FACED with having to choose where to set up their start-up, the choice was easy for tech entrepreneurs Vincent Maher and Nic Haralambous – Cape Town.
One winter weekend, shortly after the 2010 World Cup, the two left the economic hub of Gauteng and on a pledge of funding from venture capital (VC) investors 4Di Capital, headed to the Mother City to set up. Just over two years later, in October last year, their company Motribe was bought by Mxit for an undisclosed sum.
“It’s a beautiful place, the people are awesome,” raves Maher, who now serves as Mxit’s product strategy and growth manager.
Cape Town has an impressive start-up scene, he says, pointing out that the city has many independent designers and programmers who are prepared to work long hours and make money through equity cuts rather than simply by taking home a salary.
But mention Cape Town and most people think of a laid back city whose residents spend more time on the beach or mountain, than in meetings or at their desks doing serious work.
The city however, is South Africa’s most entrepreneurial and has the most active VC sector in the country.
A long list of entrepreneurs started out here, including Pick n Pay’s Raymond Ackerman, Rembrandt’s Anton Rupert and Mark Shuttleworth who sold his internet business Thawte to VeriSign for $575 million in 1999.
Last year, the 2012 Startup Genome report, compiled by researchers at Stanford University and the University of California, ranked Cape Town as one of the top 40 start-up cities in the world, placing it in the same league as cities like Barcelona, Mumbai and Dublin.
This, while the Global Entrepreneurship Monitor (Gem) puts Cape Town’s level of start-up activity at 65% above that of the average for South Africa – far higher than Johannesburg, at 24% above the national average.
Mike Herrington, professor at the University of Cape Town’s Graduate School of Business who heads up the Gem research, believes what sets the Cape apart from other cities in the country is its top-class universities and its scenic splendor, which makes it an attractive destination for entrepreneurs.
He also believes that the city has far less regulation than the rest of the country, pointing out that things like property rates are processed quicker and that system for processing regulations are more efficient in the city than elsewhere.
The Cape also receives more funding from VCs than either Johannesburg or Pretoria, according to the SA Venture Capital Association’s (Savca) 2012 report on the VC sector.
Businesses in Cape Town and Stellenbosch received 32% of VC funding in 2012, above Johannesburg’s share of 30%. Added to this 57% of fund managers are based in the Cape.
Of recent there have been some major acquisitions from tech start-ups based in the city. In 2011 Visa acquired cellphone banking technology company Fundamo for $110 million.
Added to this up to December last year half of the 68 applications for VC funding from Business Partners’ R400m VC fund, according to the fund’s executive director Gerrie von Biljon, came from the Cape, according to
Von Biljon says most of the funding is for expansion rather than start-up finance, averaging about R3.5m per application.
Keet van Zyl, co-founder of Knife Capital (formerly HBD), says while Gauteng is the place to be for those businesses that service predominantly corporate clients, Cape Town is more focused on creativity.
Van Zyl says because high-growth firms principally target the global market, they can choose to base themselves in Cape Town where they can enjoy the city’s good lifestyle and creativity.
Alex Fraser, manager of tech initiative Silicon Cape, believes the number of high-growth entrepreneurs in the city has been growing in the last 10 years and points to the increasing number of VC deals being concluded.
Silicon Cape, which provides a social networking website and hosts various events, was founded by two South African entrepreneurs, Vinny Lingham and Justin Stanford in 2009.
Fraser describes the initiatives three main aims as helping to create better entrepreneurs, attracting investments into its network of entrepreneurs and helping to create an enabling environment for entrepreneurs.
She says the initiative recently reached 7 000 members – including entrepreneurs and others in the entrepreneurial and IT space.
The 13 members of the executive committee all offer their services voluntarily for two years – something Fraser says “demonstrates the passion” Capetonians have to make something happen in the area of entrepreneurship.
The Western Cape provincial government has even leant its support and last year helped sponsor 11 entrepreneurs from the city to fly to London for a business pitching event.
Silicon Cape is complemented by the Cape IT initiative’s (Citi) Bandwidth Barn. The incubator, which opened its doors in 2000, moved to new and larger premises in Woodstock in August last year and now has 48 tenants, mostly start-ups in the IT sector. It also hosts the as the BlackBerry apps lab, as well as various workshops and networking events for entrepreneurs.
The incubator is now opening an office at UCT to help commercialise intellectual property (IP) at the university.
Chris Vermeulen, manager of the Bandwidth Barn, says that between August and December last year the incubator held over 50 tech events, with 1 293 attendees in all.
In the five years that he has headed up the incubator, Vermeulen says the profile of the average entrepreneur that the incubator supports has changed and it’s no longer just white males that the incubator supports.
Hannes van Rensburg, founder of IT firm Fundamo, believes Cape Town had made a lot of progress in the last decade and that’s there’s now a greater awareness of start-ups in the city.
While he still at Sanlam, Van Rensburg was part of a group that helped set up the Cape IT initiative (CITI) in 1998. He says a culture has emerged of people believing that they have it in them to be entrepreneurs.
However he says while the city produced world-class products and applications, the businesses birthed here remain “amateurish” when compared to the type of firms that come out of Silicon Valley. Entrepreneurs here need to focus more on building good businesses, he says.
In the end Cape Town might have some way to go before it joins the ranks of Silicon Valley or even Tel Aviv or Santiago, Chile, but it already has a firm base on which to grow. It’s now up to city officials, universities and entrepreneurship practitioners to continue to foster a better eco-system in which entrepreneurs with bright ideas can thrive.
This feature originally appeared in the April 2013 issue of Entrepreneur (SA) magazine.
Stephen Timm is a