The Biggest Problems Facing South Africa’s Tech Entrepreneurs Right Now

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Despite the hype around entrepreneurship and trendy startup tech businesses in South Africa, there are myths that muddy the thinking around challenges. Many freelancers and entrepreneurs prefer using co-working spaces. Photo – Andela

Despite the ongoing hype around entrepreneurship and trendy startup tech businesses in South Africa, there are prevailing myths that muddy the thinking around the existing challenges and opportunities.

Dominique Collett, a senior investment executive at Rand Merchant Investments and the head of AlphaCode, says that there are several factors that are currently inhibiting local entrepreneurship in the tech environment.

She outlined the big issues below.

Story from BusinessTech.

An immature ecosystem

When discussing local entrepreneurship, it is important to make the distinction upfront between what I term ‘survivalist’ entrepreneurs (like someone who sells vegetables on the streets) who operate in the informal sector, and entrepreneurs who operate in the formal sector (an aspiring entrepreneur forming a business with the view to growing and potentially exiting).

In South Africa, informal entrepreneurship is both very strong and also very mature – yet the formal side of entrepreneurship is very immature.

So, while we do have a distinct culture of innovation, much more work needs to be done to allow the formal aspect of local entrepreneurship to mature and ultimately compete with developed markets such as the US, Israel and the UK.

Calling on the angels

A major part of this current equation and the lack of maturity can be traced back to the lack of angel or seed funding.

This is the startup capital that is needed to give entrepreneurs time to develop their idea and build. This applies to every sector of business creation not only tech.

There is a lot of funding available for business creation, but critically, this is mostly late-stage funding in the form of venture capital and growth financing. In South Africa, we need much more angel funding to give young entrepreneurs a real chance at developing their ideas.

The lack of angel funding is especially acute for entrepreneurs from previously disadvantaged backgrounds.

In most cases, they cannot turn to friends and family for startup capital. Yet in the US and UK, there is an abundance of angel funding – as well as a mindset of ‘paying it forward’.

In these markets, successful entrepreneurs make a point of investing into startups to support aspiring entrepreneurs, while South Africa lags not only in the number of highly successful entrepreneurs but also in terms of giving back and supporting local entrepreneurship.

In comparison to the US and UK, we also don’t have a sophisticated retail investor base.

This means that individuals are highly unlikely to invest their cash into promising startups.

A risk-averse nation

In addition to the lack of angel funding, South Africans tend to have a risk-averse mindset when it comes to their careers.

Particularly among young people from previously disadvantaged backgrounds, there is a tendency to take the safe route of a corporate role upon graduating from university.

This approach is encouraged by parents and elders, who generally see entrepreneurship as too risky.

In contrast, developed markets such as the US and UK tend to celebrate and encourage entrepreneurial ventures. We need to change the conversation around entrepreneurship in SA and make it more of an attractive and respected pathway for young people.

Read more at BusinessTech.