DailySun
This content is presented by Brand South Africa
Located amidst the vibrant bars and eateries of Cape Town’s lively Kloof Street, a repurposed warehouse functions as a center for one of the city’s most energetic business environments. Spanning three brightly lit and colorfully adorned floors, Innovation City Cape Town serves as a unique community for startups, corporations, entrepreneurs, and investors. Featuring a mix of closed- and open-plan offices, collaborative areas, and presentation theaters lined with beanbags, this workspace aims to cultivate innovative and unforeseen collaborations while dismantling traditional barriers between the startup ecosystem and large corporate bodies in South Africa.
Co-founder Kieno Kammies, a well-known Capetonian entrepreneur and local radio personality, shares that the initiative aims to ignite unconventional partnerships, chance encounters, fresh ideas, and connections to venture capital (VC) investors. “Over the last two to three years, we’ve built a brand that is deeply embedded in the innovation landscape. Harvard has visited us, and MIT has come to see our work – we are the first hub on the continent that connects corporations and VCs in this manner.”
Major South African corporations like telecom giant MTN, financial leader Old Mutual, and retailer Shoprite have utilized Innovation City to forge new strategic alliances. “The true magic lies in connecting valuable players who require collaboration to speed up their initiatives, linking smaller enterprises with scaling firms that offer market access, while also connecting corporates with adaptable partnerships that facilitate quicker operations.”
A mixed landscape for tech funding
South Africa’s tech sector is among the most dynamic in Africa, with Cape Town serving as its nucleus. The lifestyle advantages of the area have drawn about 60% of the country’s startup community to launch their businesses in the Cape.
The national outlook appears positive. In 2023, 60 South African startups obtained funding amounting to $512 million, reflecting a rise of approximately 55.4% from the previous year, as reported in Disrupt Africa’s African Tech Startups Funding Report. This funding accounted for 14.8% of the continent’s total for the year.
“As one of the continent’s most developed ecosystems, South Africa has experienced a fruitful year marked by increased late-stage activity, yielding its largest funding pool to date, despite broader economic challenges,” the report emphasizes.
The fintech category led the charge with 12 funded startups; e-health followed with eight; and educational technology had five. The agritech, artificial intelligence, Internet of Things, and energy sectors each contributed four startups.
Despite South Africa’s solid performance, it has encountered difficulties in a challenging global environment, where total funding for African tech startups dropped to $2.4 billion in 2023 from $3.3 billion in 2022.
“There’s no doubt that globally, with everything being so fragmented and numerous parties exploring each option, the liquidity crisis impacts many stakeholders,” Kammies notes.
“We’ve observed that businesses are struggling to secure their second round of funding, as the expectations from certain VCs have intensified, and their willingness to take risks has diminished.”
“However, within this hub, we have access to VCs such as the Norsken22 impact fund for Africa, which has $208 million; Launch Africa VC; and partnerships with organizations like E4E Africa, a Dutch-South African VC, alongside others like Endeavour and Knife Capital.”
Corporates seek startup inspiration
Connecting the nimble startup community with established corporations that have traditionally dominated South Africa’s business scene could be a viable remedy for addressing global funding shortfalls. Kammies indicates that Innovation City attracts corporates that embrace an “innovation mindset” and “wish to look beyond their internal resources.”
“The challenge for many of these corporations lies in their tendency to operate within echo chambers. By relocating their growth and innovation teams to spaces filled with other creatives and innovators from complementary sectors, transformative interactions can occur.”
Some of South Africa’s largest corporations have experimented with in-house “startups” to harness the energy and insights from the innovation ecosystem, and several of these teams have moved to Innovation City.
“We initially connected with Iain Williamson, the CEO of Old Mutual Group… soon after, Old Mutual’s Next176 [which builds, invests in, and collaborates with startups and corporates] became one of our initial tenants. Similarly, we established connections with people at MTN, which led to Ayoba’s presence. Currently, we have two listed companies operating within our space.”
MTN’s Ayoba, a free instant-messaging “superapp,” became a tenant of Innovation City in 2022. Additionally, ShopriteX, the digital innovation hub for the supermarket chain, is a non-tenant member and facilitates events and discussions at the hub.
Encouragement for digital nomad visas
If gaining support from corporate South Africa has been crucial, securing government backing is equally important. Kammies notes that the hub is fortunate to be located in the Western Cape, “which is undeniably the most business-friendly province,” but he suggests that the regional government could adopt a more innovative approach. “I told the premier [of the Western Cape, Alan Winde] that if his innovation personnel spent time in environments like this, it could significantly enhance their decision-making processes.”
The national government, often facing criticism from businesses in the Western Cape, has also stepped up with vital support, according to Kammies.
“While the government frequently encounters criticism, when we sought help to navigate issues related to visas and IDs, they offered resources for us… We’ve fostered relationships with individuals who understand our needs and values, despite some departments remaining unresponsive.”
A primary goal for the startup community is to persuade the government to implement “digital nomad visas” that would allow startup entrepreneurs globally to reside and work in South Africa with minimal bureaucracy. Kammies indicates that the government is making positive strides toward facilitating such visas.
“This process is ongoing: there are dedicated individuals working diligently to make this happen, yet there’s some resistance from the media. I don’t see it as a threat to any creatives or innovators. In reality, enabling skilled individuals to enter our country and fostering connections to transfer those skills to South Africans could yield significant benefits for everyone.”
This type of mobility will further assist South Africa’s tech companies in better connecting with both the continent and the rest of the world, as per Kammies.
“It’s not about ranking South Africa as number one, Kenya as two, and Nigeria as three – it’s about united efforts as Africans to boost skills development across the continent. How do we integrate into a global digital community that builds and exports our solutions to Europe? We face various challenges, but these also present opportunities that, if pursued, could enable us to leapfrog advancements in areas like payments, healthcare, and education.”
