South Africa eyes further gains

It was South Africa’s risk-taking culture that temped California-born Joshua Romisher into the hotseat at LaunchLab, the incubator for Stellenbosch University. All across Africa’s rainbow nation, entrepreneurs striving to make ends meet remind him of California’s go-big-or-go-home psyche.
“LaunchLab has done some great work but I thought it was ready for the next level of what I think it can do, so we have spent the last couple of months rebuilding the product, and rebuilding some of our platform,” says Romisher, who was appointed chief executive in February 2020.
The newly-revamped LaunchLab, expected to debut on September 1 – spring in the southern hemisphere – reflects Stellenbosch’s heightened ambition, and the tangible excitement around tech transfer nationally.
Things moved into another gear early this year with the debut of South Africa’s R230m ($13.9m) University Technology Fund (UTF).
The UTF is anchored by the $72m public-private fund-of-funds partnership SA SME Fund, which aligns industry in a bid to expand South Africa’s venture landscape, now established as a focal point for the surrounding region.
According to trade body South African Venture Capital Association, the country generated more than R1.5bn ($107m) across 181 deals in 2018, up from about $70m year-on-year.
South African entrepreneurs have a commitment to and deep knowledge of their target sectors, but are seeking expertise in scaling up their businesses, according to Fabian Whate, head of Naspers Foundry, the early-stage, domestic-focused investment arm of South Africa-headquartered internet group Naspers.
Naspers Foundry is well placed to assist local startups, adding value through the expertise and global network of its wider group.
Whate said: “The founders bring very deep expertise in their sector, not only in their technology but also sector-wide. They have spent a number of years in their industry and have spotted an opportunity to disrupt and innovate.
“They also demonstrate a significant amount of tenacity given the high personal costs to each founder of going into business – for instance the opportunity cost in lost salary – with many having put all or most of their savings into their new venture.”

Tech transfer in the rainbow nation

Building more quality spinouts to leverage the country’s knowledge capacity would provide greater depth for investors.
Tech transfer in South Africa only really got started in 2010, when it gained its equivalent of the US Bayh-Dole Act – the Intellectual Property Rights from Publicly Funded Research and Development Act.
What is so impressive is how universities have progressed, despite relatively tight finances and given that South Africa’s framework is 30 years younger than Bayh-Dole. Only a few had TTOs before it was promulgated, now all 26 universities have entered the fray. Fourteen years on, Stellenbosch University has a solid portfolio of more than 20 spinouts.
Anita Nel, chief executive of Innovus, the tech transfer office of Stellenbosch University, said: “The act meant all universities had to have a tech transfer office, because when I joined you could fit all the tech transfer employees in South Africa into a single room. Now all universities have TTOs, and it is a fast-growing profession.”

Above: Anita Nel, Innovus
Convincing researchers to entrust their inventions was difficult as many remained deeply sceptical of commercial motives. But Nel and the rest of South African innovation have worked tirelessly to transform that perception.
Before the UTF, the TTO was limited to its allocation of a small seed fund from the government-owned Technology Innovation Agency, and received just R18m ($1.1m) over six years.
Incredibly, Nel revealed Innovus has managed to generate 42 projects from its share, 10 of which became spinouts. Nevertheless, greater firepower was needed.
“The government’s seed fund calls got less and it was clear that we could no longer rely only on this fund to develop early-stage technologies into commercial products,” Nel said. “So, I think the next hurdle was to come up with a model for such a fund that worked for South Africa.”
Aligning its approach with University of Cape Town, Innovus opted to reserve small amounts of discretionary funding to invest at the very outset of projects to gain greater insight and flexibility in follow-on support. Nel added: “With that funding we are able to now collect a solid pipeline of projects for a VC-type fund.”

Laying the foundations

In the meantime, Innovus has also laid the foundations of its innovation ecosystem.
In Stellenbosch-based LaunchLab, spinouts have an incubator that has for the past two years been crowned the finest in African academia by research and advisory firm UBI Global. Spinouts to have joined recently include BioCode, developers of a nanosensor capable of detecting inflammatory biomarkers from blood samples.
Good coaching is critical as South African entrepreneurs face an uphill battle in accessing early-stage capital, and few have the finances to park their careers. Romisher noted the funding gap typically ranged from R500,000 to R1.5m ($29,500 to $900,000).
“That investment ticket size does not exist in our context,” he added.
The UTF has been tailored to these circumstances, with separate “pockets” for pre-seed, seed, series seed and series A deals. The structure made it harder to secure a fund manager, although Nel stated that Ketso Gordhan, the chief executive of the SA SME Fund, immediately understood the need.  Stellenbosch University and University of Cape Town will co-invest with the fund, both acting as its founding university partners.
UTF is one of several early-stage vehicles leveraging SA SME Fund to set the stage for the next wave of local startups, an exciting chapter in the country’s venturing story.
Naspers Foundry recently co-invested with SA SME Fund-backed vehicles in artificial intelligence-based agritech software developer Aerobotics. The latter is a role model for South Africa’s ability to create internationally scalable business models, given its product has launched in both the US and Europe.
Whate declared: “I am extremely encouraged by the quality of opportunities we are seeing. We have an extremely full pipeline at the moment, and we are being kept very busy looking at all the opportunities.
“South Africa is a great testing ground for innovation, with its increasingly digital consumer, incredible tech talent, and refreshingly reasonable labour costs compared with the UK or US west coast.
“Also, there are a number of large sectors in South Africa that we see as ripe for disruption because technology has not yet been used to evolve them.”

South Africa’s opportunity

LaunchLab has gone after this opportunity by limiting its remit to what it regards as the most lucrative sectors: climate tech, agtech, engineering, data science and biomedicine. Partnerships have been shelved with the likes of carmaker Mercedez-Benz and financial services group Nedbank in a bid to break new ground.
“I would say our hope is to open back up the world and say this is LaunchLab 2.0,” Romisher remarked. “The first five years were incredible and a great foundation, and now we are becoming a bit more focused on the verticals and kinds of companies we want to build, and doing more work with Stellenbosch University.”
One hurdle that must still be overcome is finding success stories for the latest group of innovators to learn from, given that the country’s startup ecosystem is still in its infancy, according to Brandon Paschal, director of innovation at LaunchLab, who has been the champion for participating founders since 2015.

Above: Brandon Paschal, LaunchLab
But that could be set to change as the benefits of the last South African venturing cycle begin to emerge.  A massive exit came in 2019, when edtech business GetSmarter was acquired for $103m by online university degree portal 2U. Already, its talent is back in the ecosystem helping to scale up new businesses, Whate said.
Whate added: “The early winners are attracting more capital into the sector and encouraging new entrepreneurs. The founders of GetSmarter are now involved with another venture, reinvesting their exit capital and providing scale-up expertise. I have seen other employees involved with early-stage startups in our deal pipeline.”
Stellenbosch and its peers hope the momentum will convince more South African graduates to nurture their talent without heading overseas. Backed by the UTF and with exits to aspire to, the ambition is for more to form spinouts domestically.
South Africa’s net migration rate may be dropping – it fell to 727,000 in 2017 from around 920,000 five years previously, according to the United Nations – but Nel conceded too many skilled workers still emigrated.
Nel concluded: “We want to give that opportunity to our youth as an alternative to pursuing opportunities abroad. You can always go at some point, but at least give it a chance here, stay a little while longer and try starting a company.”