it remains a concern that South Africa still has no home-grown start-ups that fit the unicorn description.

While SA’s start-up sector holds promise − with many talented start-ups emerging in a variety of tech sub-sectors and disrupting the continent’s tech ecosystem – the lack of venture capital (VC) funding and support denies them any chance of one day becoming the ‘Google of Africa’.

This was the word from SA’s tech industry pundits, speaking during a roundtable discussion at the recent Sentech Africa Tech Week event.

While SA is blessed with agile start-ups that have growth potential, it remains a concern that the poverty of VC funding is the main reason there's still no ‘Facebook of Africa’ or ‘Apple of Africa’ born and bred from SA yet, they noted.

Commonly used in the VC industry, the term unicorn refers to a privately-held start-up company with a value of over $1 billion, according to Investopedia. Unicorn investors tend to be private investors or VCs, which means they are out of the reach of retail investors.

According to CB Insights, there were 1 206 global unicorn companies across the globe, as of April 2023, with only seven in Africa. However, none of these are ‘proudly South African’ tech start-ups.

Speaking during the discussion, Sentech CEO Mlamli Booi noted Africa’s unemployment woes are well-documented, and the continent’s citizens have never been taken seriously in the technology innovation space.

“South Africa’s current power crisis is not the major crisis that we face; the biggest challenge is the lack and absence of venture capital funding in this market. And this has had entrepreneurs and innovators worried that the lack of funding is affecting the growth prospects and future of our [tech] industry,” Booi commented.

“South Africa is very big in building big corporates, which at some point were start-ups. There are many start-ups in South Africa that are able to make a huge difference, but the corporate venture capital market is very stingy; there is no funding for start-ups.”

Booi’s concern about the lack of unicorns in SA prompted him to take to ChatGPT to search for the number of unicorns there are in SA, to which the artificial intelligence chatbot responded there are “none”.

He emphasised the transformative potential of technology if used correctly in Africa. This is of particular interest to Sentech, with its role in connecting private and public solutions.

“Silicon Valley didn’t start out the way it looksnow. Now is the time for us to plant and plough the seeds of innovation thatwill help us build technology for tomorrow,” noted Booi

According to Afridigest, by February 2023, Africa had seven “Africa tech” unicorns, including Flutterwave, Interswitch, Andela and Chipper – which hail from Nigeria, Senegal, Ghana and Uganda, respectively.

Ralf Fletcher, CEO of Topco Media, a business research and business/diversity and inclusion community that runs innovation awards to honour remarkable businesses and SMEs, also participated in the roundtable.

During the discussion, he highlighted how bigger businesses can make a significant impact on SA’s burgeoning SME sector.

“When you look at the low number of jobs in SA and the reliance on big corporates for opportunities, you realise that if we didn't link start-ups to these big corporates, there was going to be a problem,” noted Fletcher.

Sentech CEO Mlamli Booi.
Sentech CEO Mlamli Booi.

While SA’s tech start-up funding scene performed well in 2021, with 89 start-ups raising a combined $336.4 million, the industry saw a considerable reduction in funding compared to previous years, according to Disrupt Africa’s African Tech Start-ups Funding Report 2021.

According to the 2022 African Tech Start-ups Funding report, SA saw a decline in investment throughout 2022, with a year-on-year drop in both the number of start-ups receiving funding and the total amount of funding received.

This is despite the whole continent witnessing 600 tech start-ups receiving $3.3 billion in funding in 2022 – a 55.1% increase from 2021, it says.

According to preliminary findings of the 2023 edition of Disrupt Africa’s report, this year is expected to see further decline in the continent’s tech start-up investments. The first quarter of the year showed that only 87 start-ups secured funding – less than half the number (175) that had done so by the first quarter of 2022.

Panellists blamed the investment drought on the worsening global economic climate and SA’s mounting social challenges amid an unprecedented energy crisis.

The closure of Naspers’s R1.4 billion early-stage investment vehicle, Naspers Foundry, in March, is expected to further strangle investment potential in SA’s start-up sector.

Marlon Finnis, interim executive: managed infrastructure business at Sentech, highlighted some of the obstacles that face tech entrepreneurs, lamenting the pace of regulation that lags far behind the speed of innovation.

“That disconnect between government response and government needs is a major limiting factor for the technology industry, and a major concern for investors like Llew Claasen, Newtown Partners co-founder.

“Africa cannot expect growth to happen without creating a sustaining environment for start-ups and SMEs to scale within the continent’s borders,” Finnis emphasised.

The investors participating in the roundtable all agreed they look for the path of least resistance, so stifling regulatory environments, or inaction from regulators, can create uncertainty – which becomes friction.

Ajit Gopalakrishnan, head of Odin Education, a division of automotive firm Jendamark Automation, said the current education model must change from passing on and testing knowledge, to teaching emerging tech skills.

“When I look at how far generative artificial intelligence (AI) has come, I think it was a mistake to focus on coding as much as we did a few years ago. I don’t think coding is going to be around for a long time; AI is going to do most of it.”

Gopalakrishnan referenced a concept he called “mental state capture” − where Africans are taught to follow and not think for themselves − as a major reason that Africa hasn’t been a leader in any technology revolution.