We often talk about how being entrepreneurs is a hardcore experience. We consider ourselves risk takers and we take pride in going against the grain. We brag about our long hours, our travels and the hardships that we endure to climb the mountain of success.
The reality is that in North America, we live in a society where being an entrepreneur is a relatively safe experience. We have government programs that offer us financial support. We have family and friends, incubators and accelerators, and angel networks that are willing to educate us and fund our projects. There are also venture capitalists that fall over themselves to invest in our company if we start to show traction.
These investors are also willing to make us independently wealthy in secondary financings so that we can focus on the real prize of hitting the ball out of the park. On the other side of the world these resources are either non-existent or scarce at best.
I just spent a week in South Africa with Mike Edwards and Gary Boddington searching for potential investments for both GrowLab and LX Ventures. What we found were smart, focused, serious and ambitious entrepreneurs. Entrepreneurs who are operating in a world where the only people that they can rely on are themselves because the notion of a government grant or an organized group of people willing to take capital risk is very difficult.
But first, a little history: South Africa was known as the country of Apartheid from 1948 to 1994. Apartheid is a system of total race separation and prosecution of the “coloured” race. The system divided South Africa between the white minority who were educated, healthy, wealthy and well represented in the political arena, and the coloured majority who were illiterate, living in poverty and dying of hunger and preventable diseases.
As many people know, the most incredible part of this revolting history is how Nelson Mandela, despite his decades of imprisonment, pushed the country to free elections and became the face of race reconciliation and rebirth. It has been almost 20 years since this rebirth and as much as we would like to hope for a complete recovery, the reality is a little bit starker.
South Africa has some serious problems. Crime is a major challenge; education and healthcare are still works in progress. In other words, South African government has to deal with major developing-world issues and can be forgiven for not allocating as much money as first-world countries to technology grants and subsidies.
This is where it gets really interesting for me. In the face of this adversity, South Africa has an interesting startup culture. A place like Bandwidth Barn in Cape Town is a great example. Bandwidth Barn is an open, artsy building in the middle of a slowly gentrifying neighbourhood. It has two world-class coffee shops and houses over 50 technology companies doing some interesting things. Some of these companies, if they were in North America, would be on the front page of TechVibes or TechCrunch announcing financings and big partnerships. They would be winning pitch competitions and scoring angel investments.
Instead, these entrepreneurs are putting their heads down and growing their customer base. They need to sell their products, get revenue and make profit margin. They have to ensure their customers are happy in order to survive. This is not a nice-to-have; it is a matter of life and death of a company. With no safety net in place, these companies must operate in a different way.
The downside to the dearth of safety net is the fact that these companies are not willing to take as many chances and consequently they are growing at a slower rate than their North American counterparts. The world of risk capital is stunningly absent. Venture capitalists in South Africa are more like the North American version of private equity: They lend when you are banging out a nice profit margin, or if you have tangible assets that can be used as collateral for their loan. This is neither the best nor the fastest way to create breakout companies, but it is the only way when no one is willing to take risks.
As an entrepreneur in North America, I never thought of taking risks as a luxury. We talk about failing fast all the time. We celebrate pivots and applaud the “swinging for the fences” approach to business. The reality is that we have an amazing safety net and ecosystem that allow us to take these risks. Compared to South Africa, it is relatively easy for us to look and act hard-core.
Take a moment and imagine that from this day forward all of your SRED, IRAP and WD grants are gone. Also imagine that all of your friend and family money is gone and there are no angel networks in your country, and the notion of VC simply doesn’t exist. What would you do? Would you believe in your idea enough to keep going? Would you still want to be an entrepreneur so badly under those conditions?
I ask these questions because I just met over 50 companies in South Africa that are doing just that. This is inspiring for me. On the one hand, it makes me think more about how blessed we are to live and work in North America. On the other hand, it also makes me think that we better put our heads down and start to work our asses off. We should stop focusing on what we do not have and focus more on what we do have.
This experience gets me very excited about being an entrepreneur. It is truly a worldwide movement that celebrates creativity, vision and execution. I want to invest in countries like South Africa. I want to invest in people whom I believe are true embodiment of inspiring and hard-core entrepreneurs.
In the next five years, countries like South Africa are going to have breakout companies, and as Mike Edwards often says, these breakouts will create exciting stories that will be told and re-told. I believe these success stories will incentivize angel investors to write the first cheque and make venture capitalists more willing to take risks.
This is how you build a strong startup ecosystem and I want to be in on the ground floor.