An aerial photo of the Facebook campus in Menlo Park, California. SA can learn much from the US in the way it finances start-up companies, the writer says. Picture. REUTERS/NOAH BERGER
An aerial photo of the Facebook campus in Menlo Park, California. SA can learn much from the US in the way it finances start-up companies, the writer says. Picture. REUTERS/NOAH BERGER

I ACCOMPANIED a delegation that included some of SA’s most innovative and cutting-edge technology entrepreneurs on a trip, organised by Investec and En-novate, to San Francisco and Silicon Valley in May.

It was a paradigm shift meeting with Roelof Botha, the legendary South African-born venture capitalist at Sequoia; Bill Draper, the godfather of venture capital on the West Coast; Vinny Lingham of Dragons’ Den and Gyft; and other brilliant individuals on the entrepreneurial and support sides of the ecosystem.

For many local tech entrepreneurs and hopefuls, Silicon Valley is an enigma. In SA, exposure to the start-up ecosystem it incubates is limited to news from popular websites, and the front-end intellectual spill-over we receive in the form of products and services that we use every day — from WhatsApp to Nvidia cards in computers to the electric Tesla car.

Aside from a small cohort of fast-moving and dynamic multinational entrepreneurs and companies that import some of the latest and greatest Silicon Valley has to offer, South Africans are largely detached from it and much of the magic is lost. How did Instagram, with only 13 employees at the time it was acquired, find its way to a $1bn acquisition in less than two years? What kind of environment enabled Airbnb to hack their way to millions of users and a multibillion-dollar valuation using, among other tactics, a rented camera and craigslist?

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QUESTIONS  such as these have given the Bay Area an almost mystic reputation as a place you cannot understand unless you are plugged into its ecosystem.

In the minds of many, Silicon Valley represents an idea rather than a place — a notional "Disneyland" of tech, perpetuated by TV shows and success stories we do not understand beyond the new downloads available in the app store; a place in which people with a vision and many pizza-fed late-night hackathons create a business on par with the cutting edge of human innovation (and wealth).

Spread out and laced with greenery, very little in the Bay Area betrays the hotbed of innovation that it is, other than the odd Google self-driving car gliding past or the speed with which an Uber arrives.

San Francisco’s energy, its intellectual presence and the focus of many of its occupants on accelerating human progress is juxtaposed with areas of poverty and a huge number of homeless people roaming the streets. Aside from the more formal parts of the financial district, perhaps most surprising is the culture of the Bay Area.

Travelling to an area where, according to friends at investment firm Charles Schwab, you need $6m to be considered wealthy and $1m to be comfortable, I expected a flurry of supercars, sharp suits and flashy offices.

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NOT so. Whether you are in a fancy restaurant (Dress code? What’s that?) or the multistorey headquarters of a cutting-edge company in central San Francisco, expect the standard uniform of T-shirt, jeans and trainers among the majority.

Collared shirts, without ties, and suits are reserved for the Bay’s high-powered venture capitalists, attorneys and finance professionals. The lack of formality speaks to the social culture among the tech ecosystem in the Bay Area, and the lesson extends to more significant territory than the way people dress. Regardless of background, style or pedigree, your access to the best minds, the best advice and much-needed funds rests on your merit.

Business in the Bay Area does not rely on a social class division beyond perhaps the outlier credibility that being a Stanford alumni can give you, and most of the environment goes against what is expected.

Billion-dollar companies are housed within headquarters not nearly as flashy as those in Sandton. Founders of companies worth the gross domestic product of a small country live in houses that SA’s elite would not miss.

In the words of SA’s own Vinny Lingham, once you have money on a life-changing scale, money is no longer a scorecard and your focus is on building something of value. The elite of Silicon Valley have taken this philosophy to heart and it has filtered down to the innumerable would-be entrepreneurs that migrate to the Bay each year.

Most of them come in search of a place in which their vision is unrestricted by the sleekness of their boardrooms, and where what is considered "rich" cannot be showcased by a watch or a car. In that environment, it is merit that counts.

Silicon Valley functions on reciprocal meritocracy: The idea that each member of its ecosystem has a willingness and a duty to assist others with their visions and ventures, based on their merits, without the immediate expectation or demand for reward or compensation.

