RUFARO MAFINYANI: Chasing unicorns in the rainbow nation

In the dynamic arena of SA’s start-up ecosystem, a discerning eye seeks not only innovation but also resilience amid myriad challenges stemming from geopolitical shifts, Eskom’s electricity supply dilemmas and the ripple effects of rising interest rates and inflation on consumer spending power. As investors navigate this intricate landscape the pursuit of unicorns — start-ups valued at over $1bn — is not merely an aspiration but a strategic imperative.

The rule 28 regulation, particularly pertinent to the SA pension fund sector, serves as a catalyst for exploring potential investment opportunities in this complex environment. This article takes a deep dive into the SA start-up landscape of 2024, offering a comprehensive guide to identifying potential unicorns while considering the evolving investment landscape and bespoke risk management strategies.

Think of Google’s Android ecosystem: impenetrable, with apps, phones and services all woven into a cohesive tapestry. SA start-ups such as Yoco, the fintech giant powering small businesses, display this monopolistic charm. Its seamless payment solutions become so deeply embedded in daily transactions that rivals find it near impossible to break in.

Social media platforms such as Facebook are prime examples of the network effect. Each new user adds value to the existing network, drawing in more, like bees to a blooming flower. Imagine a start-up revolutionising healthcare through a telemedicine platform. As doctor availability increases more patients join, further enriching the pool of expertise — a virtuous cycle fuelling growth.

Uber’s success hinges on a fundamental human need: getting from point A to B. This “derived demand” is nonexhaustive — no matter how many Ubers ply the streets, our need for rides won’t vanish. Look for SA start-ups such as SweepSouth, the cleaning app, tapping into similar universal desires for convenience and time freedom.

Imagine a software platform so versatile that it empowers other businesses to build on it. Think Google Maps, powering countless third-party apps.

Imagine a fibreoptic network: once laid, its fixed costs are constant, while data usage and revenue soar. This “increasing margin” phenomenon signals long-term profitability. SA start-ups such as Rain, with its disruptive fixed-wireless broadband, embody this potential, promising ever-cheaper data as their network expands.

Think WhatsApp — no bells and whistles, just pure, efficient communication. SA fintech start-up Ozow, with its one-click payment buttons, embodies this KISS (keep it simple, stupid) principle. The more intuitive and streamlined the user experience, the greater the unicorn potential.

Facebook emerged after the social media dust had settled, learning from the missteps of MySpace and Friendster. This “second-mover advantage” lets start-ups build on existing successes, avoiding early pitfalls. SweepSouth entered a well-established on-demand cleaning market with refined models and targeted expansion strategies.

Airbnb didn’t just redefine vacation rentals, it reshaped the travel landscape. This “disruption aspect” requires visionary founders who can spot and exploit nascent opportunities. SA start-ups such as Mama Money, which provide micro-loans through chatbots, offer a glimpse into this transformative potential, challenging traditional financial models.

The future’s blueprint lies not in shiny tech or buzzwords, but in the hands of the dreamers at the helm. Look for alchemists, not trend followers. These are the minds that can weave gold from unlikely threads, like a Cape Town gogo turning leftover mealiepap into fluffy amasi pancakes. Or a Silicon Valley innovator crafting a viral app from salvaged phone parts.

These future shapers wield the magic of transformation — the Substitute, Combine, Adapt, Modify/Magnify, Purpose, Eliminate/Minimise and Rearrange/Reverse (SCAMPER) touch. They substitute plastic waste with bio-brick walls in Johannesburg, combine ancient sangoma wisdom with AI-powered healthcare in Kenya, and adapt forgotten farming techniques to nourish drought-stricken Malawi.

They magnify local street art into global murals, minify complex legal jargon into bite-sized animations, and put a new spin on traditional crafts such as Zulu beadwork for high fashion runways. They eliminate unnecessary middlemen to empower rural artisans, and reverse the script on outdated hierarchies, building teams where diversity sparks the brightest ideas.

The future isn’t prewritten. It’s a canvas waiting for the brushstrokes of visionary founders. Seek the alchemists, the ubuntu architects, and watch them transform the ordinary into extraordinary, just like those amasi pancakes rising from humble beginnings.

Investors must address nuanced risk factors, especially the interconnectedness of investee companies. One company serving as a supplier or major buyer introduces complexities that demand a tailored risk management approach. Here are two low-cost techniques to promote synergy and risk mitigation:

• Shared service hubs: centralise key functions such as HR, accounting or legal for multiple investee companies, streamlining operations and fostering collaboration. By pooling resources, start-ups benefit from economies of scale and expert services, lowering individual company vulnerability and creating a sense of community.
• Data synergy labs: establish a central data hub accessible to relevant investee companies, facilitating cross-pollination of data for new market opportunities and improved products. Imagine SweepSouth analysing cleaning patterns alongside Mama Money’s microloan data or Yoco using Rain’s network coverage to expand its fintech reach, leading to potential innovations.

As SA investors navigate the complexities of the economic landscape, the identification of true unicorns becomes not just an investment strategy but a prudent necessity.

• Mafinyani is risk advisory & financial modelling partner at Decentralized Secured Finance, a specialised financial technology & risk advisory firm operating in the Sub-Saharan region.