When will South Africa get its first startup Unicorn?

A new report warns that a billion-dollar startup may take some time.

When most companies talk about EMEA, the African portion of the acronym often just refers to South Africa and not much else.  But how long will South Africa have to wait until it has a home-grown startup worth the magical $1 billion?

African VC funding has been rising at a steady clip over the last few years, hitting a record $366 million last year. However, the only technology Unicorn – a startup with $1 billion or more – in Africa is Nigeria’s African Internet Group startup incubator.

But a new report from Elevation Holdings – a South African-based startup advisory company – on the South African startup scene; Unicorns, Gazelles, and Leapfrogs suggests SA won’t be following suit with its own mega-startup anytime soon.

“The local ecosystem hasn’t produced a startup of that scale, and the trail scent suggests we’re not likely to produce anything north of a $1 billion valuation soon,” writes Elevation’s Director Jason Levin.

“To use startup lingo on the ecosystem itself, we need to scale it more rapidly. And we need to disrupt the status quo, to either do much better in the race or to change it.

Featuring interviews with over 30 founders, investors, and incubator chiefs, the report outlines some of the challenges the SA startup scene faces, including; lack of quality education (especially around entrepreneurialism), too many copycat companies, lack of funding opportunities, and a lack of ambition from startups themselves.

“The current ecosystem seems unable to support one [a Unicorn], and probably not create one either.”

The report says SA has more than enough incubators for startups, but instead needs more skills, more capital, and more of what it calls “Gazelles”; ‘high potential businesses that are ready to scale dramatically’.

At the launch event for the report, Anish Shivdasani, co-founder of mobile recruitment app Giraffe said that South Africa will never be “a unicorn factory”, and instead startups should focus on solving local problems in the region.

“The reason most unicorns are from the USA is because their economy is 60 times the size of ours.”

As well as needing reforms to the education sector, the report warns that much of the talent in the country departs to ‘larger, more advanced and more dynamic’ ecosystems.

It’s not all negative however; the report says the country has ‘the best ecosystem in Sub-Saharan Africa and can hold its own against many emerging market competitors’ because there is no shortage of startups themselves (currently there are between 900-1,700 tech and innovation startups active in Johannesburg and Cape Town) as well as small but maturing scene of incubators and investors.

Companies such as Amazon and Huawei have innovation/R&D centers in the country too. It also points to the region’s historic successes: Thawte – now part of Symantec - was founded in SA; and tech’s global superstar Elon Musk is probably the country’s most famous export.

Ultimately, the report has four recommendations to kick-start South Africa’s startup ecosystem:

  • Turn South Africa into a ‘resource hub’, or ‘a destination for high quality, lower cost skills and resources’
  • Focus social innovation along commercial, but not super-profit, lines
  • Increase access to public investment funds
  • Focus more efforts on a few specific industry verticals such as fintech, healthtech and/or renewables.

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