We’ve been having a lot of discussion within our company on whether it’s possible to raise large scale VC in South Africa for an Internet Startup. Sure, if you have a solid business in SA, which is breakeven or profitable, and looking for international expansion, then you can raise a large amount of VC. But if you’re an Internet company developing a global platform, which needs to use VC money to scale, is it possible to raise the funding in SA?
I can only think of one example of a local company that wasn’t profitable (I don’t think they are?) in the IT space that has raised funding locally in a big way, and that was FireID. However, that wasn’t in the Internet B2C or B2B market.
If we think about all the big international success stories such as facebook, twitter, myspace, foursquare etc, would they have been able to raise their $10 to $100 Million Dollar VC rounds in South Africa if they had been based here? When they raised their Series A, none of them were profitable or close to profitability, and in fact, twitter publicly stated they had no plans to monetize anytime soon.
So the question we keep asking ourselves, is: “Do we need the face of the company to be where the money is?” if we’re building a global internet business, and require large amounts of VC to scale quickly and efficiently, or can it be raised from the SA VC space? If Twitter had been South African based, when they raised their Series A, would they have been able to raise the money from a South African based Venture Capital company? If not the full amount, would they have been able to raise a substantial sum still? Are their any South African Internet B2C or B2B companies that have raised R50 Million plus for a Series A round from a South African VC? (I know about ChessCube and AdDynamo, but their rounds were more like R10M rather than R50M)
I was reading up on Silicon Valley yesterday and was surprised - in my mind I thought of it as a smallish town - the reality is that 4.4 MILLION people live their. It’s a pretty big place! The Yola guys decided they needed the front face of the company in Silicon Valley. In a year or 2, we’ll know whether we need to be neighbours with Vinny and his team to achieve our dreams!
11 responses so far ↓
1 Sheraan Amod // Mar 17, 2010 at 12:41 pm
You raise a great point Eric. Frankly, I wonder about exactly the same thing.
With the SA funding environment being what it is, we need to get profitable faster and with much less funding than our counterparts in startup hubs.
2 Rob // Mar 17, 2010 at 1:08 pm
I visited Vinny earlier this year on a trip to the Valley, and having seen the context/people/environment that startups operate in there, was hit with reality. The ecosystem works there and startups will thrive if funded. However, ideas are a dime a dozen and clever people live on every street corner, so getting noticed is a lot harder.
I think there is an opportunity to raise R 1-20 million in SA right now if you play your cards right as the pool of well executed ideas and clever people is relatively small. If you need a home run you really need to visit San Francisco to see it for yourself.
On that note, Pete Flynn is there right now trying to gain traction for Professionl.com
3 Eric // Mar 17, 2010 at 1:16 pm
Thanks for the comments @Sheraan @Rob
What’s the most Internet Startup’s in SA have raised? Anyone know? And not the providers such as C2C. Actually internet business’s - applications, apps, retail etc…
Is ChessCube.com, AdDynamo and Fashion Evolution (the holding company for springleap.com and other brands) the only ones that have raised R4M+? (keeping in mind that FE raised from Angel, so the only 2 VC’s investments I can think of are ChessCube and AdDynamo, but there must be others!)
4 Eric // Mar 17, 2010 at 1:17 pm
ps: love the one ad that shows up on this page from adsense:
“Venture Capital Directory
Comprehensive directory of all active U.S. venture capital firms.”
Kinda sums it up, doesn’t it - want VC cash for an Internet Startup, leave!
5 Darren // Mar 17, 2010 at 4:22 pm
Good question Eric. I’d like to believe that you can do it from here, but chances are it’s difficult from anywhere except the valley.
I say this because there are a number of big cities globally trying to be like silicon valley but none have got it right.
Chris Dixon often writes about NY, trying to build it up as a good place to go - he has a good post on it -> “It’s not about east coast vs west coasts, its about making more places like the valley”. The fact that an experienced person in the US has to write that says how special the valley is. So that’s clearly first prize.
I think SA needs some more success stories before we see more high-dollar [Rand] investments here - unfortunately people only believe once they see it. Hopefully the ones you mention can be that. I’m also working on something I hope will do that.
So short-term I agree, that’s where the money is. But in about 5 years, if we have some big successes [and I believe we will], R4m will seem like a drop in the ocean.
Lastly, I agree with what Sheraan says - but the positive aspect is it forces a different kind of innovation and focus on business model that the guys who get big money might miss out on.
6 Dave Higgs // Mar 17, 2010 at 7:25 pm
Was n’t Paypal a South African success story?
What about Mark Shuttleworth?
I think clearly SA has the talent, but the VC guys want more than their pound of flesh.
Ever thought of asking Malema?
7 Sheraan Amod // Mar 18, 2010 at 3:03 pm
How much has Zoopy raised from Vodacom Ventures?
HP-Ventures also invested in Knowledge Tree, which has a Web based document management solution among other products.
8 sonic oyunlari // Mar 29, 2010 at 6:29 pm
I think SA needs some more success stories before we see more high-dollar [Rand] investments here - unfortunately people only believe once they see it. Hopefully the ones you mention can be that
9 Haseel // Apr 26, 2010 at 2:58 pm
dont worry guys; just think up the idea and execute. thats all there is too it; if its unique enough and you have some edge. it will all work out. look at gwallet.com and othersites started in the us. there is huge potential in SA….. we are a growing economy and internet market
10 Marc Ashton // Apr 28, 2010 at 3:40 pm
Being the cynic that I am…
R50m+ for an SA start-up… round 1 financing…. my first instinct is that would be a waste of money.
We are so infatuated with this idea that we need big money start-ups. It irritates the hell out of me that people keep using Twitter or Facebook as examples / justification for wanting big money investments.
We don’t need anymore of this social media stuff and I suspect FourSquare will prove this. Just my humble opinion
11 Vince Mabuza // May 4, 2010 at 1:23 pm
Marc i have to agree.People in SA are of the view that big money is required to start a start-up from ground up. We fail to see that Facebook.Napster all had the concepts working before the money came. so i think we should just focus on creating a product from the little money we have and if needs be use our garages for office space and if the product does serve a need then the money will follow. example Mark Shuttleworth.
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