INVESTING IN TECHNOLOGY ENTREPRENEURS: A REALITY CHECK

LAGOS (Capital Markets in Africa) – South Africa’s entrepreneurial activity is at its highest level since 2013, the global entrepreneurship monitor’s (GEM) latest report for South Africa 2017/2018 has revealed. Total early-stage entrepreneurial activity (TEA) in South Africa is at 11.0%, 4.1 percentage points higher compared to 2016’s score of 6.9%. This is the measure of all adults in the population that are involved in early stage entrepreneurship. However, this is far from demonstrating a sound platform for investors in burgeoning entrepreneurs. According to the Real State of Entrepreneurship Survey 2017 by Seed Academy, 37% of businesses have no full-time employees and 51% of business employ between one and four people. The report stated that, of the businesses that are post revenue, 22% of entrepreneurs have revenue of less than R10,000 per year and most post revenue entrepreneurs (26%) have revenue between R50 – R100,000 per year and only 5% have a turnover of greater than R5 million.

Technology entrepreneurship is a small sub-sector of the total entrepreneurial landscape and here as well, only about a 25% of the companies have more than R2m of annual turnover. With technology as the global driving force for innovation and growth, the attention of investors and government alike is on the 25% of technology companies that have survived the initial start-up phase and are now in the various stages of scaling the business. Following international venture capital (VC) investment trends, the top technology companies to invest in should be working on technologies such as: Machine Learning and Artificial Intelligence (AI), Quantum Computing (Supercomputing), Augmented Reality (AR) and Virtual Reality (VR), Global Internet of Things (IoT) security breach, Blockchain technology and applying these to all verticals from food to health, education, finance, manufacturing and government. There is actually no vertical that in the medium term will be unaffected by these technologies. In the US, Europe and countries like Israel, even young companies focusing on these technologies are achieving Unicorn valuations and both IPOs and M&As are providing investors with lucrative exit environments. So, where does that leave us in South Africa?

An extract from the INTO AFRICA April 2019 Edition: Envision Africa’s Digital Revolution. The article is written by Andrea Bohmert (Co-Managing Partner, Knife Capital South Africa) and to read the full article, please download by clicking: INTO AFRICA PUBLICATION: APRIL 2019 EDITION.