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LIKE  cyclists drafting in a peloton, members of the Bay ecosystem accelerate one another. They are interested in other people’s ideas and will catalyse their success through their networks and their insights. Just be authentic, because in the Bay as much as anywhere, your word is your bond and you are playing in the most interconnected space on the planet.

Every fibre of Silicon Valley is deliberately focused towards discovering the ideas and teams worthy of success, and backing those teams and moving them through trial-by-fire growth faster than anywhere else on the planet.

There are intellectual property attorneys in Silicon Valley who will defer legal fees until the first funding round, in return for a small percentage of a super-risky start-up. There are banks that will watch over entrepreneurs from seed stage, assist them in networking with funders and customise their offerings whether they are dealing with a one-man dropout in a dorm room or the next big thing.

There are co-working spaces accessible to lone founders and established teams, filled to the brim with the best facilities and satellite offices for every service a fledgling company might need. Everyone has an idea or an app. Everyone is looking to be part of the scene.

No one is comfortable, and the result is a highly concentrated hub of intellect, skills and hunger mixing together in a hi-tech primordial soup out of which the cells of innovation emerge.

SA has come a long way in supporting tech entrepreneurs — because of networking initiatives such as En-novate and corporate-backed incubators such as RMB’s AlphaCode, the tight-knit angel investor community and a new generation of tech-savvy funders, we are on our way.

However, we are still far away. Regulation, the obstacles to doing business, the government’s relative apathy towards the cutting-edge, relatively shallow and narrow funder pockets for seed-stage ventures and the simple lack of scale within our ecosystem present an environment that truly distinguishes the South African context as a sink-or-swim prospect.

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Business failure is generally frowned upon in SA. If you fail, it is assumed that some shortfall in your execution or work ethic led to it. Perhaps you never worked hard enough, did not employ the right people, or were too conservative or too cavalier. Perhaps you were not realistic in your ideas or approach, or simply could not implement. If you have been successful in your previous endeavours, the doors open — but how many entrepreneurs have this foundation? Most domestic funders and investors are extremely risk-averse relative to those in Silicon Valley, not least because many do not understand tech and would prefer to stay within industries they do understand such as manufacturing, finance or distribution.

South African entrepreneurs do not have the breathing room to fail because, while Bay Area investors can afford to spread multimillion-dollar bets across their filtered cohort of start-ups, South African funds might have only enough capital to back a small number of high-likelihood winner-take-all enterprises.

Bay Area start-ups are mostly not interested in making immediate profits. Instead, their objectives lie in failing quickly and failing hard until they prove their concept, whereafter they become hell-bent on pouring in money to acquire users as quickly as possible as they move through successive funding rounds to (hopefully) securing an acquisition for their user-bases, distribution channels, teams or intellectual property, or an initial public offering.

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MOST local entrepreneurs do not have that freedom. They are largely starved of funding until they are "monetised" and a "safer bet", and lack the easily accessible fast-track networks of the Bay Area.

Besides the few invaluable initiatives such as En-novate, domestic entrepreneurs use their skills to bootstrap their start-ups on a shoestring, leading to more organic but less astronomic growth.

There is no safety net, and failure is often one bad decision away.

Many of us are, therefore, fearful of failure, and the lesson from Silicon Valley is to embrace past failures and pivot them into new enterprises that reflect what has been learned. We need to realise that failure is a stepping-stone to success — an outcome reflecting the wrong time, the wrong place or the wrong ingredients — and is in most cases not a stricture of our abilities or potential.

This trip taught me that South Africans are good enough to compete at the highest levels of tech and entrepreneurship. The delegation I travelled with permeated talent and potential to the extent that I felt it a privilege to meet them.

South Africa is a nation of many cultures and many backgrounds, blessed with an entrepreneurial spirit passed down through generations and a "can-do" attitude that we maintain in the face of often tumultuous conditions.

Our counterparts in Silicon Valley are not smarter than us, nor are they more hardworking. They have simply learned to leverage their abilities and potential in an environment that readily absorbs them and has evolved its ability to mix the water of entrepreneurship and the oil of convention without leaving a clear divide.

• Shomalistos is the managing partner and a co-founder of STS

 

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